Document:

Exhibit 10.6

                           EXTENDED OPTION TO PURCHASE
                           ---------------------------

     THIS EXTENDED  OPTION TO PURCHASE (this  "Agreement")  is made and entered,
into this 17th day of October,  2002 by and between Legend Operating,  LLC, 2611
Cedar Springs,  Suite 201,  Dallas, Texas  75201,  (referred to as "Seller") and
Texas Border Gas Company, 2606 State Street, Dallas, Texas 75204 ("Buyer").

     Whereas,  Buyer has made an offer to Seller to acquire the  Property  which
Seller has accepted  subject to Buyers  conducting it's Due Diligence and Seller
has agreed to grant (and  Seller did grant to Buyer on May 20,  2002 an Original
Option to Purchase  ("Original Option to Purchase") and Seller did timely extend
said Original  Option to Purchase  (prior to its  expiration  date of August 19,
2002) to October 19, 2002  ("Extended  Option to Purchase") and Seller and Buyer
Amended the Original  Purchase Price and Seller does hereby ratify  and reaffirm
said Option[s],  Amendment[s], and Extension[s]) to Buyer and extends and grants
Seller an Option To Purchase a working  interest in the Property under the terms
set forth herein:

     Now,  Therefore,  in consideration of the mutual promises set forth herein,
the parties hereby agree as follows:

                                    ARTICLE 1
                                PURCHASE AND SALE
                                -----------------

     1.1  Option to Purchase:  Option to Purchase and  Extension  and  Amendment
          ------------------
thereof.  Seller granted to Buyer an Option to Purchase the Property  ("Original
Option to  Purchase")  on May 20,  2002 and on or before the  expiration  of the
Original Option to Purchase,  Seller and Buyer did amend and reduce the Original
Optioned Purchase Price ("the Amended Purchase Price") which Original Option and
Amendment  was  timely  extended  to  October  19,  2002  ("Extended  Option  to
Purchase") and the Extension  thereof and the Amended Option to Purchase expires
if not  exercised  on or before  October 19, 2002  pursuant to its terms and the
Seller and Buyer hereby ratify and affirm the Original  Option to Purchase,  the
subsequent  Amendment of Purchase  Price and the Extended  Option to Purchase in
all things and by this document Seller and Buyer further extend, once again, the
Option to Purchase subject to the conditions contained below.

     1.2  Property:  Subject  to  the  terms,  conditions,   reservations,   and
          --------
exceptions  specified  in this  Agreement  and  Buyer's  exercise of the Option,
Seller shall sell and Purchaser shall purchase, as of the Effective Time, all of
Seller's right,  title and interest in and to the following  assets described as
the Undrilled and  Non-Productive  Oil and Gas Leasehold  Acreage being 26,658.4
acres (comprising  27,556.4 Leasehold Acres less and except 900 acres calculated
as 20 acres  surrounding both the productive  and non-productive oil/gas well(s)

                                        1
<PAGE>

= 26,658.4 Net Oil and Gas Leasehold  Acres)  further  described in Sub Articles
1.1 (a) through 1.1 (c) (collectively called the "Property'):

     (a)  The oil,  gas and  other  mineral  leasehold  interests  described  in
     Exhibit "A", attached hereto and made a part hereof, insofar as such covers
     and affects  the lands and depths  described  in Exhibit  "A"  (hereinafter
     called the "Real Property");

     (b)  To the extent  transferable,  all surface use  agreements,  easements,
     rights-of-way,  licenses,  authorizations,  permits, and similar rights and
     interests  applicable to, or used or useful in connection  with, any or all
     of the Property.

     (c)  To the extent  transferable,  all contracts and agreements  concerning
     the  Property  including,  but not  limited to,  unit  agreements,  pooling
     agreements,   areas  of  mutual  interest,   farmout   agreements,   farmin
     agreements, pumping agreements,  production handling agreements,  saltwater
     disposal  agreements,  water  injection  agreements,  line  well  injection
     agreements,  road use  agreements,  operating  agreements and gas balancing
     agreements; and

     (d)  Seller shall retain 900 Lease Acres (comprised of 20 acres surrounding
          -------------------
     any well(s)  located on the Property,  with each well located in the center
     of each 20 acre  tract  retained)  as  well  as all  wells,  equipment  and
     facilities  located on the Real Property and used directly and  exclusively
     in the operation of the Real Property (collectively called the "Equipment")
     including,  but not limited to, pumps,  platforms,  well equipment (surface
     and  subsurface),   saltwater   disposal  wells,   waterwells,   lines  and
     facilities, sulfur recovery facilities,  compressors,  compressor stations,
     dehydration facilities, treating facilities, pipeline gathering lines, flow
     lines, and transportation lines, valves,  meters,  separators,  tanks, tank
     batteries, office quarters and other fixtures;

     (e)  Seller shall retain any oil, condensate,  natural gas, and natural gas
     liquids  produced,  including  "line fill" and inventory below the pipeline
     connection in tanks, attributable to the Property;

     1.3  Excluded Data and  Interpretations.  ANY  CONFIDENTIAL  OR PROPRIETARY
          -----------------------------------
DATA SHALL BE EXCLUDED FROM THIS PURCHASE AND SALE TRANSACTION.

     1.4  Purchase Price.  Seller in consideration of $100.00 and other good and
          ---------------
valuable  consideration,   the  receipt  and  sufficiency  of  which  is  hereby
acknowledged,  grants  Buyer an option  (Article  9) to  purchase  the  Property
subject to the terms and conditions herein set forth. The purchase price for the
Property  shall be  $1,400,000.00  calculated  as  (57.8125% x 26,658.4  acres @
$90.84 per acre =  $1,400,000.00)  ("the Purchase Price") payable in immediately
available funds at closing,  and subject to the conditions  contained in Article
8, below.

                                        2
<PAGE>

     1.5  The Closing is conditioned  upon Buyer being able to obtain  operation
of the Property from Mote Resources, Inc.

     1.6  Assignment of the  Property.  Seller shall also convey to Buyer all of
          ----------------------------
Seller's right, title and interest,  if any, in and to (a) all 3-D seismic data,
and tapes including the right to analyze, interpret, and use all such data as it
relates to the property and the Property and in and to (b) all Texaco, Pennzoil,
SMK,  Palm  Production  Company,  Mote  Resources,   Inc.  and  any/all  related
documents,  records, maps, seismic interpretations and data, logs, scout tickets
and records  (the  "Records")  that relate to,  describe or affect the  Property
subject to the terms of  Sharrock's  License  Agreement.  The  Assignment of the
Property  by Seller to Buyer is  subject  to the  terms  and  provisions  of all
instruments  of record in  Zapata  County,  Texas,  dated  the  effective  date,
affecting the Property:  (i) Seller, to the best of its knowledge,  has provided
copies of any documents which  negatively  affect the Property and this interest
prior to closing.

     1.7  Review.  Buyer,  at his sole cost, risk and expense shall conduct such
          -------
title review of the Property, as it deems appropriate.

     1.8  Effective  Date.  In the event Buyer  exercises its Option to purchase
          ----------------
the Property,  the effective date of the purchase and sale of the Property shall
be the first day of the month in which the Closing occurs at 7:00 a.m. C. S. T.

     1.9  Option  Period.  This  Option to  Purchase  shall be  effective  until
          ---------------
February 19, 2003 within which time Buyer shall conduct it's due diligence.

     1.10  Closing  Date.  The closing date of this  agreement will be as agreed
           --------------
upon between Seller and Buyer, but in no event later February 19, 2003.

     1.11  Buyer  agrees  to extend  this offer  to  the other  working interest
owners in the Property at a price Buyer finds acceptable. There is no obligation
for the other owners to accept Buyers offer or for Buyer to revise it's offer to
make it agreeable to the other owners.

                                    ARTICLE 2
                    REPRESENTATIONS AND WARRANTIES OF SELLER
                    ----------------------------------------

     2.1  Seller is a Limited Liability Company duly organized, validly existing
and in good standing under the laws of the State of Texas.

     2.2  Disclaimers.  Except as  expressly  set forth in Section  2.1,  Seller
          ------------
expressly  disclaims  any and all  representations,  covenants,  or  warranties,
expressed,  implied,  or statutory,  of title or as to any other fact or matter.
Seller specifically makes no representation or warranty whatsoever regarding the
value of the Interest, the reserves, future net income, expenses,  profitability
or liabilities associated therewith,  or the future price of oil or gas produced
from the property or the results of any operations conducted on the property.

                                        3
<PAGE>

     2.3  Any and all  production  from the Property  and all proceeds  from the
sale of  production  shall  be the  property  of  Seller.  Seller  shall  remain
responsible for payment of all expenses attributable to the Property.

     2.4  Seller  represents  to Buyer that as of the closing the Property  will
not be (a) the subject of any Bankruptcy Proceeding, (b) demand for development,
(c)  default  notice  under  any oil  and  gas  lease,  (d)  lien  or (e)  other
encumbrance or claim that has not been disclosed to Buyer.

     2.5  This  Agreement  has been duly  executed  and  delivered  on behalf of
Seller, and this Agreement  constitutes a legal, valid and binding obligation of
Seller,  enforceable  in accordance  with its terms,  subject,  however,  to the
effects of bankruptcy, insolvency, reorganization, moratorium and similar laws.

     2.6  Seller has all requisite power and authority, corporate and otherwise,
to carry on its business as presently  conducted,  to enter into this Agreement,
to sell the Property on the terms  described in this  Agreement,  and to perform
his/its  other  obligations  under  this  Agreement.  The  consummation  of  the
transactions contemplated by this Agreements will not violate, or be in conflict
with, any provisions of Seller's Articles of Incorporation, by-laws or governing
documents or any  agreement or instrument to which Seller is a party or by which
it is  bound,  or any  judgment,  decree,  order,  statute,  rule or  regulation
applicable to Seller.

                                    ARTICLE 3
                                     CLOSING
                                     -------

     3.1  Time and Place of Closing.  The  consummation of the purchase and sale
          --------------------------
transactions contemplated by this agreement (the "Closing") shall, unless agreed
to otherwise by the parties, take place at the offices of Seller's at 2611 Cedar
Springs, Suite 201, Dallas, Texas 75201.

     3.2  Delivery by Seller at Closing. In the event Buyer exercises its Option
          ------------------------------
to purchase the Property, at Closing, Seller shall execute, and deliver to Buyer
an Assignment to the Property in the form attached hereto as Exhibit "B".

     3.3  Delivery by Buyer at Closing.  In the event Buyer exercises its Option
          -----------------------------
to purchase the  Property,  at Closing,  Buyer shall deliver by wire transfer to
the  Seller's  bank account (to be furnished by Seller to Buyer in writing at or
before Closing), the Purchase Price.

     3.4  In the event  Buyer  exercises  its Option to purchase  the  Property,
Seller shall be responsible  for all taxes relating to the Property prior to the
Effective Date.  Buyer shall be responsible for all taxes (exclusive of federal,
state or local  income  taxes)  relating  to the  Property  from and  after  the
Effective Date.

                                        4
<PAGE>

     3.5  Notice of Sale:  Immediately after the Closing, Buyer shall notify all
          ---------------
non-operators,  oil and gas buyers,  government agencies and royalty owners that
it has  purchased  the  Property  and Seller and Buyer  shall  execute  transfer
orders.

     3.6  Copies Of Records and  Documents:   Seller shall, at or as promptly as
          ---------------------------------
reasonably possible after the Closing,  provide Buyer, at Buyer's expense,  with
copies of records and documents in Seller's  possession relating to the Property
including,  but not  limited  to,  land and lease  files,  division  of interest
computer  printouts,  contract files,  well files and well logs. SELLER SHALL AT
ITS OPTION,  RETAIN ALL ORIGINAL FILES,  BUT SHALL HAVE NO OBLIGATION TO FURNISH
BUYER ANY DATA OR INFORMATION WHICH SELLER CONSIDERS PROPRIETARY OR CONFIDENTIAL
OR WHICH SELLER  CANNOT  PROVIDE BUYER BECAUSE OF  THIRD-PARTY  RESTRICTIONS  ON
SELLER.

                                    ARTICLE 4
                            RESPONSIBILITY FOR COSTS
                            ------------------------

(begin boldface)
     4.1  IN THE EVENT  BUYER  EXERCISES  ITS OPTION TO PURCHASE  THE  PROPERTY,
SELLER SHALL CONTINUE TO BE RESPONSIBLE FOR ALL CLAIMS RELATING TO THE DRILLING,
OPERATING, PRODUCTION, AND SALE OF HYDROCARBONS FROM THE PROPERTY AND THE PROPER
ACCOUNTING  AND  PAYMENT  TO PARTIES  FOR THEIR  INTERESTS  AND ANY  RETROACTIVE
PAYMENTS,  REFUNDS, OR PENALTIES TO ANY PARTY OR ENTITY AS SUCH CLAIMS RELATE TO
PERIODS BEFORE THE EFFECTIVE DATE OF CLOSING.
(end boldface)

                                    ARTICLE 5
                            REPRESENTATIONS OF BUYER
                            ------------------------

     5.1  Buyer represents and warrants with respect to Seller that:

     (a)  Buyer is a Corporation  duly organized,  validly  existing and in good
     standing under the laws of the State of Delaware.

     (b)  Buyer has all requisite power and authority,  corporate and otherwise,
     to carry on its  business  as  presently  conducted,  to  enter  into  this
     Agreement,  to  purchase  the  Property  on the  terms  described  in  this
     Agreement,  and to perform it other obligations  under this Agreement.  The
     consummation of the  transactions  contemplated by this Agreements will not
     violate,  or be in conflict  with,  any  provisions of Buyer's  Articles of
     Incorporation,   by-laws  or  governing   documents  or  any  agreement  or
     instrument  to which  Buyer is a party  or by  which  it is  bound,  or any
     judgment, decree, order, statute, rule or regulation applicable to Buyer.

     (c)  The  execution,  delivery and  performance  of this  Agreement and the
     transactions  contemplated  hereby have been duly and validly authorized by

                                        5
<PAGE>

     all requisite actions,  corporate and otherwise,  on the part of Buyer, its
     board of directors and shareholders.

     (d)  Buyer has incurred no liability, contingent or otherwise, for brokers'
     or  finders'  fees  relating  to  the  transactions  contemplated  by  this
     Agreement for which Seller shall have any responsibility whatsoever.

                                    ARTICLE 6
                                      TITLE
                                      -----

     6.1  Warranty of Title.  The  documents  to be executed  and  delivered  by
          ------------------
Seller  to  Buyer,  transferring  title  to the  Property  as  required  hereby,
including the  Assignment  and Bill of Sale attached  hereto as "Exhibit B" (the
"Assignment"),  shall be subject to the Existing  Encumbrances  and, except with
respect to the Property set forth on Exhibit "A" for which Seller shall  provide
a special  warranty  of title,  shall be without  warranty  of title of any kind
whatsoever, express, implied or statutory (even as to the return of Sale Price),
but  shall  provide  full  subrogation  of  Buyer  to  all  representations  and
warranties  of  any   predecessors  of  Seller  in  title.  The  term  "Existing
Encumbrances" shall mean any of the following matters:

     (a)  the  terms,  conditions,   restrictions,   exceptions,   reservations,
     limitations and other matters contained in the agreements,  instruments and
     documents  that  create or reserve to Seller  its  interests  in any of the
     Property;

     (b)  any (i)  undetermined  or inchoate  liens or charges  constituting  or
     securing  the  payment  of  expenses  that  were  incurred   incidental  to
     maintenance,  development,  production  or operation of the Property or for
     the  purpose of  developing,  producing  or  processing  oil,  gas or other
     hydrocarbons (collectively,  "Hydrocarbons") therefrom or therein, and (ii)
     materialman's,    mechanics',   repairman's,    employees',   contractors',
     operators' or other similar liens or charges for liquidated amounts arising
     in the ordinary  course of business (x) that Seller has agreed to assume or
     pay pursuant to the terms hereof,  (y) for which Seller is responsible  for
     releasing  at  Closing,  or (z) for which Buyer has agreed to assume or pay
     pursuant to the terms hereof;

     (c)  any  liens  for  taxes  and  assessments  not yet  delinquent  or,  if
     delinquent,  that are being  contested in good faith in the ordinary course
     of business;

     (d)  any liens or security  interests created by law or reserved in oil and
     gas leases for royalty,  bonus or rental,  or created to secure  compliance
     with the terms of the agreements,  instruments and documents that create or
     reserve to Seller its interests in the Property;

     (e)  any obligations or duties  affecting the Property to any  municipality
     or public  authority  with  respect  to any  franchise,  grant,  license or
     permit,  and all applicable  laws,  rules,  regulations  and, orders of any
     governmental authority;

                                        6
<PAGE>

     (f)  any (i) easements,  rights-of-way,  servitude, permits, surface leases
     and other  rights in  respect of surface  operations,  pipelines,  grazing,
     hunting,  lodging,  canals,  ditches,  reservoirs  or the  like,  and  (ii)
     easements for streets, alleys, highways, pipelines,  telephone lines, power
     lines, railways and other similar rights-of-way,  on, over or in respect of
     Property owned or leased by Seller or over which Seller owns rights-of-way,
     easements, permits or licenses;

     (g)  all lessor's royalties,  overriding royalties,  net profits interests,
     carried interests,  production payments,  reversionary  interests and other
     burdens on or  deductions  from the  proceeds of  production  created or in
     existence  as of the  Effective  Time that do not operate to reduce the net
     revenue interest of Seller;

     (h)  required third party consents to assignments or similar agreements;

     (i)  all rights to consent by required  notices to,  filings with, or other
     actions  by any  governmental  authority  in  connection  with  the sale or
     conveyance of oil and gas leases or interests therein;

     (j)  production  sales  contracts;  division  orders;  contracts  for sale,
     purchase, exchange, refining or processing of Hydrocarbons; unitization and
     pooling  designations,   declarations,  orders  and  agreements;  operating
     agreements;  agreements of development; area of mutual interest agreements;
     gas balancing or deferred  production  agreements;  processing  agreements;
     plant  agreements;   pipeline,  gathering  and  transportation  agreements;
     injection,  repressuring and recycling agreements;  carbon dioxide purchase
     or sale  agreements;  salt water or other disposal  agreements;  seismic or
     geophysical  permits or agreements;  and any and all other  agreements that
     are  ordinary  and  customary in the oil,  gas,  sulphur and other  mineral
     exploration,  development  or  extraction  business,  or in the business of
     processing  of gas and gas  condensate  production  for the  extraction  of
     products therefrom; and

     (k)  all  defects  and   irregularities   affecting   the  Property   which
     individually  or in the  aggregate do not operate to reduce the net revenue
     interest of Seller,  increase the proportionate share of costs and expenses
     of  leasehold  operations  attributable  to or to be borne  by the  working
     Property of Seller, or otherwise  interfere  materially with the operation,
     value or use of the Property, taken as a whole.

                                    ARTICLE 7
                              ENVIRONMENTAL MATTERS
                              ---------------------

     7.1  Buyer agrees to indemnify Seller against any  environmental  liability
arising  relative to the Property  subsequent  to the Closing.  Seller agrees to
indemnify  Buyer  against  any  environmental  liability  arising  prior  to the
Closing.

                                        7
<PAGE>

                                    ARTICLE 8
                                     ESCROW
                                     ------

     8.1  Payment of Purchase Price.  In the event Buyer exercises its Option to
          --------------------------
purchase the Property,  at closing,  Buyer will wire transfer the  $1,400,000.00
purchase price to Seller's Bank Account to be furnished to Buyer by Seller at or
before Closing.

          8.1.1   Seller's Bank, as provided to Buyer by Seller, upon receipt of
     $1,400,000.00  will be responsible to distribute same to Seller pro rata as
     directed by Seller.

                                    ARTICLE 9
                               OPTION TO PURCHASE
                               ------------------

     9.1  Buyer  shall have the option to purchase  from Seller the  Property at
the  cost of  57.8125%  x  26,658.4  acres @  $90.84  per  acre =  $1,400,000.00
delivered  and  pursuant  to the terms of this  Agreement  and it's  Exhibits as
described  beginning at Article I. This option shall expire at midnight February
19, 2003.

                                   ARTICLE 10.
                       PHYSICAL CONDITION OF THE PROPERTY:
                       -----------------------------------

(begin boldface)
     10.01  USE OF THE PROPERTY:  THE PROPERTY  HAS  BEEN  USED  FOR OIL AND GAS
DRILLING  AND  PRODUCING  OPERATIONS,  RELATED  (DISPOSAL  AND  OTHER)  OILFIELD
OPERATIONS AND THE STORAGE AND  TRANSPORTATION OF OIL AND GAS.  PHYSICAL CHANGES
IN THE LAND MAY HAVE  OCCURRED  AS A  RESULT OF SUCH  USES.  THE  PROPERTY  ALSO
MAY CONTAIN BURIED  PIPELINES AND OTHER  EQUIPMENT,  WHETHER OR NOT OF A SIMILAR
NATURE,  THE  LOCATIONS  OF WHICH MAY NOT NOW BE KNOWN BY  SELLER OR BE  READILY
APPARENT BY A PHYSICAL INSPECTION OF THE PROPERTY. BUYER UNDERSTANDS THAT SELLER
DOES NOT HAVE THE REQUISITE INFORMATION WITH WHICH TO DETERMINE THE EXACT NATURE
OR  CONDITION OF THE PROPERTY OR THE EFFECT ANY SUCH USE HAS HAD ON THE PHYSICAL
CONDITION OF THE PROPERTY.

     10.02  BUYER'S INVESTIGATION AND LIABILITY:  BUYER ACKNOWLEDGES THAT (I) IT
HAS BEEN AFFORDED AN  OPPORTUNITY TO (A) EXAMINE THE PROPERTY AND SUCH MATERIALS
AS  IT  HAS  REQUESTED  TO  BE  PROVIDED  TO  IT BY  SELLER,  (B)  DISCUSS  WITH
REPRESENTATIVES  OF SELLER SUCH  MATERIALS  AND THE NATURE AND  OPERATION OF THE
PROPERTY AND (C) INVESTIGATE THE CONDITION,  INCLUDING SUBSURFACE CONDITION,  OF
THE REAL PROPERTY AND THE CONDITION OF THE  EQUIPMENT,  (II) IT HAS ENTERED INTO
THIS AGREEMENT ON THE BASIS OF ITS OWN  INVESTIGATION OF THE PHYSICAL  CONDITION
OF THE PROPERTY INCLUDING  SUBSURFACE CONDITION AND (III) THE PROPERTY HAVE BEEN
USED IN THE  MANNER  AND FOR THE  PURPOSES  SET FORTH  ABOVE  AND THAT  PHYSICAL

                                        8
<PAGE>

CHANGES TO THE  PROPERTY  MAY HAVE  OCCURRED AS A RESULT OF SUCH USE AND (IV) IN
ENTERING  INTO  THIS   AGREEMENT,   BUYER  HAS  RELIED  SOLELY  ON  THE  EXPRESS
REPRESENTATIONS  (SOME OF WHICH  REPRESENTATIONS  TERMINATE  AT THE CLOSING) AND
COVENANTS OF SELLER IN THIS  AGREEMENT,  ITS  INDEPENDENT  INVESTIGATION  OF AND
JUDGMENT WITH RESPECT TO, THE EQUIPMENT AND THE OTHER PROPERTY AND THE ADVICE OF
ITS  OWN  LEGAL,  TAX,  ECONOMIC,  ENVIRONMENTAL,  ENGINEERING,  GEOLOGICAL  AND
GEOPHYSICAL   ADVISORS   AND  NOT  ON  ANY   COMMENTS  OR   STATEMENTS   OF  ANY
REPRESENTATIVES  OF, OR  CONSULTANTS  OR ADVISORS  ENGAGED BY SELLER AND (V) LOW
LEVELS OF NATURALLY OCCURRING  RADIOACTIVE MATERIAL (NORM) AND MAN-MADE MATERIAL
FIBERS (MMMF) MAY BE PRESENT AT SOME LOCATIONS.  BUYER ACKNOWLEDGES THAT NORM IS
A  NATURAL  PHENOMENON   ASSOCIATED  WITH  MANY  OIL  FIELDS  IN  THE  U.S.  AND
THROUGHOUT THE WORLD. BUYER SHOULD MAKE ITS OWN DETERMINATION OF THIS PHENOMENON
AND OTHER CONDITIONS.  SELLER AND MARKETER DISCLAIM ANY LIABILITY ARISING OUT OF
OR IN  CONNECTION  WITH ANY  PRESENCE OF NORM OR MMMF ON THE PROPERTY AND ON THE
CLOSING DATE,  BUYER SHALL ASSUME THE RISK THAT THE PROPERTY MAY CONTAIN  WASTES
OR CONTAMINANTS AND THAT ADVERSE PHYSICAL CONDITIONS,  INCLUDING THE PRESENCE OF
WASTES OR CONTAMINANTS, MAY NOT HAVE BEEN REVEALED BY BUYER'S INVESTIGATION.  ON
THE CLOSING DATE, ALL RESPONSIBILITY AND LIABILITY RELATED TO DISPOSAL,  SPILLS,
WASTE,  OR  CONTAMINATION  ON AND BELOW THE PROPERTY SHALL BE  TRANSFERRED  FROM
SELLER TO BUYER.
(end boldface)

                                   ARTICLE 11
                                  MISCELLANEOUS
                                  -------------

     11.01  During the Option Period, and  as requested by  Buyer, Seller agrees
to Make available to Buyer in the office of the Seller,  Legend Operating,  LLC,
2611 Cedar Springs,  Suite 201, Dallas, Texas  75201, all data and documents and
correspondence  for Buyer to conduct  it's due  diligence on the  Property.  Any
copies of said data shall be made by Buyer at Buyer's expense.  If the option is
not exercised,  all copies of said data shall be returned to the Operator within
5 business days. NO WARRANTY OF ANY KIND IS MADE BY SELLER AS TO THE INFORMATION
SO SUPPLIED OR WITH RESPECT TO INTEREST TO WHICH THE  INFORMATION  RELATES,  AND
BUYER EXPRESSLY AGREES THAT ANY CONCLUSIONS  DRAWN THEREFROM SHALL BE THE RESULT
OF ITS OWN INDEPENDENT REVIEW AND JUDGMENT.

     11.02  It is understood and  agreed by the  parties  hereto  that  Seller's
access to certain Seismic Rights  ("Seismic  Rights") is subject to an Agreement
to Use Seismic 3-D Seismic Data dated  January 14, 1998  covering the  Property:
Buyer  shall  have the  same  unrestricted  access  rights,  if any,  to all 3-D
interpretations and data generated and associated with such seismic rights.

     11.03  This Agreement shall  inure to the  benefit of and be  binding  upon
Seller and Buyer and their respective heirs, successors and assigns. However, no
assignment  by any party shall  relieve  any party of any duties or  obligations
under this Agreement.

                                        9
<PAGE>

     11.04  This  Agreement  constitutes  the  complete  agreement  between  the
parties regarding the purchase and sale of the Property.  Where applicable,  the
terms of this Agreement shall survive the Closing.

     11.05  Further Distribution:  Buyer is acquiring  the  Property for its own
            ---------------------
account  and not with the  intent  to make a  distribution  thereof  within  the
meaning of the Securities Act of 1933, as amended, and the rules and regulations
thereunder  or  distribution  thereof  in  violation  of  any  other  applicable
securities laws.

     11.06  Arbitration:   Any dispute  arising  out  of  or  relating  to  this
            ------------
Agreement,   including  any  question  regarding  its  existence,   validity  or
termination,  which  cannot be amicably  resolved by Seller and Buyer,  shall be
settled before three (3) arbitrators, one (1) to be appointed by Seller, one (1)
to be  appointed  by Buyer  and the two so  appointed  shall  appoint  the third
arbitrator, in accordance with the Arbitration Rules of the American Arbitration
Association,  Dallas,  Texas,  and  judgment  upon  the  award  rendered  by the
arbitrators may be entered in any court having  jurisdiction  thereof. A dispute
shall be deemed to have arisen when either Seller or Buyer notifies the other in
writing to that effect.

     11.07  Seller and Buyer agree that Buyer may assign this Option to Purchase
and all  rights  and  obligations  set forth  herein  to an  entity  to  Buyer's
election,  upon written notice to Seller, at anytime up to and including date of
closing as set forth herein.

     11.08  Buyer, its  successors and assigns,  covenant and agree that any and
all  assignments  of the Property made by Buyer and its  successors and assigns,
shall be subject to the terms of this agreement.

EFFECTIVE as of the 17th day of October, 2002.

SELLER:
LEGEND OPERATING, LLC.

By: /s/ Jim Dyer
   -------------------------------
   Jim Dyer, Manager

BUYER:
TEXAS BORDER GAS COMPANY

By: /s/ Bryan Leitch, III
   -------------------------------
   B. Bryan Leitch, III, President

                                       10
<PAGE>

                                   EXHIBIT "A"
                     ATTACHED HERETO AND MADE A PART OF THAT
                               OPTION TO PURCHASE
                  BY AND BETWEEN LEGEND OPERATING, LLC, SELLER
                       AND TEXAS BORDER GAS COMPANY, BUYER

An undivided  57.8125% interest in 26,658.4 Oil, Gas and Mineral Leasehold Acres
(excluding  any  productive  and  non-productive  wells) of those  Oil,  Gas and
Mineral Leases and Properties described as follows:

                                    LEASES:
                                    -------

     Oil and Gas Lease from J.D.  JENNINGS to THE TEXAS COMPANY,  dated November
13, 1924, recorded in Volume 15, Page 601, Deed Records,  Zapata County,  Texas,
covering  approximately  27,558.4 acres,  more or less, out of the J.D. Jennings
Ranch, more particularly  described in that as to all rights from the surface of
the earth to a depth of 5560 feet or the base of the Queen City Formation; and

     Oil and Gas Lease from J.D.  JENNINGS,  a single man, to THE TEXAS COMPANY,
dated November 13, 1922,  recorded in Volume 14, Page 118, Deed Records,  Zapata
County,  Texas,  covering  approximately  12,000 acres, more or less, out of the
J.D.  Jennings  Ranch, as to all rights from the surface of the earth to a depth
of 5560 feet or the base of the Queen City Formation; and

     That  certain  Term  Assignment  dated  January  14,  1998,  from  Pennzoil
Exploration and Production  Company, to Stuart G. Sharrock,  Agent,  recorded in
Volume 588, Page 505 of the Official  Records,  Zapata County,  Texas, as to all
rights  from the surface of the earth to a depth of 5560 feet or the base of the
Queen City Formation.

                           LANDS EFFECTED BY LEASES:
                           -------------------------

     TRACT 1:  Being 8,125.4  acres,  more or less,  out of the east part of the
     -------
Edward  Davila  Survey,  A-27,  also known as the "San  Antonio  de Mira  Flores
Grant", Zapata County, Texas and being the same land described as the following:

          Beginning  at the N.W.  corner of the Blas  Maria  tract  for  corner;
          thence S. 43 deg. 29 min. W. 1302 varas;  thence S. 47 deg. 31 min. E.
          5193 varas;  thence S. 45 deg. 5 min.  E. 2380 varas;  thence S. 45 W.
          2195 varas to a post; thence S. 35 E. 4000 varas to the S. line of the
          Mira Flores grant;  thence N. 54 deg. 54 min. E. 3796.5 varas;  thence
          N. 45 deg.  36 min.  W. 1236.1  varas;  thence N. 45 W. 5739.8  varas;
          thence S. 44 deg. 40 min. W. 618 varas to corner; thence S. 45 deg. 36
          min. W. 3125.7 varas to the southwest  corner of the Blas Maria grant;
          thence N. 45 deg. 21 min. W. 5145.3 varas to the place of beginning.

     TRACT 2:  Being 2,850,  more or less,  out of the west part of the  Antonio
     -------
Martinez  Gutierrez Survey,  A-33, also known as the "Blas Maria Grant",  Zapata
County, Texas and being the same land described as the following:

                                        i
<PAGE>

          Beginning at the N.E.  corner of the Mira Flores  grant;  thence N. 45
          deg.  36 min.  E.  along  the fence and along the N. line of said Blas
          Maria grant 3125.7 varas to stone; thence S. 45 deg. 21 min. E. 5145.3
          varas to stone in the S. line of the Blas  Maria  grant;  thence S. 45
          deg.  36 min.  W.  3125.7  varas to the S.W.  corner of the Blas Maria
          grant;  thence  N. 45 deg.  21 min.  W.  5145.3  varas to the place of
          beginning.

     TRACT 3:  Being 15,941.6 acres, more or less, out of the Jose Manuel Peredo
     -------
Survey,  A-73, also known as the "Cerrito Blanco Grant",  Zapata County,  Texas,
and being the same land described as the following:

          BEGINNING at the N.E.  corner of the  Bautista  Perida  Grant;  THENCE
          North 55 deg.  East  10,714.25  vrs.  to the N.W.  corner of 1770 acre
          grant taken from said Jose Pereda  Grant;  THENCE  South 35 deg.  East
          2800 vrs. to a post, the S.W. corner of said 1770 acre grant, which is
          known as the Ranch Colorado;  THENCE North 55 degrees East 3571.4 vrs.
          to a post in the  Eastern  bdy.  line of the said Jose  Manuel  Pereda
          Grant;  THENCE  South 35 deg.  East 4200 vrs.  more or less to a stone
          being the S.W.  corner of the said Jose Manuel Pereda  Grant,  and the
          said S.E.  corner of the Bautista  Pereda Grant;  THENCE North 35 deg.
          West 7000 vrs., more or less, to the place of beginning;

     TRACT 4:  Being  640.9 acres of  land,  more or less, and being  all of the
     -------
G.C. and  S.F.R.R.  Company  Survey,  A-137,  also known as Section 207,  Zapata
County, Texas, and being the same land described as the following:

          BEGINNING at the extreme  East corner of a grant called "Mira  Flores"
          for South corner of this, a post; THENCE North 45 deg. West, with line
          of said Mira Flores  survey at 955 vrs. a large coma tree marked X. 10
          vrs. to S.W. at 1250 vrs. corner;  THENCE N. 45 deg. East 2467 vrs. to
          post for corner on line of said Mira Flores  Grant;  THENCE S. 45 deg.
          East 1678 vrs.  to post for  corner  on line of the  Peredena  Survey,
          granted to Manuel Pereda;  THENCE South 55 deg. West with line of said
          Pereda Survey 2505 vrs. to the beginning;

                                       ii
<PAGE>

                                   EXHIBIT "B"
                         ATTACHED TO AND MADE A PART OF
                                OPTION AGREEMENT
                               DATED MAY 20, 2002

                           ASSIGNMENT AND BILL OF SALE

STATE OF TEXAS      )
                    )
COUNTY OF ZAPATA    )

     For value  received,  LEGEND  OPERATING,  LLC,  whose address is 2611 Cedar
Springs, Suite 201, Dallas, Texas 75201, (hereinafter called "Assignor"), hereby
sells, transfers,  assigns,  conveys and delivers unto TEXAS BORDER GAS COMPANY,
whose address is 2606 State Street,  Dallas,  Texas 75204,  (hereinafter  called
"Assignee"), effective as of ______________________________________,  2002, 7:00
a.m., CST (the "Effective Time"), all of Assignor's right, title and interest in
and to the assets set forth in subparagraphs (i) through (v) below  (hereinafter
collectively called the "Property"):

                              SELLER SHALL CONVEY:

     (i)       The oil, gas and other mineral leasehold  interests  described in
               Exhibit "A" attached  hereto and made a part  hereof,  insofar as
               such  cover and affect the lands  described  in Exhibit  "A" (the
               "Real Property);

     (ii)      To  the  extent   transferable,   all  surface  use   agreements,
               easements, rights-of-way, licenses, authorizations,  permits, and
               similar rights and interests  applicable to, or used or useful in
               connection with the Property.

                              SELLER SHALL RETAIN:

     (iii)     The wells,  equipment and facilities located on the Real Property
               and that are used  directly and  exclusively  in the operation of
               the  Real  Property   (collectively   called  the   "Equipment"),
               including,  but not limited to, pumps, platforms,  well equipment
               (surface and subsurface),  saltwater disposal wells, water wells,
               lines and facilities,  sulfur recovery  facilities,  compressors,
               compressor stations, dehydration facilities, treating facilities,
               pipeline  gathering lines, flow lines, and  transportation  lines
               (to the  extent  such  lines  are not  owned or  operated  by any
               affiliate of Assignor),  valves, meters, separators,  tanks, tank
               batteries and other fixtures;

                                       iii
<PAGE>

     (iv)      Oil,  condensate,  natural gas, and natural gas liquids  produced
               after the  Effective  Time,  including  "line fill" and inventory
               below the pipeline  connection in the tanks,  attributable to the
               Property;

     (v)       To  the  extent   transferable,   all  contracts  and  agreements
               concerning  the  Property,  including,  but not  limited  to, the
               instruments  identified  under  paragraph  "B"  below  describing
               instruments  to  which  this  Assignment  and  Bill  of  Sale  is
               delivered  "subject to", and all other unit  agreements,  pooling
               agreements, areas of mutual interest, farmout agreements,  farmin
               agreements,   saltwater  disposal  agreements,   water  injection
               agreements,  line well injection agreements, road use agreements,
               operating agreements; and

TO HAVE AND TO HOLD unto Assignee, its successors and assigns forever.

(begin boldface)
     THIS  ASSIGNMENT AND BILL OF SALE IS MADE,  EXECUTED AND DELIVERED  WITHOUT
WARRANTY OF TITLE,  EXPRESS OR IMPLIED,  EXCEPT THAT ASSIGNOR SPECIALLY WARRANTS
AND AGREES TO DEFEND TITLE TO THE REAL  PROPERTY  AGAINST THE CLAIMS AND DEMANDS
OF ALL PERSONS  CLAIMING TITLE THERETO BY, THROUGH AND UNDER  ASSIGNOR,  BUT NOT
OTHERWISE,  UP TO THE ALLOCATED VALUE THEREOF,  AND WITH FULL  SUBSTITUTION  AND
SUBROGATION  OF ASSIGNEE IN AND TO ALL CLAIMS  ASSIGNOR  HAS OR MAY HAVE AGAINST
ALL PRECEDING OWNERS;  PROVIDED,  HOWEVER, THAT THIS LIMITED SPECIAL WARRANTY OF
TITLE TO THE REAL PROPERTY SHALL SURVIVE FOR A PERIOD OF TWELVE (12) MONTHS FROM
THE DATE OF THIS  ASSIGNMENT AND BILL OF SALE.  WITHOUT  LIMITING THE FOREGOING,
THIS  ASSIGNMENT AND BILL OF SALE IS WITHOUT ANY WARRANTY OR  REPRESENTATION  OF
TITLE,  EITHER EXPRESS,  IMPLIED,  STATUTORY OR OTHERWISE,  WITHOUT ANY EXPRESS,
IMPLIED,  STATUTORY  OR OTHER  WARRANTY  OR  REPRESENTATIONS  TO THE  CONDITION,
QUANTITY,  QUALITY,  FITNESS FOR A PARTICULAR  PURPOSE,  CONFORMITY TO MODELS OR
SAMPLES OF MATERIALS OR  MERCHANTABILITY  OF ANY OF THE EQUIPMENT OR ITS FITNESS
FOR ANY  PURPOSE  AND WITHOUT ANY OTHER  EXPRESS,  IMPLIED,  STATUTORY  OR OTHER
WARRANTY OR REPRESENTATION  WHATSOEVER.  ASSIGNEE SHALL HAVE INSPECTED OR WAIVED
ITS RIGHT TO INSPECT THE PROPERTY FOR ALL  PURPOSES AND  SATISFIED  ITSELF AS TO
THEIR  PHYSICAL  AND  ENVIRONMENTAL  CONDITION,  BOTH  SURFACE  AND  SUBSURFACE,
INCLUDING  BUT NOT LIMITED TO CONDITIONS  SPECIFICALLY  RELATED TO THE PRESENCE,
RELEASE OR DISPOSAL  OF  HAZARDOUS  SUBSTANCES,  AND THE  CONDITION  OF ANY WELL
CASING,  TUBING OR DOWNHOLE  EQUIPMENT.  ASSIGNEE IS RELYING SOLELY UPON ITS OWN
INSPECTION  OF THE PROPERTY  AND ASSIGNEE  SHALL ACCEPT ALL OF THE SAME IN THEIR
"AS IS, WHERE IS" CONDITION. THERE ARE NO WARRANTIES THAT EXTEND BEYOND THE FACE
OF THIS ASSIGNMENT AND BILL OF SALE. IN ADDITION,  ASSIGNOR MAKES NO WARRANTY OR
REPRESENTATION,  EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE ACCURACY OR
COMPLETENESS  OF  ANY  DATA,  REPORTS,  RECORDS,  PROJECTIONS,   INFORMATION  OR
MATERIALS NOW,  HERETOFORE OR HEREAFTER  FURNISHED OR MADE AVAILABLE TO ASSIGNEE
IN  CONNECTION  WITH  THIS  ASSIGNMENT  AND  BILL  OF  SALE  INCLUDING,  WITHOUT

                                       iv
<PAGE>

LIMITATION, ANY DESCRIPTION OF THE PROPERTY, PRICING ASSUMPTIONS,  OR QUALITY OR
QUANTITY OF HYDROCARBON  RESERVES (IF ANY)  ATTRIBUTABLE  TO THE PROPERTY OR THE
ABILITY  OR  POTENTIAL  OF  THE   PROPERTY  TO  PRODUCE   HYDROCARBONS   OR  THE
ENVIRONMENTAL  CONDITION OF THE PROPERTY OR ANY OTHER  MATTERS  CONTAINED IN THE
DATA OR ANY OTHER MATERIALS  FURNISHED OR MADE AVAILABLE TO ASSIGNEE BY ASSIGNOR
OR BY  ASSIGNOR'S  AGENTS OR  REPRESENTATIVES.  ANY AND ALL SUCH DATA,  RECORDS,
REPORTS,  PROJECTIONS,  INFORMATION AND OTHER MATERIALS FURNISHED BY ASSIGNOR OR
OTHERWISE MADE AVAILABLE TO ASSIGNEE ARE PROVIDED ASSIGNEE AS A CONVENIENCE, AND
SHALL NOT  CREATE OR GIVE RISE TO ANY  LIABILITY  OF OR  AGAINST  ASSIGNOR.  ANY
RELIANCE ON OR USE OF THE SAME SHALL BE AT  ASSIGNEE'S  SOLE RISK TO THE MAXIMUM
EXTENT PERMITTED BY LAW.
(end boldface)

     This  Assignment  and  Bill  of  Sale  is  made  expressly  subject  to the
following:

     1.   That  certain  Option  Agreement  dated May 20,  2002,  by and between
          Assignor and Assignee.

     2.   Term  Assignment from Pennzoil  Exploration and Production  Company to
          Stuart G.  Sharrock,  Agent,  recorded in Volume 588,  page 505 of the
          Official Records of Zapata County, Texas

     3.   The  agreements,  contracts and other items set forth and listed under
          the heading  "Subject  To The  Following"  on Exhibit "A" hereto,  and
          Assignee,  effective as of the Effective  Time,  assumes and agrees to
          perform any and all  obligations  of Assignor  under said  agreements,
          contracts and other items relating to the Property herein assigned.

     4.   Any and all other valid and existing  contracts,  easements  and other
          instruments affecting the Real Property, or any part thereof, together
          with any and all existing  royalties,  overriding  royalties and other
          interests  payable out of production  from the Real  Property,  or any
          part thereof.

The  provisions  hereof  shall  bind and inure to the  benefit of  Assignee  and
Assignor   and   their   respective   affiliates,    heirs,   devisees,    legal
representatives, successors and assigns.

EXECUTED this ______ day of  ______________________,  2002,  but effective as of
the above stated Effective Time.

Assignor:                                     Assignee:

LEGEND OPERATING, LLC                         TEXAS BORDER GAS COMPANY

By:                                           By:
   -------------------------------               -------------------------------
   Jim Dyer, Manager                             B. Bryan Leitch, III, President

                                        v
<PAGE>

STATE OF TEXAS     )
                   )
COUNTY OF DALLAS   )

     This instrument was acknowledged  before me on the ____ day of ___________,
2002, by Jim Dyer, Manager of Legend Operating, LLC.

                                              ---------------------------------
                                              Notary Public in and for The State
                                              of Texas

STATE OF TEXAS     )
                   )
COUNTY OF DALLAS   )

     This instrument was acknowledged  before me on the ____ day of ___________,
2002, by B. Bryan Leitch, III President of Texas Border Gas Company.

                                              ---------------------------------
                                              Notary Public in and for The State
                                              of Texas

                                       vi
<PAGE>

                                   EXHIBIT "A"
                                       TO
                           ASSIGNMENT AND BILL OF SALE

An undivided  57.8125% interest in 26,658.4 Oil, Gas and Mineral Leasehold Acres
(excluding  any  productive  and  non-productive  wells) of those  Oil,  Gas and
Mineral Leases and Properties described as follows:

                                     LEASES:
                                     -------

     Oil and Gas Lease from J.D.  JENNINGS to THE TEXAS COMPANY,  dated November
13, 1924, recorded in Volume 15, Page 601, Deed Records,  Zapata County,  Texas,
covering  approximately  27,558.4 acres,  more or less, out of the J.D. Jennings
Ranch, more particularly  described in that as to all rights from the surface of
the earth to a depth of 5560 feet or the base of the Queen City Formation; and

     Oil and Gas Lease from J.D.  JENNINGS,  a single man, to THE TEXAS COMPANY,
dated November 13, 1922,  recorded in Volume 14, Page 118, Deed Records,  Zapata
County,  Texas,  covering  approximately  12,000 acres, more or less, out of the
J.D.  Jennings  Ranch, as to all rights from the surface of the earth to a depth
of 5560 feet or the base of the Queen City Formation; and

     That  certain  Term  Assignment  dated  January  14,  1998,  from  Pennzoil
Exploration and Production  Company, to Stuart G. Sharrock,  Agent,  recorded in
Volume 588, Page 505 of the Official  Records,  Zapata County,  Texas, as to all
rights  from the surface of the earth to a depth of 5560 feet or the base of the
Queen City Formation.

                            LANDS EFFECTED BY LEASES:
                            -------------------------

     TRACT 1:  Being 8,125.4  acres,  more or less,  out of the east part of the
     -------
Edward  Davila  Survey,  A-27,  also known as the "San  Antonio  de Mira  Flores
Grant", Zapata County, Texas and being the same land described as the following;

          Beginning  at the N.W.  corner of the Blas  Maria  tract  for  corner;
          thence S. 43 deg. 29 min. W. 1302 varas;  thence S. 47 deg. 31 min. E.
          5193 varas;  thence S. 45 deg. 5 min.  E. 2380 varas;  thence S. 45 W.
          2195 varas to a post; thence S. 35 E. 4000 varas to the S. line of the
          Mira Flores grant;  thence N. 54 deg. 54 min. E. 3796.5 varas;  thence
          N. 45 deg.  36 min.  W. 1236.1  varas;  thence N. 45 W. 5739.8  varas;
          thence S. 44 deg. 40 min. W. 618 varas to corner; thence S. 45 deg. 36
          min. W. 3125.7 varas to the southwest  corner of the Blas Maria grant;
          thence N. 45 deg. 21 min. W. 5145.3 varas to the place of beginning.

     TRACT 2:  Being 2,850,  more or less,  out of the west part of the  Antonio
     -------
Martinez  Gutierrez Survey,  A-33, also known as the "Blas Maria Grant",  Zapata
County, Texas and being the same land described as the following:

                                       vii
<PAGE>

          Beginning at the N.E.  corner of the Mira Flores  grant;  thence N. 45
          deg.  36 min.  E.  along  the fence and along the N. line of said Blas
          Maria grant 3125.7 varas to stone; thence S. 45 deg. 21 min. E. 5145.3
          varas to stone in the S. line of the Blas  Maria  grant;  thence S. 45
          deg.  36 min.  W.  3125.7  varas to the S.W.  corner of the Blas Maria
          grant;  thence  N. 45 deg.  21 min.  W.  5145.3  varas to the place of
          beginning.

     TRACT 3:  Being 15,941.6 acres, more or less, out of the Jose Manuel Peredo
     -------
Survey,  A-73, also known as the "Cerrito Blanco Grant",  Zapata County,  Texas,
and being the same land described as the following:

          BEGINNING at the N.E.  corner of the  Bautista  Perida  Grant;  THENCE
          North 55 deg.  East  10,714.25  vrs.  to the N.W.  corner of 1770 acre
          grant taken from said Jose Pereda  Grant;  THENCE  South 35 deg.  East
          2800 vrs: to a post, the S.W. corner of said 1770 acre grant, which is
          known as the Ranch Colorado;  THENCE North 55 degrees East 3571.4 vrs.
          to a post in the  Eastern  bdy.  line of the said Jose  Manuel  Pereda
          Grant;  THENCE  South 35 deg.  East 4200 vrs.  more or less to a stone
          being the S.W.  corner of the said Jose Manuel Pereda  Grant,  and the
          said S.E.  corner of the Bautista  Pereda Grant;  THENCE North 35 deg.
          West 7000 vrs., more or less, to the place of beginning;

     TRACT 4:  Being 640.9 acres  of land,  more or less,  and being  all of the
     -------
G.C. and  S.F.R.R.  Company  Survey,  A-137,  also known as Section 207,  Zapata
County, Texas, and being the same land described as the following:

          BEGINNING at the extreme  East corner of a grant called "Mira  Flores"
          for South corner of this, a post; THENCE North 45 deg. West, with line
          of said Mira Flores  survey at 955 vrs. a large coma tree marked X. 10
          vrs. to S.W. at 1250 vrs. corner;  THENCE N. 45 deg. East 2467 vrs. to
          post for corner on line of said Mira Flores  Grant;  THENCE S. 45 deg.
          East 1678 vrs.  to post for  corner  on line of the  Peredena  Survey,
          granted to Manuel Pereda;  THENCE South 55 deg. West with line of said
          Pereda Survey 2505 vrs. to the beginning;

                                      viiiexv10w1

Table of Contents

Exhibit 10.1

 

Table of Contents

	 	 
	 	The BOC Group plc is a public limited company listed on the London
and New York Stock Exchanges and registered in England. This is the
report and accounts for the year ended 30 September 2002. It complies
with UK regulations and incorporates the annual report on Form 20-F
for the Securities and Exchange Commission to meet US regulations. An
annual review and summary financial statements for the year ended 30
September 2002 has been issued to all shareholders who have not
elected to receive this report and accounts.

 

TABLE OF CONTENTS

									
		Board of directors
		Executive management board
		Group five year record
		Group profile
		Employees
		Research, development and information technology
		Risk factors
		Performance review
		Finance and treasury review
		Corporate governance
		Report on remuneration
		Responsibility of the directors
		Report by the independent auditors
		Group profit and loss account
		Group balance sheet
		Group cash flow statement
		Total recognised gains and losses
		Movement in shareholders’ funds
		Balance sheet of The BOC Group plc
		Accounting policies
		Notes to the financial statements
		Group undertakings
		Shareholder information
		Cross reference to Form 20-F
		Glossary of terms
	Memorandum & Articles
	List of Subsidiaries
	BOC Group 2002 Reports and Accounts
	LETTER

Table of Contents

Contents

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Report of the directors	 	Financial statements	 	Shareholder information
	 	 	 	2	 	 	Financial highlights	 	 	64	 	 	Responsibility of the	 	 	114	 	 	Dividends
	 	 	 	4	 	 	Chairman’s statement	 	 	 	 	 	directors	 	 	114	 	 	Nature of trading market
	 	 	 	6	 	 	Chief executive’s review	 	 	65	 	 	Report by the	 	 	115	 	 	Analysis of shareholdings
	 	 	 	8	 	 	Board of directors	 	 	 	 	 	independent auditors	 	 	116	 	 	Taxation
	 	 	 	10	 	 	Executive management	 	 	66	 	 	Group profit and loss	 	 	117	 	 	Financial calendar
	 	 	 	 	 	 	board	 	 	 	 	 	account	 	 	117	 	 	Key contacts information
	 	 	 	12	 	 	Group five year record	 	 	67	 	 	Group balance sheet	 	 	119	 	 	Cross reference to
	 	 	 	14	 	 	Group profile	 	 	68	 	 	Group cash flow	 	 	 	 	 	Form 20-F
	 	 	 	23	 	 	Employees	 	 	 	 	 	statement	 	 	120	 	 	Glossary of terms
	 	 	 	25	 	 	Safety, health and the	 	 	69	 	 	Total recognised gains	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	environment	 	 	 	 	 	and losses	 	 	 	 	 	 	 	 
	 	 	 	28	 	 	Research, development	 	 	69	 	 	Movement in	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	and information	 	 	 	 	 	shareholders’ funds	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	technology	 	 	70	 	 	Balance sheet of	 	 	 	 	 	 	 	 
	 	 	 	29	 	 	Risk factors	 	 	 	 	 	The BOC Group plc	 	 	 	 	 	 	 	 
	 	 	 	31	 	 	Performance review	 	 	71	 	 	Accounting policies	 	 	 	 	 	 	 	 
	 	 	 	44	 	 	Finance and treasury	 	 	74	 	 	Notes to the financial	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	review	 	 	 	 	 	statements	 	 	 	 	 	 	 	 
	 	 	 	51	 	 	Corporate governance	 	 	112	 	 	Group undertakings	 	 	 	 	 	 	 	 
	 	 	 	56	 	 	Report on remuneration	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

	 	 
	 	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
and plant capacity, (iv) the company’s restructuring plan, (v)
efficiencies for the company resulting from business reviews and
reorganisations, (vi) management’s view of the general development and
competition in the economies and markets in which it does, or plans to
do, business, (vii) management’s view of the competitiveness of its
products and services, and (viii) 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, success of business and
operating initiatives and restructuring objectives, changes in the
regulatory environment, 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 ‘2002’ in the text
means the financial year ended 30 September 2002.
Similarly, references to other years, eg
‘2003’,‘2001’ and ‘2000’, also
mean the financial years to 30 September.

01  The BOC Group plc Report and accounts 2002

 

Table of Contents

Financial highlights

	 	 	 	 	 	 	 
	Turnover
 

£
million
 

 

2002: £4,017.9m

2001: £4,159.2m

2000: £3,878.8m
 

Total
Group turnover reduced by
three per cent compared with last
year. On a constant currency basis,
however, turnover increased by
two per cent.
     The
overall reduction was due
to a lower level of activity in the BOC
Edwards business which was adversely
affected by the worldwide downturn
in the semiconductor industry.
The BOC Edwards decline of
19 per cent, on a constant currency basis, offset increases on a similar basis
in all the other businesses: Process
Gas Solutions turnover increased by
four per cent, Industrial and Special
Products by seven per cent, Afrox hospitals by 23 per cent and Gist by
14 per cent. New business acquisitions
contributed £127.1 million of
additional turnover in 2002.	 	
Operating profit

(before exceptional items)

£ million
 

 

2002: £500.1m

2001: £530.6m

2000: £496.4m
 

Operating
profit, excluding exceptional
items, was £500.1 million. This was
six per cent lower than last year, but
just one per cent lower on a constant
currency basis.
     The
main reduction was in the
BOC Edwards business where the
decline in revenue resulted in a
reported profit one third the level
of the previous year. On a constant
currency basis, the other businesses all
showed increases compared with last
year. Process Gas Solutions was up
22 per cent, Industrial and Special
Products was up five per cent, Afrox
hospitals was up 25 per cent and
Gist was up 20 per cent. Currency
translation had an adverse impact
compared with last year of some
£28 million, most notably from the
36 per cent decline in the rate of the
South African rand.	 	Profit before
tax
 

£
million
 

 

2002: £335.3m

2001: £362.2m

2000: £441.8m
 

Profit
before tax is shown after
deducting exceptional items of
£94.7 million. These exceptional items
were mainly for restructuring costs,
write downs, and termination costs
relating to the Process Plants business.
Profit before tax was seven per cent
lower than last year.
     The
net interest charge for the
year was £70.1 million. Interest on
net borrowings fell by 16 per cent to
£103.1 million from £123.4 million
last year. Also included in the net
interest charge are the financing
elements related to the Group’s
pension schemes’ assets and liabilities.
The return on pension schemes’ assets
fell by £27.8 million to £139.1 million
compared with last year, while the
financing cost on the pension schemes’
liabilities was only slightly lower than
last year at £106.1 million.	 	Capital
expenditure
 

£
million
 

 

2002: £354.3m

2001: £352.6m

2000: £413.7m
 

Capital
expenditure of subsidiary
businesses was £354.3 million, a similar
level to that for 2001.
     Of
the total capital expenditure,
44 per cent was in the Process Gas
Solutions business and 35 per cent in
the Industrial and Special Products
business (last year 48 per cent and
27 per cent respectively). On a regional
basis, 34 per cent of the expenditure
was in Europe (2001: 38 per cent),
38 per cent in the Americas (2001: 31
per cent) and 20 per cent in the Asia/Pacific
region (2001: 24 per cent).

     The Group’s share of the capital
expenditure of joint ventures and
associates was £34.5 million (2001:
£53.3 million). This expenditure was
mainly in the Process Gas Solutions
business in the Asia/Pacific region.

2002 results

Analysis by business

	 	 	 	 	 	 	 
	Turnover	 	 	 	Operating profit	 	 
	 	 	 	 	(before exceptional items)	 	 
	 
	£4,017.9m	 	 	 	£500.1m	 	 
	
	 	

		 	
1 Process Gas Solutions £1,200.6m (30%)

2 Industrial and Special Products

   £1,605.3m (40%)

3 BOC Edwards £688.2m (17%)

4 Afrox hospitals £259.0m (6%)

5 Gist £264.8m (7%)

	 	
	 	
1 Process Gas Solutions £185.2m (37%)

2 Industrial and Special Products
   £248.0m (50%)

3 BOC Edwards £26.1m (5%)

4 Afrox hospitals £29.7m (6%)

5 Gist £25.5m (5%)

   Corporate £(14.4)m (-3%)

02  The BOC Group plc Report and accounts 2002

 

Table of Contents

	 	 	 	 	 	 	 
	Return on capital	 	Net cash requirement	 	Interest cover	 	Earnings per share
	(before exceptional items)	 	 	 	(before exceptional items)	 	(before exceptional items)
	 
Percentage

 

2002: 12.3%

2001: 12.9%

2000: 12.5%
	 	£ million

 

2002: £(120.3)m

2001: £(2.3)m

2000: £(81.4)m

	 	 
Times

 

2002: 4.9 times

2001: 4.3 times

2000: 4.5 times

	 	 
Pence

 

2002: 55.94p

2001: 57.51p

2000: 53.53p

	 
	The Group return on capital employed
was 12.3 per cent. This was lower than
the 12.9 per cent return achieved last
year. The reduction was due entirely
to the lower profitability of the BOC
Edwards business this year. Excluding
BOC Edwards, the return on capital
employed increased to 13.8 per cent
compared with 12.9 per cent in the
previous year.

    Excluding BOC Edwards, the
returns for all businesses improved
from last year. The most notable
improvement was in Process Gas
Solutions, where returns increased
to 9.2 per cent from 7.7 per cent
last year, mainly through improved
operational efficiency and cost savings.
Despite weak manufacturing conditions
in some markets, the Industrial and
Special Products business also
increased its return on capital to
over 20 per cent.	 	
Cash flow from operating activities
was £759.3 million. Excluding
exceptional cash items, this was
two per cent lower than the previous
year. Excluding the BOC Edwards
business there was an eight per cent
increase. The net inflow on working
capital was higher than last year,
but this was more than offset by the
lower cash profit.

    Capital expenditure (net of
disposals), at £324.5 million, was
four per cent above last year.
This year, a net £215.5 million was
spent on acquisitions and disposals
of businesses compared with
£133. 6 million in the previous year.
The main acquisitions were the Seiko
Instruments’ turbomolecular pumps
business in Japan and the Unique Gas
business in Thailand.

    The net cash outflow for the
year before financing activities was
£120.3 million, compared with an
outflow of £2.3 million last year.
As in the previous year, free cash flow
(net cash flow before investing
activities) was strongly positive,
at £166.5 million for the year.
	 	Interest cover (the number of times
that the net interest charge on
borrowings is covered by operating
profit before exceptional items) was
4.9 times. This was an improvement
on the 4.3 times for the previous
year. Excluding interest capitalised,
the cover was 4.8 times (compared
with 4.2 times in 2001).

    Net debt at 30 September
2002 was £1,325.6 million, an increase
of £53.5 million compared with
30 September 2001.

    The average cost of net debt
was 6.3 per cent, compared with
7.4 per cent last year.
	 	Earnings per share (earnings
attributable to Ordinary shareholders
divided by the average number of
shares in issue throughout the year)
before exceptional items was 55.94p,
compared with 57.51p last year.
This is a reduction of three per cent.
On a constant currency basis, there
is no percentage change compared
with the previous year.

    Total earnings per share,
including exceptional items, were
41.36p compared with 46.03p last year.

2002 results

Analysis by region

	 	 	 	 	 	 	 
	Turnover	 	 	 	Operating profit	 	 
	 	 	 	 	(before exceptional items)	 	 
	£4,017.9m	 	 	 	£500.1m	 	 
	
	 	

		 	
1 Europe £1,069.6m (27%)

2 Americas £1,291.8m (32%)

3 Africa £441.0m (11%)

4 Asia/Pacific £1,215.5m (30%)

	 	
	 	1 Europe £155.2m (31%)

2 Americas £121.3m (24%)

3 Africa £56.7m (11%)

4 Asia/Pacific £166.9m (34%)

	
	 	

03  The BOC Group plc Report and accounts 2002

Table of Contents

Board of directors

Rob Margetts CBE 
(01)

56, 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  
 
(02)

60, 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 Exel plc and
International Power plc.

 

Fabiola Arredondo

  (03)

35, 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 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 Harvard University.

Julie Baddeley 

(04)

51, 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 two venture capital trusts, I-Net VCT plc
and Classic 3 VCT plc. She is also a member of the Audit Commission, 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.

 

Dick Grant 
(05)

56, chief executive,
Process Gas Solutions.

Appointed an executive director in July 2000. He also has responsibility for
Latin America and technology. He was formerly regional director, south Pacific
and south Asia, and previously ran divisions in Ohmeda, Gases Americas and
Gases Europe. He holds an honours degree in engineering from Leeds University.

Göran Lundberg 

(06)

62, non-executive director.

Appointed in July 2000.

He was appointed senior independent director in November 2001. He was executive
vice president of the ABB Group based in Zurich until his retirement in 1995.
He is chairman of The TAC Group and chairman of The Pharmadule Group, both with
headquarters in Sweden, and is also chairman of the DUNI AB Group. He is
involved in three venture capital companies based in Sweden and in Switzerland
and holds an M Eng and MBA.

 

René Médori 

(07)

45, 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.

Roberto G Mendoza 

(08)

57, 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 ACE Limited,
Prudential Plc, Reuters Group Plc and Vitro S.A. He joined J.P. Morgan in 1967
and served as vice chairman of the board from 1990 to 2000. Mr Mendoza 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.

 

08  The BOC Group plc  Report and accounts 2002

Table of Contents

Matthew Miau 

(09)

56, 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.

Chris O’Donnell 

(10)

56, 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’ Rajagopal 
(11)

49, 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.

John Walsh 
(12)

47, 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, Process Plants. He has a BA in economics and an MBA in
finance and marketing, both from Harvard University.

 

Board committees

		 	 Audit committee

The audit committee meets regularly with internal and external auditors, as
well as management, to review the effectiveness of internal controls, matters
raised in their regular reports to the committee and the half year and full
year financial statements prior to their submission to the board. The
committee reviews the programme and effectiveness of risk management within
the Group as well as ensuring that an appropriate relationship between BOC and
the external auditors is maintained. The committee comprises only independent
non-executive directors and is chaired by Chris O’Donnell.

		 	 Management resources committee

The management resources committee meets approximately six times a year. The
committee recommends to the board the policy on executive directors’
remuneration and the specific remuneration, benefits and terms of employment
of each executive director. The committee comprises only independent
non-executive directors and is chaired by Göran Lundberg.

		 	 Nomination committee

The nomination committee meets periodically as required. The committee
monitors the composition and balance of the board and identifies and
recommends to the board the appointment of new directors. All the independent
non-executive directors and the chief executive serve as members of this
committee. The committee is chaired by Rob Margetts.

 

		 	 Pensions committee

The pensions committee was reconstituted during the year and now oversees the
review of governance and control procedures applying to all employee retirement
benefit plans and reviews and makes recommendations on the investment policies
and strategies applied to the Group’s retirement benefit plans. The committee
comprises two independent non-executive directors, the chief executive and the
finance director. The committee is chaired by Julie Baddeley.

		 	 Executive management board

The executive management board meets regularly having primary authority for the
day-to-day management of the Group’s operations and policy implementation
pursuant to the Group’s strategy agreed with the board. The committee comprises
the chief executive, the other executive directors and certain senior managers
and is chaired by Tony Isaac. Further details are given on pages 10 and 11.

		 	 Investment
committee

The investment committee meets regularly and reviews and approves Group
commitments up to certain levels set by the board. The committee comprises the
chief executive, the other executive directors and certain senior managers and
is chaired by Tony Isaac.

 

09  The BOC Group plc  Report and accounts 2002

Table of Contents

Executive management board

John Bevan (01)

45, chief executive Asia
since June 2000.

Appointed to the executive management board in June 2000. He joined BOC in 1978
as a graduate in the Australian gases business and has held various positions
in general management in Australia, Korea, Thailand and the UK. He has a degree
in commerce (marketing) from the University of New South Wales.

 

Nick Deeming (02)

48, 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)

51, group director, corporate
relations since February 1999.

Appointed to the executive management board in October 1999. He joined BOC in
1990 as director of marketing services for the UK gases business and has held
various communications roles in the Group. He has an MA in geography from
Oxford University and an MBA from Cranfield University.

 

Peter Dew (04)

42, 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.

Dick Grant (05)

56, chief executive, Process
Gas Solutions since June 2000.

Appointed to the executive management board in July 1996. See page 8 for
biographical details.

 

Tony Isaac (06)

60, chief executive
since May 2000.

Appointed to the executive management board in July 1996. See page 8 for
biographical details.

Rob Lourey (07)

45, 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 plc  Report and accounts 2002

Table of Contents

René Médori (08)

45, group finance director
since June 2000.

Appointed to the executive management board in June 2000. See page 8 for
biographical details.

Dr ‘Raj’ Rajagopal (09)

49, chief executive, BOC
Edwards since June 1998.

Appointed to the executive management board in July 1996. See page 9 for
biographical details.

 

Greg Sedgwick (10)

41, 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)

47, chief executive,
Industrial and Special Products since June 2001.

Appointed to the executive management board in June 2000. See page 9 for
biographical details.

 

 

 

 

11  The BOC Group plc  Report and accounts 2002

Table of Contents

Group five year record

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	2000	 	2001	 	 
	 	 	1998	 	1999	 	(restated)	 	(restated)	 	2002
	Profit and loss	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	
	 	
	 	
	 	
	 	
	 	

	Turnover1
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Continuing operations
	 	 	3,079.2	 	 	 	3,052.7	 	 	 	3,579.7	 	 	 	3,772.9	 	 	 	3,657.7	 
	Discontinued operations
	 	 	215.6	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	--	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	3,294.8	 	 	 	3,052.7	 	 	 	3,579.7	 	 	 	3,772.9	 	 	 	3,657.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total operating profit before
exceptional items2
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Continuing operations
	 	 	473.9	 	 	 	479.9	 	 	 	496.4	 	 	 	530.6	 	 	 	500.1	 
	Discontinued operations
	 	 	6.0	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	--	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	479.9	 	 	 	479.9	 	 	 	496.4	 	 	 	530.6	 	 	 	500.1	 
	Exceptional items
	 	 	(240.6	)	 	 	(69.4	)	 	 	(4.4	)	 	 	(108.3	)	 	 	(74.5	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total operating profit
	 	 	239.3	 	 	 	410.5	 	 	 	492.0	 	 	 	422.3	 	 	 	425.6	 
	Profit/(loss) on termination/disposal of businesses
	 	 	144.0	 	 	 	32.5	 	 	 	12.5	 	 	 	—	 	 	 	(20.2	)
	Profit on disposal of fixed assets
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3.6	 	 	 	--	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Profit before interest
	 	 	383.3	 	 	 	443.0	 	 	 	504.5	 	 	 	425.9	 	 	 	405.4	 
	Interest on net debt
	 	 	(83.9	)	 	 	(80.2	)	 	 	(111.5	)	 	 	(123.4	)	 	 	(103.1	)
	Interest on pension scheme liabilities
	 	 	—	 	 	 	—	 	 	 	(100.7	)	 	 	(107.2	)	 	 	(106.1	)
	Expected return on pension scheme assets
	 	 	—	 	 	 	—	 	 	 	149.5	 	 	 	166.9	 	 	 	139.1	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net interest
	 	 	(83.9	)	 	 	(80.2	)	 	 	(62.7	)	 	 	(63.7	)	 	 	(70.1	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Profit before tax
	 	 	299.4	 	 	 	362.8	 	 	 	441.8	 	 	 	362.2	 	 	 	335.3	 
	Tax on profit on ordinary activities
	 	 	(123.6	)	 	 	(85.3	)	 	 	(135.2	)	 	 	(104.6	)	 	 	(106.2	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Profit after tax
	 	 	175.8	 	 	 	277.5	 	 	 	306.6	 	 	 	257.6	 	 	 	229.1	 
	Minority interests
	 	 	(13.0	)	 	 	(27.4	)	 	 	(28.0	)	 	 	(33.5	)	 	 	(26.2	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Profit for the financial year
	 	 	162.8	 	 	 	250.1	 	 	 	278.6	 	 	 	224.1	 	 	 	202.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Earnings per 25p Ordinary share
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Basic:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	— on published profit
	 	 	33.47p	 	 	 	51.36p	 	 	 	57.19p	 	 	 	46.03p	 	 	 	41.36p	 
	— before exceptional items
	 	 	53.27p	 	 	 	56.64p	 	 	 	53.53p	 	 	 	57.51p	 	 	 	55.94p	 
	— on published profit, continuing operations
	 	 	8.81p	 	 	 	51.36p	 	 	 	57.19p	 	 	 	46.03p	 	 	 	41.36p	 
	Diluted:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	— on published profit
	 	 	33.36p	 	 	 	51.17p	 	 	 	56.90p	 	 	 	45.87p	 	 	 	41.21p	 
	— before exceptional items
	 	 	53.09p	 	 	 	56.42p	 	 	 	53.26p	 	 	 	57.31p	 	 	 	55.74p	 
	— on published profit, continuing operations
	 	 	8.78p	 	 	 	51.17p	 	 	 	56.90p	 	 	 	45.87p	 	 	 	41.21p	 
	Ordinary dividend per share3
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Actual
	 	 	30.9p	 	 	 	32.7p	 	 	 	35.0p	 	 	 	37.0p	 	 	 	38.0p	 
	Adjusted for inflation
	 	 	33.4p	 	 	 	34.9p	 	 	 	36.2p	 	 	 	37.6p	 	 	 	38.0p	 
	Number of fully paid Ordinary shares
in issue at the year end (million)
	 	 	489.0	 	 	 	491.0	 	 	 	492.2	 	 	 	494.4	 	 	 	497.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	1.
	 	Subsidiary undertakings only.

	2.
	 	Including share of operating profit of joint ventures and associates.

	3.
	 	Dividends paid in the calendar year.

	4.
	 	Continuing operations.

Information for 2001 and 2000 has been restated to be on a comparable
basis with 2002 following the adoption of FRS17 and FRS19 in
2002. Information for earlier years has not been restated. See also note 17 to the
financial statements.

 

12  The BOC Group plc  Report and accounts 2002

Table of Contents

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	2000	 	2001	 	 
	 	 	1998	 	1999	 	(restated)	 	(restated)	 	2002
	Balance sheet	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	
	 	
	 	
	 	
	 	
	 	

	Fixed assets
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	— intangible assets
	 	 	4.2	 	 	 	36.5	 	 	 	49.2	 	 	 	48.1	 	 	 	150.7	 
	— tangible assets
	 	 	2,801.8	 	 	 	3,043.9	 	 	 	3,294.0	 	 	 	3,168.6	 	 	 	3,027.4	 
	— joint ventures, associates and other
investments
	 	 	360.9	 	 	 	365.9	 	 	 	456.3	 	 	 	449.8	 	 	 	468.6	 
	Working capital
(excluding bank balances and short-term loans)
	 	 	222.2	 	 	 	275.5	 	 	 	282.8	 	 	 	257.0	 	 	 	203.1	 
	Deferred tax provisions
	 	 	(30.5	)	 	 	(36.4	)	 	 	(295.8	)	 	 	(294.3	)	 	 	(291.8	)
	Other non current liabilities and provisions
	 	 	(294.1	)	 	 	(262.9	)	 	 	(181.4	)	 	 	(184.3	)	 	 	(173.7	)
	Net borrowings and finance leases
	 	 	(991.0	)	 	 	(1,138.5	)	 	 	(1,308.4	)	 	 	(1,272.1	)	 	 	(1,325.6	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net assets excluding pension assets
and liabilities
	 	 	2,073.5	 	 	 	2,284.0	 	 	 	2,296.7	 	 	 	2,172.8	 	 	 	2,058.7	 
	Pension assets5
	 	 	—	 	 	 	—	 	 	 	402.0	 	 	 	107.0	 	 	 	54.3	 
	Pension liabilities5
	 	 	—	 	 	 	—	 	 	 	(31.1	)	 	 	(56.0	)	 	 	(311.0	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net assets including pension assets
and liabilities
	 	 	2,073.5	 	 	 	2,284.0	 	 	 	2,667.6	 	 	 	2,223.8	 	 	 	1,802.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Shareholders’ capital and reserves
	 	 	1,882.9	 	 	 	2,013.1	 	 	 	2,394.0	 	 	 	2,086.2	 	 	 	1,684.1	 
	Minority shareholders’ interests
	 	 	190.6	 	 	 	270.9	 	 	 	273.6	 	 	 	137.6	 	 	 	117.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total capital and reserves
	 	 	2,073.5	 	 	 	2,284.0	 	 	 	2,667.6	 	 	 	2,223.8	 	 	 	1,802.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Other selected financial information
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total capital employed6
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total capital and reserves
	 	 	2,073.5	 	 	 	2,284.0	 	 	 	2,667.6	 	 	 	2,223.8	 	 	 	1,802.0	 
	Non current liabilities and provisions
	 	 	324.6	 	 	 	299.3	 	 	 	477.2	 	 	 	478.6	 	 	 	465.5	 
	Net borrowings and finance leases7
	 	 	991.0	 	 	 	1,138.5	 	 	 	1,308.4	 	 	 	1,272.1	 	 	 	1,325.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	3,389.1	 	 	 	3,721.8	 	 	 	4,453.2	 	 	 	3,974.5	 	 	 	3,593.1	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total assets
	 	 	4,444.6	 	 	 	4,814.0	 	 	 	5,618.3	 	 	 	5,060.0	 	 	 	4,947.4	 
	Long-term liabilities and provisions
	 	 	1,316.4	 	 	 	1,278.7	 	 	 	1,399.0	 	 	 	1,554.5	 	 	 	1,897.5	 
	Capital expenditure1
	 	 	596.2	 	 	 	505.4	 	 	 	413.7	 	 	 	352.6	 	 	 	354.3	 
	Depreciation and amortisation1
	 	 	270.7	 	 	 	270.8	 	 	 	313.3	 	 	 	329.5	 	 	 	330.9	 
	Employees
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	UK
	 	 	11,107	 	 	 	10,067	 	 	 	9,929	 	 	 	10,597	 	 	 	11,266	 
	Overseas
	 	 	25,979	 	 	 	32,057	 	 	 	32,780	 	 	 	32,574	 	 	 	35,014	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Continuing operations
	 	 	37,086	 	 	 	42,124	 	 	 	42,709	 	 	 	43,171	 	 	 	46,280	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Ratios
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Return on average capital employed8
	 	 	13.4	%	 	 	13.1	%	 	 	12.5	%	 	 	12.9	%	 	 	12.3	%
	Net debt/capital employed
	 	 	29.2	%	 	 	30.6	%	 	 	29.4	%	 	 	32.0	%	 	 	36.9	%
	Net debt/equity
	 	 	47.8	%	 	 	49.8	%	 	 	49.0	%	 	 	57.2	%	 	 	73.6	%
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	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 1b) to the financial statements.

	7.
	 	Analysed for 2002 and 2001 in note 3c) to the financial statements.

	8.
	 	Operating profit before exceptional items as a percentage of the average
capital employed. The average is calculated on a monthly basis.

Information for 2001 and 2000 has been restated to be on a comparable
basis with 2002 following the adoption of FRS17 and FRS19 in
2002. Information for earlier years has not been restated. See also
note 17 to the financial statements.

 

13  The BOC Group plc  Report and accounts 2002

Table of Contents

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. It also added substantially to
BOC’s existing health care business and parts of Airco
were later merged with it to form what was subsequently
called Ohmeda.

     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. As a
consequence, BOC’s subsidiary in Japan will retain a 45
per cent interest in the combined company to be called
Japan Air Gases. This transaction remains subject to
approval by the Japanese competition authority.

     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 sale of the Ohmeda health care business to
Instrumentarium, Becton Dickinson and Baxter
International was completed in April 1998. Ohmeda is
therefore treated as a discontinued business in the
five year record on page 12 of this report.

     The BOC Group has an international portfolio of
companies operating as three lines of business and
grouped for reporting purposes into five business
segments. These are Process Gas Solutions
(PGS), Industrial and Special Products (ISP), BOC
Edwards, Afrox hospitals and Gist.

     The major exports of the Group were cryogenic
plant from the UK and the US, 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.

14  The BOC Group plc Report and accounts 2002

 

Table of Contents

Analysis of results by
business

(including share of joint ventures and associates)

	 	 	 	 	 	 	 	 	 
	 	 	£ million	 	%
	 	 	
	 	

	Turnover
	 	 	 	 	 	 	 	 
	Process Gas Solutions
	 	 	1,200.6	 	 	 	30	 
	Industrial and Special Products
	 	 	1,605.3	 	 	 	40	 
	BOC Edwards
	 	 	688.2	 	 	 	17	 
	Afrox hospitals
	 	 	259.0	 	 	 	6	 
	Gist
	 	 	264.8	 	 	 	7	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	4,017.9	 	 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Operating profit (before exceptional items)
	 	 	 	 	 	 	 	 
	Process Gas Solutions
	 	 	185.2	 	 	 	37	 
	Industrial and Special Products
	 	 	248.0	 	 	 	50	 
	BOC Edwards
	 	 	26.1	 	 	 	5	 
	Afrox hospitals
	 	 	29.7	 	 	 	6	 
	Gist
	 	 	25.5	 	 	 	5	 
	Corporate
	 	 	(14.4	)	 	 	(3	)
	 
	 	 	
	 	 	 	
	 
	 
	 	 	500.1	 	 	 	100	 
	 
	 	 	
	 	 	 	
	 

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.

Analysis of results by
region

(including share of joint ventures and associates)

	 	 	 	 	 	 	 	 	 
	 	 	£ million	 	%
	 	 	
	 	

	Turnover
	 	 	 	 	 	 	 	 
	Europe
	 	 	1,069.6	 	 	 	27	 
	Americas
	 	 	1,291.8	 	 	 	32	 
	Africa
	 	 	441.0	 	 	 	11	 
	Asia/Pacific
	 	 	1,215.5	 	 	 	30	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	4,017.9	 	 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Operating profit (before exceptional items)
	 	 	 	 	 	 	 	 
	Europe
	 	 	155.2	 	 	 	31	 
	Americas
	 	 	121.3	 	 	 	24	 
	Africa
	 	 	56.7	 	 	 	11	 
	Asia/Pacific
	 	 	166.9	 	 	 	34	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	500.1	 	 	 	100	 
	 
	 	 	
	 	 	 	
	 

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 55 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 gases and
related products and welding products.
Afrox also has interests in private hospitals, clinics and other
health care services in southern Africa, primarily through its 70
per cent holding in Afrox Healthcare Limited.

15  The BOC Group plc Report and accounts 2002

 

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Group profile

There are other Group subsidiary companies in Africa
located in Botswana, Kenya, Malawi,
Mozambique, Namibia, Nigeria, Swaziland, Zambia and
Zimbabwe. These companies are engaged in the manufacture
and/or sale of gases and related products and, in some
cases, health care products.

     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, through its
divisions, subsidiaries, joint ventures or associates, is
engaged in the manufacture and sale of gases and
related products. 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, each serving a clearly defined type
of customer and each pursuing 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. Process Systems
is also responsible for the acquisition of gas plant
technology other than air separation. Until 2002, Process
Plants, another unit forming part of PGS, was responsible
for supplying air separation technology within The BOC
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 will
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.

     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 BOC Group reports financial results for the
three lines of business and for two additional business
segments, Afrox hospitals and Gist.

     The segment reporting as Afrox hospitals 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.

     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.

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.

16  The BOC Group plc Report and accounts 2002

Table of Contents

Industry structure and consolidation The industrial
gases business is capital-intensive, with increasing
demand, together with economies of scale, leading to the
need for large production units and distribution
networks. The need for fixed asset investments, the trend
towards global customers and the benefits from the
transfer of applications technology worldwide have
resulted in the business being handled by a relatively
small number of companies internationally.

     One or more other major international producers
compete in each of the industrial gases markets served
by the Group, and in many of the markets there are
smaller local producers as well. International
competitors include Air Liquide, Praxair, Air Products
and Chemicals, Linde, Messer 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.

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.

     At the beginning of 2000, BOC increased its
ownership in its formerly associated companies in the
Philippines. These became wholly-owned subsidiaries of
the Group from the start of 2000.

     In July 2000, BOC Edwards completed the acquisition
of Kachina Semiconductor Services, a company
specialising in component cleaning services for
semiconductor manufacturers.

     In December 2000, BOC purchased shares in NuCo2
Inc, the largest supplier of carbon dioxide and
carbonating systems to the fountain beverage industry
in the US. The shares then acquired represented some 13
per cent of the equity. In October 2001, BOC purchased an
additional three per cent of the equity. As a result of
a new share issue in August 2002, BOC now holds 13 per
cent of the equity.

     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. BOC’s
subsidiary in Japan will retain a 45 per cent interest
in the combined company to be called Japan Air
Gases. The transaction remains subject to approval by
the Japanese competition authority.

     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 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.

17  The BOC Group plc Report and accounts 2002

Table of Contents

Group profile

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 will 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 will absorb
a part of NIOI.

     At the end of August 2002, BOC announced an
agreement to purchase Praxair’s Polish gases business
subject to approval by the Polish competition
authority. The business to be acquired includes a high
proportion of industrial and special product sales.

Principal industrial gas products Nitrogen 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 come from the US, Poland and Russia
and are secured by long-term contracts. 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 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, Australia and Thailand and has smaller market
positions in several other countries.

Production of industrial gases Oxygen was first
extracted from the atmosphere by a chemical
process. This was superseded over 80 years ago by the
cryogenic (low temperature) process involving the
liquefaction and distillation of air. The cryogenic
process is still by far the most widely used, but
non-cryogenic techniques (pressure swing adsorption and
membrane diffusion), which were first developed during
the 1970s, are becoming increasingly significant for
smaller or less demanding on-site applications.

     Cryogenic air separation is a mature and stable
technology, although incremental technical advances are
still yielding improvements in capital cost, operating
cost, ease of operation and reliability. The only
significant ‘raw material’, apart from the air itself, is
electricity, which is used in large quantities to drive
compressors, pumps and other equipment. The production
process in modern air separation plants is highly
automated, and remote operation of 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.

18  The BOC Group plc Report and accounts 2002

 

Table of Contents

Distribution of industrial gases Industrial gases may
be supplied to customers in a variety of ways;through
pipelines from on-site or nearby cryogenic or
non-cryogenic plants, by deliveries of liquefied gases
in road or rail tankers, in portable cryogenic
containers or in cylinders (also called compressed or
packaged gases).

     Distribution is an important competitive factor in
the industrial gases business and the methods of
distribution vary according to the nature of the
products themselves and the 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 now 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. This
ranges 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 and
South Africa 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.

Business development In 2000 BOC undertook a major
modernisation of the air separation capacity acquired
from KGHM at Glogow in Poland to supply around 1,000
tonnes per day of oxygen to KGHM’s copper smelter.

     In June 2000, a new plant was started up to supply
Farmland Industries in Kansas with atmospheric gases. In
August the same year, BOC Gases commissioned extended
nitrogen and oxygen pipelines from its Arroyo, West
Virginia, production facility to satisfy increased
requirements from Wheeling-Pittsburgh Steel’s plants in
Ohio and West Virginia under a new long-term contract. A
plant to supply BP’s plant at Lima, Ohio, with hydrogen
began production in the third quarter of 2000.

     A joint venture production facility for liquefied
atmospheric gases started production at
Bethlehem, Pennsylvania, in June 2000. A new carbon
dioxide plant was opened at El Segundo, California, and
a new plant to supply oxygen to the Amerada Hess
refinery on St Croix in the Caribbean also began
production in 2000.

     In June 2000, BOC announced a long-term supply
agreement and plans to develop Hyundai’s nine million
cubic feet-per-day hydrogen production, compression and
infrastructure facilities in the Asan Bay petrochemical
complex in Korea.

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Group profile

The Group has a 35 per cent investment in a project to
supply Pemex with nitrogen for injection into the
Cantarell oilfield in the Gulf of Mexico. The contract
was awarded to a BOC-led consortium in October 1997. The
complex began production during 2000 and completed
final performance testing in 2001, as planned. This
facility supplies up to 40,000 tonnes per day of high
pressure nitrogen by underwater pipeline for injection
into the Cantarell oilfield to support enhanced oil
recovery.

     During 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 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.

Industrial and Special Products (ISP)

Gases for cutting and welding, hospitality, laboratory
applications and a variety of medical purposes are
mainly distributed under pressure in cylinders. The ISP
line of business covers products and services provided
to this section of the market together with sales of
packaged chemicals and liquefied petroleum gas
(LPG). Customers are typically in the
fabrication, engineering, automotive,
refrigeration, hospitality or medical sectors. The
customer base is therefore broad and varied. The number
of separate customers served by ISP is much greater
than the other two lines of business and the
quality of service is often the key factor in securing
existing or obtaining new customers. In order to raise
service standards at the same time as reducing
costs, national customer service centres have been
successfully established in all the major markets.

     In addition to supplying gases, BOC also supplies a
range of associated equipment in many of its major
markets. This includes cutting and welding products
and, in some markets, associated safety equipment.

     BOC has devoted considerable attention over the
last three years to understand the requirements of
different types of customer in its major markets and to
provide the required service at an appropriate
price. Such customer segmentation programmes have been
implemented in the UK, South Africa, Australia, Asia, Latin
America and are in progress elsewhere.

     The cutting and welding applications are a
relatively mature part of the industrial gases business
and growth opportunities are principally in other
segments of the market such as medical
applications, packaged chemicals, hospitality and
services. BOC is pursuing these opportunities by the
development of new products, packages and services as
well as by marketing initiatives to take advantage of
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 development In 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 subject to approval by the Polish
competition authority.

     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.

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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.

     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. BOC now supplies refrigerants in
19 countries compared with six countries in 1999.

     In 2000, BOC commissioned the UK’s most modern
refrigerant gases recycling and cylinder filling
facility at Immingham. Installed in a purpose-built
building and representing an investment of over £1
million, the new centre houses storage vessels for the
full range of refrigerants (including the latest CFC
and HCFC-replacement products), state-of-the-art
cylinder preparation and filling systems, an analytical
laboratory and refrigerant gas recycling machines. The
Immingham filling facility is adding extra production
and storage capacity, due for completion in March 2003.

     Significant progress in developing web-based
customer portals was made in 2002. Amongst others, ISP
launched industrial products’ 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 Edwards

This line of business specialises in gases, services and
vacuum systems 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
2001 and 2002. 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. BOC Edwards’ chemical
management products are mainly manufactured 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. In 2000 BOC Edwards opened
two new R&D laboratories at its Santa Clara facility in
California, one dedicated to chemical management and
the other dedicated to exhaust management systems,
adding to the global development structure. Another
exhaust management laboratory was opened in Japan
during 2001. Over 250 staff are employed in development
project teams worldwide.

     The Group’s vacuum products and coating equipment
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 and coating equipment 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.

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Group profile

Business development In the period 2000 to 2002, 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. In April 2000, a new manufacturing facility
for BOC Edwards’ exhaust management products became
fully operational at Clevedon in the UK.

     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.

     In February 2000, BOC Edwards agreed terms to
acquire Kachina Semiconductor Services, a US company
specialising in the cleaning of process tool chambers
and parts. The transaction was completed in July 2000
and a new facility and divisional headquarters was then
established in Phoenix, Arizona, followed by a new
facility in Portland, Oregon. Additional facilities were
opened in France and China during 2002.

     Production of nitrogen
trifluoride gas (NF3) for the
semiconductor industry was started at
a plant in South Africa during 2000. This product is an
important etchant that is also used for in-position
cleaning of semiconductor process equipment.

     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 and retained a 70
per cent interest. This disposal was in accordance with
the terms of the transaction between Afrox and PresMed
that took place in 1999.

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, part
of the UK garment stockholding and the consolidation
and dispatch of all overseas shipments to subsidiaries
and franchised operations.

     Gist has also 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.

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Employees

At 30 September 2002 the Group had 46,280 employees
(2001:43,171 employees, 2000:42,709 employees). Employees
of the company and its subsidiaries were located as
follows:

	 	 	 	 	 
	Europe
	 	 	13,213	 
	Americas
	 	 	7,243	 
	Africa
	 	 	17,435	 
	Asia/Pacific
	 	 	8,389	 

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 process highlights 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 survey

BOC values the views of its employees and to this
end, the Group-wide organisation survey, Voice of
BOC, was conducted again in 2002.

     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. ACTS provides a framework
which enables employees to evaluate and critique how
they deal with each other as well as how they work with
customers, suppliers and the community.

     As with the previous survey, improvement areas have
been identified at Group, line of business and business
unit level within the organisation and plans have been
developed. The next survey will be conducted in 2004.

Employment policies and principles

The BOC Group takes its responsibilities as a global
organisation very seriously. 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.

     BOC provides guidance, leading-edge HR policies and
a set of corporate values to support BOC people in
their day-to-day activities and long-term career
planning.

     At the heart of this approach is the recognition
that the energy and application of individuals and
teams throughout
the entire 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. They are aligned with a set of core
values. It is essential that the HR 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

BOC conducts a robust annual process to assess the
strengths and weaknesses of its units. Talented people
are targeted for development, and new talent is
recruited to supplement this.

     Resourcing, training and development programmes are
designed to ensure that the Group has a pool of
well-qualified, gifted individuals, able to meet its
day-to-day operational needs and its plans for the
future.

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Employees

A global, web-based recruiting platform is currently
being implemented 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.

     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.

     LEAD is an ambitious executive development
programme for high potential senior managers. It is
customised for BOC and comprehensive in its scope. It
augments many other management development
initiatives, which are provided to supervisors and
managers around the world. 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.

     BOC believes that how its employees work is as
important as what they produce, which is why we have
concentrated on the behaviours associated with the ACTS
cultural pillars. 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 56.

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.

     The financial position of the Group’s principal
pension funds is detailed in note 6 to the financial
statements.

Diversity

As one of the UK’s few truly global companies, BOC
highly values the rich ethnic and cultural 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.

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.

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Safety, health and the environment

	 	 	 
		 	The BOC Group takes its safety, health and environmental responsibilities seriously, and strives
in all its business dealings to operate safe working practices, eliminate incidents and to ensure
it causes no harm to people or the environment. The Group’s commitment on this front is
best illustrated by the breadth of measures taken to equip employees with training and the
appropriate tools.
     A
dedicated Safety, Health, Environment and Quality (SHEQ) department ensures 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 and
procedures are already firmly embedded in 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 (environmental) 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 parameters. Indeed, the pursuit of rigorous safety and environmental
measurement procedures in recent years has contributed significantly to an improvement in the
Group’s overall business performance. As a result, BOC has improved efficiency with a reduced
accident rate, fewer lost workdays, a greater recycling take-up, better energy conservation and less
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 commitment to robust product stewardship. 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,
regardless of plant, product or service.
     Each
business unit in each region has a safety function, which is aligned with the unit’s
business activities and connected to the Group’s other safety functions by a peer group network.
This ensures that global best practice and the business’ functional requirements are always at
the forefront.
     Controlling
process-related risks is of the utmost importance. Any incidents that do occur are
thoroughly investigated and the lessons learned 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.
     BOC
has instigated a five-year plan to halve the Group’s accident rate. A five-year strategy has
been developed to enable these overall goals to be achieved and this strategy has been cascaded
to regional businesses for local input. The main items underpinning the strategy are implementing,
communicating, measuring and reporting best practice as well as training, competence and
behavioural management systems.
     Training
and competence of BOC employees is continually improving as the Group’s IMSS
package is rolled out globally, ensuring best practice is applied
within all businesses.
     As
part of its five-year strategy, BOC is implementing a behavioural safety programme to
improve significantly safety performance across the organisation. This programme will look at
subjects such as management leadership in safety and the safety behaviour of individuals.
     Significant
improvements were recorded across all of the Group’s key safety performance
indicators with good results in the reduction of total recordable incidents and passenger
car accidents.
     As
in every year, BOC takes steps to prevent and address the underlying causes of serious
accidents 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 LWCs and medical
treatment cases.
	 	•	 	Passenger Car Avoidable Accident Rate (PCAAR) per million miles.
	 	•	 	Truck Avoidable Accident Rate (TAAR) per million miles.

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Safety, health and the environment

	 	 	 
		 	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 activities continue to provide a global service, striving to eradicate
the organisation’s work-related health hazards and in addition, ensure 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.
     A
‘wellness’ programme in the UK continues to deliver benefits, due largely to the identification
and treatment of high cholesterol and blood pressure amongst employees.
     A
global approach to minimising employee health risks from our operations is now being
pursued through the Group occupational hygiene function which has been incorporated into the
Group SHEQ departmental responsibilities. The strategy has been to ensure all operations are
reviewed for health risks and appropriate preventative measures and programmes are standardised
and applied across the Group as best practice initiatives.
     Access
to global guidance on occupational hygiene, together with manuals, training videos and
safety data sheets, is available on a dedicated intranet site.
     Jeff
Elphick, Group occupational hygiene manager, is President of the British Occupational
Hygiene Society for 2002/3 and is Chief Examiner for the profession.
 

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 has a commitment 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 global and local business unit level. Group environmental
strategies have continued to help to improve business performance in sites across the world.
Many BOC business units have programmes to achieve ISO 14001 environmental certification.
The Group has 30 sites in different lines of business certified to this standard ranging from BOC’s
air separation unit at Jamshedphur in India, operations at Barbosa in Venezuela, which gained ISO
14001 in 2001, in Mexico, at the site of the largest nitrogen plant in the world, as well as the site
at Gebze in Turkey which gained the first integrated ISO 14001 and ISO 9000:2000 certification
in that country.
     The
SHEQ department — which oversees Group interests and performance — continues to
pursue a programme to integrate environmental performance goals into BOC’s management
performance contracts and develop global best environmental operating practices. A global
environment working group was set up this year to develop these practices in areas such as
waste and environmental management. The environment working group implemented new
communications to manage the structured transfer of best practice and a five-year strategic plan.
     BOC
has operated a comprehensive environmental survey programme of its sites for over
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. The UK businesses, which
operate 2,000 large delivery vehicles, implemented a fuel efficiency programme that led to an
annual saving of more than £340,000 in fuel consumption costs and a significant reduction in
carbon dioxide emissions.
     BOC’s
commitment to environmental stewardship and partnership is shown in its approach
to new plants, facilities and services. For example, due to the rapid growth in worldwide demand
for natural refrigerants, the distribution network of our range of hydrocarbons was extended to
the Philippines, Malaysia and Thailand this year. East Asia is a key market for air conditioning and
refrigeration with users eager to extend their range of solutions that minimise industry’s
contribution to global warming. Also, BOC’s hospitals business in South Africa undertook a
wide-ranging energy review programme focusing on efficient site water utilisation, space heating,
steam production, air conditioning and energy load management systems. One outcome of this
programme was the installation of solar panels at the Brenthurst hospital to assess and implement
alternative renewable energy sources.

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BOC aims to comply fully with all material environmental laws and regulations. No fines or
prosecutions for breach of any environmental regulation were incurred and BOC was compliant
with external standards, but did not comply with all internal codes or practices.
     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 be material to 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, 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 also installed its first Burnjector technology in Australia for the leading
Manufacturer of steel products at its steel scrap recycling plant. The BOC-patented Burnjector
is an oxy-fuel burner, oxygen lance and chemical reactor system. The Burnjector system
enhances the energy efficiency, productivity, environmental performance and safety of the
electric arc furnace.
     BOC
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. In 2002, BOC launched a mobile oxygen barge in Shanghai,
China, to help in the rehabilitation of the most polluted stretch of
river in China, Suzhou Creek — an excellent example of BOC’s commitment to delivering global environmental solutions.
     The
Group continues to work actively with its stakeholders — customers, suppliers, employees,
investors, local communities and governments — to ensure environmental issues are approached
responsibly and supported actively. BOC sponsored the second BOC Environment Award at the
Institute of Chemical Engineers’ annual award ceremony in September. The award was given to
Phillips Petroleum’s project to decommission the oil production platform Maureen, which was
refloated, towed to safety, cleaned, deconstructed and the parts reused or recycled — a first under
new UK environmental laws.
     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 BOC’s wider stakeholders means that BOC has continued
to review and adapt its business practices appropriately by reviewing policies, training and
implementation programmes and processes. In Europe and the Americas, BOC supports the
chemical industry’s Responsible Care programme. BOC also continues to participate in the
Business in the Environment survey for the UK. This year the Group improved its overall
survey score achieving 76 per cent against 71 per cent in 2001.
 

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 more than 110 projects focusing on waste
management, water quality and pollution control. Since the Foundation’s inception BOC has
donated £3.5 million. This year the company contributed £214,000 to Foundation projects,
bringing the combined funding for projects from BOC and its co-sponsoring partners to more
than £11 million since 1990.

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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 Centre in Murray Hill, New
Jersey, continues to be a primary R&D location for
market applications for Process Gas Solutions.

     During the year BOC combined its process plants
research and development capabilities related to the
production of industrial gases, which were based in
Murray Hill, with those of Linde Engineering. The
resulting Linde BOC Process Plants operation covers all
engineering aspects from initial engineering
studies, through construction, to commissioning of a full
range of plants: air separation, hydrogen and carbon
monoxide generation and purification, helium
liquefaction and recovery and other refinery and
chemical facilities. It has access to technology from
The BOC Group, Linde AG and third parties.

     The growing need for H2/synthesis gas by the
chemicals and petroleum industry will be met by
production technology from Linde BOC Process Plants. In
addition, BOC is developing various process technologies
based on ceramics for the production of H2 and
synthesis gas. Some of these technologies have already
been successfully demonstrated in pilot scale and have
the potential to reduce the cost of production
substantially. During the past year BOC has arrived at
novel and improved ways to dissolve and react gases in
liquid, resulting in better ways to freeze food
products and options to address the CO2 sequestration
issue.

     BOC Edwards’ development efforts are focused on a
broad product portfolio of equipment, materials and
services for semiconductor, industrial and scientific
customers. Technology investment is based on an
understanding of future industry requirements, with the
International Technology Roadmap for Semiconductors
being a key guide for semiconductor development. Two
examples of technology programmes in the semiconductor
area which address emerging
industry needs are the development of new cleaning
technologies using supercritical CO2 and
the use of on-site generated fluorine for applications
in process chamber cleaning.

     The chemical management division of BOC Edwards
has expanded its range of advanced systems for copper
technology. Technology obtained from the recently
acquired Semco business enables increased flexibility
and accuracy in blending, thereby allowing tool
designers and semiconductor process engineers to
customise process steps on a wafer-by-wafer
basis, increasing wafer yields and device robustness.

     The acquisition of Hydromatix Inc has contributed
several new, patented metal removals technologies to our
semiconductor exhaust management capabilities. These
technologies are being applied to the treatment of
chemical
mechanical planarisation and metal plating bath
waste streams using a patent-pending process which
combines ion exchange, catalysed oxidation of organic
compounds, electrowinning of metals, and concentration of
chemicals using sophisticated membrane techniques.

     The electronic materials product division
continues development programmes on materials designed
to meet the increasing purity requirements for the
storage and delivery of gases and liquids. Low
dielectric constant materials that address current
applications are available while other programmes
address longer term ultra-low dielectric constant
materials trends. Special in situ sensors have been
introduced for enhancing productivity in the
semiconductor fab manufacturing environment.

     A significant programme with a leading lithography
tool manufacturer is aimed at solving vacuum problems
for EUV (extreme ultraviolet) lithography
tools, projected to be needed in 2006. In the near
term, development is underway to create the ultrapure
gas systems needed for 157 nm lithography tools.

     Core development in the vacuum products division
continues in areas of reduced ‘cost of ownership’, noise
and vibration as well as pumping capability for next
generation process tools for sub 0.1 micron line widths
and beyond. The acquisition of the turbomolecular pumps
division of Seiko Instruments brings
in-house, turbomolecular pump design capability for
advanced blade features and advanced
magnetic-levitation. Technology suitable for large
industrial pumping applications, obtained by acquiring
the vacuum and pressure business of the Smiths
Group, broadens the overall portfolio.

     Throughout the last year, semiconductor industry
focus has continued on achieving lower cost per bit
with reduced environmental emissions. BOC Edwards
technology has focused on ensuring that its range of
products and services meet and, where
possible, anticipate these requirements to position us
for leadership in our areas of activity.

     Total R&D expenditure in 2002 was £47.0
million, compared with £59.7 million in 2001 and £59.2
million in 2000.

Information technology

Customers continue to benefit from the extension by BOC
of so-called ‘portal’ technology to new market
groups. Targeted customers in the UK, Australia and New
Zealand now have on-line access to services tailored to
their business needs. As a customer in its own right, BOC
has applied e-commerce techniques such as on-line
reverse auctions and horizontal buying groups to help
manage its supplier base more effectively.

     In 1994 BOC chose SAP to supply its business
computing system and last year continued to roll-out
the system to more businesses in Asia, North and South
America and Europe. A global data centre was set up in
the UK. This is capable of
managing all transactions from BOC’s SAP-based
systems around the world, passing data over the
Internet. BOC has also established a software
development centre in Australia to ensure programs
developed for SAP and other applications are supported
as cost-effectively as possible.

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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 45 and
46 of the finance and treasury 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 is currently
experiencing 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 2002 as
part of its growth strategy. While BOC will have
identified expected synergies, cost savings and growth
opportunities prior to the 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.
	•	 	assumption of liabilities unrecognised in the due
diligence process.

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 (PGS) line of
business, has a strategy for growth that requires
significant investment each year to serve key customers
in different geographies. Failure to execute projects
successfully for these customers will impact 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).
	•	 	inability to operate the plant at the level of costs
assumed in BOC’s financial evaluation of the project.

The safety of BOC’s operations is critical to success

Industrial gases are potentially hazardous substances
and BOC recognises that managing safety in
operations, transportation and products is critical to
achieve growth and financial results. Failure to
maintain high levels of safety can result in a number
of negative outcomes, including:

	•	 	fines and penalties
for breaches of safety laws.
	•	 	liability payments and costs to employees or third
parties arising from injury or damage.
	•	 	exclusion from
certain market sectors deemed important for future
development of the business.
	•	 	damage to reputation.

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 local economic
conditions 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.

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Risk factors

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.

BOC operates in a highly competitive environment

The industrial gases market is very competitive, with
several large competitors and a significant number of
smaller local competitors in different
territories. Although the current trend in the industry
is to seek price increases for industrial gases, the
industry has experienced falling prices in previous
years. There is no guarantee that the current trend will
continue and there is a risk that competitors will seek
to maintain or increase market shares by reducing
prices. These price reductions would result in lower
revenues, profits and cash flows.

Recognising and anticipating changes in the manufacturing economy is key to 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 line of business. 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, there is a risk 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 key personnel in 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. Examples of
litigation in the US for past products include
allegations of injury arising from the use of welding
rods previously manufactured by BOC in the US.

Increased energy costs could reduce profitability

The production of industrial gases requires significant
amounts of electrical energy. Energy costs are a key
component of the cost of manufacturing industrial
gases, and increases in these costs can impact
profitability if they cannot be passed on to
customers. Accurately predicting trends in energy costs
is difficult to achieve as energy costs are, to a large
extent, subject to factors beyond the 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.

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Table of Contents

Performance review (comparing 2002 with 2001)

Group

Results for 2002 are stated after fully adopting the UK accounting
standards FRS17 (Retirement benefits) and FRS19 (Deferred
tax). Comparative figures of a year ago are restated accordingly.

     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. After charging exceptional items of
£94.7 million, profit before interest and tax for the year was £405.4
million, profit before tax was £335.3 million and earnings per share
were 41.36p. Excluding these exceptional items, profit before interest
and tax for the year was £500.1 million, profit before tax was £430.0
million and earnings per share were 55.94p.

     Exceptional items for the year include 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 proposed merger of OSK with Air Liquide
Japan.

     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. Excluding exceptional items, the
corresponding reduction in operating profit would have been £27.6
million, while profit before tax would have been £22.7 million less.
Earnings per share would have been reduced by 1.7p.

     Results are quoted at actual exchange rates but percentage
changes are shown below on the basis of constant exchange rates to
eliminate the effect of exchange translation. Comparisons are made
with the same period a year ago unless otherwise stated. Profits are
shown excluding exceptional items.

     All business segments, apart from BOC Edwards, achieved
improved turnover and profits in 2002. In aggregate, the businesses
other than BOC Edwards achieved a 12 per cent increase in turnover
and an 11 per cent increase in operating profit before exceptional
items.

     The turnover of the Process Gas Solutions line of business was up
four per cent in 2002 and operating profit before exceptional items was
up 22 per cent. Better performance was the result of new plants coming
on stream, business efficiency programmes and cost savings realised
from the closure of BOC’s Process Plants facilities prior to
combination with Linde Engineering in the US.

     For the Industrial and Special Products line of business, turnover
was up seven per cent in 2002 and operating profit before exceptional
items was up five per cent. Demand in the industrial sector remained
weak in the key markets of the UK and the US but there was growth in
parts of the Pacific region and Africa. Sales of medical gases and
hospitality products and services increased worldwide. Operating
margins improved mainly as a result of increased productivity following
restructuring.

     BOC Edwards’ turnover was down 19 per cent for 2002 and operating
profit before exceptional items was down 66 per cent. Lower turnover
and profit reflected the continuation of the severe reduction in
capital spending by semiconductor manufacturers that began in the
latter half of 2001. 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.

     Turnover and operating profit before exceptional items of the
Afrox hospitals segment were down in sterling but up 23 per cent and
25 per cent respectively on a constant currency basis. Acquisitions
of hospitals in the first half of 2002 added to turnover and more
significantly to operating profit as integration benefits were
realised.

     Despite competitive conditions in the logistics market, Gist
achieved strong results with improved margins and a contribution
from new business. Turnover was up 14 per cent and operating
profit before exceptional items was up 20 per cent.

     Group return on capital for the year to 30 September 2002 was 12.3
per cent, or 13.8 per cent excluding BOC Edwards, after six successive
quarters of improvement. Free cash flow (after interest, tax, dividends
and capital spending but before acquisitions) remained strong and
reached £166.5 million in 2002.

     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. A first
interim dividend for 2003 of 15.5p per share has been declared for
payment in February 2003.

     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.

 

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Performance review (comparing 2002 with 2001)

Process Gas Solutions (PGS)

Turnover increased by four per cent to £1,200.6 million in 2002
and operating profit increased by 22 per cent to £185.2 million.
Return on capital increased from 7.7 per cent in 2001 to 9.2 per
cent in 2002.

     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 strengthen BOC’s established base in the metals
sector and highlight a growing commitment to the chemicals and oil
sectors.

     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 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 are already established in the UK, the US and Australia.
Management believes that a further 70 plants can benefit from remote
operation during the next 18 months and new links are being
established to bring Asian plants into the network.

     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.

Europe Turnover increased in the UK but 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. 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 has been made for a
bad debt and to write down the value of BOC’s plant supplying a
facility that has been closed.

     In July BOC acquired pipeline assets serving customers on
the Teesside chemical complex. This gives BOC more direct contact
with its customers in this important area.

     Although turnover in Ireland was similar to the previous year,
operating profit increased as a result of success in reducing costs.
Profit also increased in Poland for the same reason and because a bad
debt provision depressed profit in 2001.

North America Overall 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.

     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 America Despite continuing political uncertainty, BOC’s
business in Venezuela achieved significantly better results 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 profit growth in
2002.

     Results in Colombia were 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 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 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 results for the year. BOC increased its share of the company
from 30 per cent to 35 per cent in early 2002.

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Africa Buoyant 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
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.

Japan Turnover and 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 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. The agreement to merge the industrial
and medical gases businesses of BOC in Japan with those
of Air Liquide Japan is covered within the Group
profile section on pages 14 and 17.

North Asia Growth of sales revenues in Korea was
limited by weak economic conditions but 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
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 is committed to installing a new air
separation plant. This gives 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 will be a supplier of 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 Asia Economic 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 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 is
under construction at Map Ta Phut in Thailand. When
completed in May 2003 this will supply the Thai
Polycarbonate Company for the manufacture of plastic
resins.

     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 Asia BOC’s line of business structure will be
fully implemented in this region during 2003. 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.

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Performance review (comparing 2002 with 2001)

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 operating profit but there was also a
significant improvement in underlying sales and
operating profit. A new supply scheme to provide
industrial gases to Tata Iron and Steel was won and the
new plant will be constructed in 2003.

     Sales and operating profits also increased in
Bangladesh and Pakistan. New carbon dioxide capacity
will be added in 2003 to satisfy growing demand from
the beverage industry in Pakistan.

South Pacific Recent
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.

     Operating profit increased significantly faster
than sales as a result of improved operating efficiency
and control of overhead costs. Plant reliability has
been increased and 12 of the key production plants in
Australia are now 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.

Process Plants In 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 results
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)

Turnover increased by seven per cent to £1,605.3
million and operating profit increased by five per cent
to £248.0 million. 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.
Operating margins improved mainly as a result of
increased productivity following restructuring.

Europe A modest improvement in UK turnover was matched
by a similar increase in 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 operating profit also increased in
Ireland and BOC’s commercial systems accommodated the
change to the new euro currency without problems.
Although Industrial and Special Products was a
minor part of BOC’s business in Poland during
2002, there was a significant improvement in sales and
operating profit. In September BOC announced that it
had agreed to acquire Praxair’s industrial gases
business in Poland. This transaction remains subject to
approval by the competition authority in Poland. When
completed it will give BOC a more significant presence
than before in the Polish industrial and special
products sector.

North America Turnover 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

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particular. In such conditions and with the initial
financial impact of installing a new enterprise
resource and planning system during the year, 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 will be 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 adds an important special
products capability to BOC’s product range in Canada.

Latin America Turnover and 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.

Africa Turnover and operating profit increased
significantly in 2002 on the constant currency basis
used for performance comparisons 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. 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 and
consumables from South Africa both to other African
countries and to elsewhere increased strongly in 2002.

Japan During 2002 difficult economic conditions were
reflected in essentially unchanged turnover and a
decline in operating profit. This was despite good
growth in gases for applications in lasers, medical
gases and measurement equipment.

East Asia Turnover and 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 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 Pacific Strong economic and manufacturing growth
supported increased sales and operating profit in the
key markets of Australia and New Zealand. The
underlying growth of 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. There was strong sales growth for BOC’s
branded welding and safety products. At the same time
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 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.

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Performance review (comparing 2002 with 2001)

BOC Edwards

Turnover decreased by 19 per cent to £688.2 million
and, although operating profit reduced by 66 per cent
to £26.1 million for the year, BOC Edwards remained
profitable in each quarter and was strongly cash
generative during the year.

     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.

     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 combines the marketing
capabilities of Lienhwa with BOC’s existing resources
in China. It has already 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
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. BOC’s alternative technology for
chamber cleaning, involving the generation of fluorine
in situ, is also being evaluated by customers.

     The pause in semiconductor capacity expansion has
not prevented a drive by manufacturers to invest in
projects designed to reduce unit costs. Typically this
includes 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 will 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.

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Afrox hospitals

On the constant currency basis used for performance
comparisons, turnover was up 23 per cent in 2002 to
£259.0 million and operating profit increased by 25 per
cent to £29.7 million. These improvements were
insufficient to offset the sharp decline in the value
of the South African rand between 2001 and 2002. Taking
into account this decline, turnover decreased from
£287.8 million in 2001 to £259.0 million in 2002. On a
similar basis, operating profit decreased from £32.3
million in 2001 to £29.7 million in 2002.

     The acquisitions of the Amahosp and Wilgers
hospital groups in the first half of 2002 added to
turnover and more significantly to 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 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 continues to be a
problem in South Africa as trained nurses are lured
overseas by higher pay. Afrox has responded by
increasing spending on training activities to ensure
that sufficient well-qualified staff are available.

Gist

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 operating profit rose 20
per cent to £25.5 million.

     Operating supply chains for customers remains at
the core of the business and improved results reflect
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.

     New business in 2002 included a contract to manage
a new supply chain operation for the John Lewis
Partnership, a leading high street department store
chain.

     E-business continued to grow steadily and offered
a number of opportunities with commercial promise to
order on-line products and services. Gist provides
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 are
already being used to manage complex international
supply chains, such as managing supplies for BOC
Edwards’ global manufacturing operations. Gist also
provides stand-alone consulting services to a range of
customers.

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Performance review (comparing 2001 with 2000)

Performance comparisons between 2001 and 2000 were
originally made on the basis of accounting then in
force before the adoption of the new standards FRS17
(Retirement benefits) and FRS19 (Deferred tax). Results
for both 2001 and 2000 have been restated.

Group

Turnover including the Group share of joint ventures
and associates was £4,159.2 million in 2001, up seven
per cent compared with £3,878.8 million in 2000. Profit
before interest and tax was £425.9 million, after
deducting exceptional items of £104.7 million in
2001, compared with £504.5 million after adding
exceptional items of £8.1 million in 2000. Excluding
exceptional items, operating profit was up seven per
cent. Exchange rate movements had a negligible impact
on the translation of total Group turnover and
operating profit excluding exceptional items for the
year. The comparisons of turnover and operating profit
by business segment within the remainder of this
performance review are shown on the basis of constant
exchange rates and, unless stated otherwise, are made
against the corresponding period a year ago. Operating
profits are shown excluding exceptional items.

     The turnover of the Process Gas Solutions line of
business was up 11 per cent in 2001 and operating
profit before exceptional items was up 19 per cent. The
improved performance reflects new plants coming on
stream and the benefits of business efficiency
programmes. For the Industrial and Special Products
line of business, turnover was up five per cent in 2001
and operating profit before exceptional items was
similar to the previous year. This was achieved despite
difficult trading conditions in the industrial segment
through restructuring programmes and through growth in
the medical and special products segments. BOC Edwards’
turnover was up five per cent for 2001 and operating
profit before exceptional items was up eight per cent.
Both turnover and operating profit were sharply lower
in the second half of the year than in the first, as a
result of weakening demand and prices for semiconductor
devices leading to production cut-backs and less
investment by most semiconductor manufacturers.
Turnover of the Afrox hospitals segment was up ten per
cent and operating profit before exceptional items
increased 33 per cent, reflecting business efficiency
gains. The turnover and operating profit before
exceptional items of Gist (formerly Distribution
Services) were up two per cent and 15 per cent
respectively in 2001. This was due to the additional
benefits of business realignment, productivity gains
and new contracts.

     The interest on net debt in 2001 was £123.4
million, up £11.9 million. Profit on ordinary
activities before tax of £362.2 million in 2001
includes £3.6 million profit on the sale of fixed
assets offset by exceptional charges totalling £108.3
million relating mainly to restructuring costs and a review of
underperforming assets.

     The effective tax rate in 2001, excluding
exceptional items, was 32.5 per cent, compared with
33.4 per cent the year before. Undiluted earnings per
share were 46.03p as reported, but would have been
57.51p excluding exceptional items. This represents an
increase of seven per cent compared with 2000.

     A first interim dividend for 2001 of 15.5p per
share was paid in February 2001 and a second interim
dividend of 21.5p per share was paid in August 2001. In
aggregate this was a 5.7 per cent increase over the
annual dividend of the previous year.

     Cash inflow from operating activities (before
interest, tax, dividends and investing activities) was
£787.8 million, compared with £705.0 million in
2000. Cash inflow as a percentage of sales was 21 per
cent in 2001 compared with 20 per cent in 2000.

     Capital expenditure by subsidiaries (including
interest capitalised) was £352.6 million, compared with
£413.7 million in 2000. Capital expenditure by joint
ventures and associates was £109.7 million, of which
the BOC share was £53.3 million. Equivalent spending in
2000 was £217.3 million of which the BOC share was
£83.5 million. The Group also made acquisitions of
businesses of £145.9 million in 2001, and proceeds from
disposals were £2.7 million.

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Process Gas Solutions (PGS)

Turnover in 2001 was £1,193.0 million, up 11 per cent
and operating profit excluding exceptional items was
£156.5 million, up 19 per cent. Turnover came from
Europe (£240.2 million), the Americas (£529.7
million), Africa (£25.6 million) and Asia/Pacific
(£397.5 million). The increases in turnover and profit
resulted mainly from bringing new production facilities
on stream to supply specific customers on the basis of
long-term contracts. Most of these units were
constructed to supply customers in the oil and
chemicals industries rather than for iron and steel
production. Investments in hydrogen supply schemes for
oil and chemical industry customers increased in 2001
while the volume of demand from the steel industry
remained depressed through the year.

     The trading environment for liquefied gases
remained generally stable for most of the year and
higher input costs, including those arising from raised
energy and fuel charges, were typically recoverable
through surcharges and in selling price increases in
key markets. The food and beverage sector was an
important source of increased sales of both nitrogen
and carbon dioxide in 2001. BOC continued to secure
additional carbon dioxide business with major beverage
manufacturers through promotion of quality assurance.

UK Manufacturing industry was in recession during
2001, leading to static demand for liquefied gases
overall and lower consumption by heavy industries
supplied by on-site plants and pipelines. Carbon
dioxide sales increased as a result of increased demand
from the food and beverage sectors. Operating profit
increased significantly as a result of improved
productivity coupled with efficiencies in distribution
and power utilisation. Restructuring of plant
operations during 2001 allowed plants to be operated
from a single control centre, while outsourcing of some
less critical engineering functions also helped to
reduce costs. At the same time, selling prices remained
firm. Increased Government taxation in the form of the
UK Climate Change Levy was passed on to long-term
contract customers from April onwards.

     New business contributing to sales in 2001
included the supply of clean dry air to BP at
Grangemouth and pipeline supplies of industrial gases
to BASF on Teesside and to ASW near Cardiff. New
hydrogen plants began to supply Roche in Scotland and
Dow Corning in Wales during the year.

Continental Europe and Ireland In Ireland, continued
growth of demand across a number of sectors more than
offset the negative sales and profit impact of a steel
plant closure. Increased sales of liquid nitrogen were
driven by growth of pharmaceutical and electronics
applications.

     Business in Poland continued to grow during 2001
with increased sales from major tonnage supply schemes.
However, conditions in the steel sector were difficult
leading to financial problems for some customers.
Results were stated after making a provision of some £1.4 million for
bad and doubtful debts.

North America In generally weak economic conditions,
turnover was up slightly but this reflected price
increases and surcharges sufficient to recover higher
costs, rather than increased volumes. Growing demand
for carbon dioxide provided a notable exception to the
weak volume trend. Overall operating profit was higher
than a year ago. New plants coming on stream in 2001
and the full year benefit of plants commissioned in
2000 contributed to sales volume. Additional business
was offset by weaker demand from some existing
customers, particularly in the steel industry. New
business development continues to be focused on
applications in the food and beverage industries and
for environmental improvements. BOC’s focus on quality
assurance continued to generate increasing demand for
beverage grade carbon dioxide from the major companies.
Prices remained firm partly as a result of reduced
product availability from chemical manufacturers.

Latin America BOC’s business in Latin America enjoyed a
strong year. The Caribbean businesses gained from
buoyant activity at the local refineries and so did
Venezuela, where new customers in the food industry
boosted demand for nitrogen and carbon dioxide. During
2001, BOC assumed full ownership of two fully
operational hydrogen supply schemes. These supply oil
refineries in Venezuela and Chile and had previously
been joint ventures with Foster Wheeler.

     The complex supplying Pemex with nitrogen for
injection into its Cantarell offshore oilfield
satisfied all the performance requirements in terms of
product purity and delivery.

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Performance review (comparing 2001 with 2000)

North Pacific The economic climate in Japan
deteriorated during the year in response to the
downturn in the electronics industry. A sharp focus on
cost reduction and revenues from new business helped to
sustain operating profit. The most significant source
of increased sales was an oxygen plant built at Onahama
to supply Mitsubishi Materials but environmental
applications such as oxy-fuel burners for the glass
industry also contributed.

     Elsewhere in the north Pacific region, growth
continued at a more rapid pace although in most markets
the trends were less favourable in the second half of
the year than in the first. This was particularly so in
Hong Kong and south China but profits were
significantly better in the rest of China, which
continued to attract investment. Restructuring and cost
reduction measures helped towards an overall profit
improvement. Turnover and profit growth continued in
Korea despite a gradual deterioration of the economy.

South East Asia Many of the economies of the region
that depend heavily on the export of electronics
declined significantly in the second half of
2001. Thailand, which has a broader-based economy, was
not so adversely affected and sales for food freezing
applications continued to grow. In Singapore a large
new plant to supply Exxon’s petrochemical complex on
Jurong Island was successfully commissioned by BOC’s
associated company. A new contract was signed with NEG
to increase the supply of oxygen to its glass
production facilities in Malaysia. The beneficial
impact of this new business was offset by a reduction
of activity in the steel sector. BOC’s new plants in
the Philippines supplying the ethylene industry were
successfully commissioned although take-off was below
expectations due to softening of demand in end user
markets.

South Pacific Turnover and operating profit grew
strongly in Australia, principally as a result of new
and more efficient plants coming into production and an
increase in average prices for liquefied gases in the
merchant market. The year began slowly, probably as a
result of the short-term impact of the introduction of
a new tax structure and the disruption to business
trends caused by the Olympic games. Weakness of the
Australian dollar then led to growth of mineral and
food exports and some economic recovery in the second
half of the year.

     A new plant complex to supply utilities and a
range of gases and services, including hydrogen, to
BP’s refinery near Brisbane was commissioned in 2001
and met all its financial and operational performance
targets. This efficient complex also replaced BOC’s
older production facilities near Brisbane and provides
additional local supplies of argon and carbon dioxide
for sale in the merchant market. This follows the
replacement of older air separation plant at Port
Kembla by a more efficient on-site plant the previous
year. The economy of New Zealand remained steady in 2001 and sales
improved as a result of firm selling prices and
previous investment in tonnage capacity.

South Asia The trend of profit improvement continued in
India helped by better volumes and substantial
increases in productivity during 2001. In Pakistan,
BOC’s plant supplying the ICI facility near Karachi
continued to achieve a satisfactory performance.

Africa Sales and operating profit increased as a result
of modest volume improvements coupled with careful
control of costs. Revenues from on-site schemes held up
well and there was increasing demand for industrial
gases for effluent treatment in the paper industry and
for carbon dioxide from the beverage industry.

     The political climate in the region affected
exchange rates and investment confidence. No major new
supply schemes were won and new business was confined
to small on-site generators for a number of existing
customers.

Process Plants In conditions of declining demand for
new air separation plant, the financial performance of
BOC Process Plants deteriorated in 2001. Operational
performance was sustained at a high level with those
plants that were provided being constructed on time and
below budgeted costs. However, activity was at a low
ebb throughout the year and steps were taken in October
2001 to restructure manufacturing capacity with the
closure of a plant at Edmonton in the UK. This also
recognises that demand for new gases plants is likely
to be focused on hydrogen production in the near
future. This technology is provided to BOC by alliance
partners rather than manufactured in-house.

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Industrial and Special Products (ISP)

Turnover was £1,573.9 million, up five per cent and
operating profit excluding exceptional items was £248.8
million, similar to the previous year. Trading
conditions were difficult in most of the major
industrial markets during 2001 as a result of weak
growth or declining trends in manufacturing industry.
BOC faced this challenge by improving customer service
at the same time as controlling costs and by ensuring
that service offerings were well aligned with customer
needs. This customer segmentation work was pursued in
major markets and led to some major changes in
merchandising. There was a shift in emphasis towards
making information available to customers on demand
through customer service centres and over the Internet.
In the absence of growth in the fabrication sector, BOC
was notably successful in developing new markets with
both products and services. Growth in 2001 came from
the development of sales to the hospitality sector by
providing not only beverage dispensing gases but also a
full cellar gas management service in the UK.

UK An adverse trend in manufacturing output during 2001
created a difficult environment for industrial product
sales. Car production was depressed while activity in
the shipbuilding and offshore platform fabrication
sectors was at a low ebb. Overall sales volumes were
lower but growth in non-industrial sectors coupled with
modest price increases enabled some growth in revenues
as well as operating profit.

     Sales of medical gases and of special gases,
including refrigerants, increased in 2001. Growth of the
Sureflow hospitality gas business was modest in 2001
but, towards the end of the year, BOC reached a novel
service partnership agreement with Scottish Courage,
the leading brewing group.

Continental Europe and Ireland Increased sales and profit in Ireland were
driven by the growth in the economy and expansion of
BOC’s Sureflow dispensing gas business serving pubs and
clubs. The hospitality sector also developed in Poland
and BOC won a contract with a major global soft drinks
company to supply cylinder gas for beverage dispensing.
Business performance in Turkey improved locally but was
constrained by economic problems leading to a sharp
devaluation of the local currency. Despite this, both
sales and operating profit increased for continental
Europe and Ireland as a whole.

North America Weaker trends in manufacturing led to a
disappointing year in both the US and Canada. This was
particularly evident in the Mid-West and south of the
US, which are the traditional centres of the automobile
and heavy construction industries. The downturn in
manufacturing was also more noticeable in sales of
equipment and consumables than in compressed gases.
This reflects the smaller number of investment projects
underway. Despite generally firm selling prices, an
overall decline in sales volume resulted in static
sales and a lower operating profit. Reduced demand from
BOC’s existing customers was partly offset by new
business, which picked up strongly as the year
progressed. While sales of industrial products were
weak in 2001, sales of special products grew in response
to increased marketing effort. Expanding applications
for helium, including optical fibre production, caused
a tighter balance between supply and demand during 2001
and this led to higher prices.

Latin America Turnover and profits from the region were
substantially better in 2001. Good volume growth in
Venezuela was driven by increased sales of industrial,
medical and scientific gases. At the same time, savings
in production and distribution costs led to better
margins. The medical and home health care sectors led
growth in Colombia but there were also increased sales
of packaged chemicals, scientific and industrial gases.
BOC’s associated company based in Chile enjoyed
continued growth in all its markets while cost
management supported profit growth.

North Pacific
Turnover in Japan was broadly similar in 2001 to the
previous year but there was some improvement in
operating profit as a result of a sharp focus on cost
reduction. New business included special gases used in
the manufacture of lasers. In a collaboration with its
gas distributors, BOC’s Japanese subsidiary opened the
country’s largest cylinder filling facility during
April 2001.

     Declining manufacturing activity in Hong Kong was
the leading factor in a small reduction in turnover and
operating profit for the rest of the region excluding
Japan.

South East Asia Sales and operating profit for the
region as a whole were higher in 2001. A new business
activity supplying refrigerants in Thailand, Malaysia
and the Philippines was launched in the second quarter
and experienced continual sales growth through to the
end of the year. Similarly, a major programme to
increase sales of special gases to the scientific
market generated good growth across the region. The
lack of major infrastructure projects, particularly in
Malaysia and Thailand, restricted growth in the
industrial products business. Competition remained a
significant challenge throughout the Malay peninsula.

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Performance review (comparing 2001 with 2000)

South Pacific Better results were delivered in New
Zealand in 2001 but weaker manufacturing in Australia
over the year resulted in a modest decline in operating
profit for the region as a whole. The industrial
downturn in Australia began early in the year as
infrastructure projects were delayed and it was
exacerbated by a gradual movement of fabrication and
manufacturing industries to offshore locations. BOC
began to restructure its business early in the year to
reflect the changes in the market. Overhead costs were
trimmed and some facilities were closed. The resulting
savings limited the impact of weaker sales volume on
profit during the first half of 2001 and there was some
recovery of demand in the second half. Modest selling
price increases were obtained during the year,
particularly for special products.

     The financial performance of BOC’s associated
company, Elgas, supplying liquefied petroleum gas (LPG)
in south eastern Australia was significantly better in
2001. Increased product costs were recovered in higher
selling prices and margins improved. At the same
time, 2001 was the first full year of operation for the
underground storage cavern, which enables economies of
scale in purchasing LPG on the world market.

South Asia Slack demand for industrial gases in India
and a reduction in shipbreaking activity in both
Pakistan and Bangladesh curtailed, but did not reverse,
the trend of sales growth across the region. Operating
profit was well up, although the comparison was
distorted by a non-recurring charge in the previous
year.

Africa Turnover and operating profit increased in
2001. Strict cost controls and new business initiatives
offset the effects of rather slow economic growth.
Business confidence was weak in South Africa, partly as
a result of the political situation in neighbouring
Zimbabwe. At the same time the privatisation of the
mining sector in Zambia increased business
opportunities.

     Much of the increase in turnover was a consequence
of the increasing price of liquefied petroleum gas
(LPG) and sales volumes were broadly similar to a year
ago. Increased LPG raw material costs were recovered in
higher selling prices as the year progressed. Prices of
other products also remained generally firm.

     Further growth was provided by additional LPG
business within South Africa as well as from new
markets in Madagascar and Mozambique. New business was
also obtained in the hospitality sector for dispensing
gases. Increased marketing efforts generated additional
sales of packaged chemicals including ammonia,
refrigerant gases and propellants. In the medical
sector, the home health business supplying oxygen
cylinders and concentrators was expanded and a new
emergency breathing pack was widely adopted by the
mining industry.

BOC Edwards

Turnover was £873.1 million, up five per cent and
operating profit excluding exceptional items was £78.8
million, up eight per cent. Turnover came from Europe
(£157.4 million), the Americas (£393.3 million) and
Asia/Pacific (£322.4 million). The overall growth masks
a sharp difference in performance between the first and
second halves of the year. BOC Edwards enjoyed a
particularly strong first six months as semiconductor
manufacturers continued to invest in new production
facilities. During the second fiscal quarter demand for
semiconductor devices began to falter and order intake
for capital equipment fell sharply as manufacturers
delayed or cancelled expansion plans. Approximately
half of BOC Edwards’ turnover at the time was related
to semiconductor capital investment. The most affected
products were semiconductor pumping systems, gas
equipment, chemical management systems and exhaust
management systems. BOC Edwards’ production capacity
for these cyclical products is made intentionally
flexible by using a proportion of outsourced
manufacturing and temporary staff. Vigorous cost
cutting and adjustment of production capacity to match
reduced demand enabled BOC Edwards to remain profitable
in the exceptionally difficult circumstances of the
last quarter.

     While investment in production for microprocessors
held up relatively well, the demand for computer memory
slumped and prices fell to a level that discouraged new
investment. Capital spending by semiconductor foundry
companies that had held up well through the last
investment cycle in the industry fell sharply in
2001. In addition to curtailed investment in new
facilities, several manufacturers were forced to cut
production rates in order to reduce overstocking and to
cut losses. This had some adverse impact on sales of
electronic materials and revenues from process tool
parts cleaning in the newly acquired BOC Edwards
Kachina service business.

     Revenues from the bulk gases segment were less
badly affected as the gas consumption is not as
directly related to production rates and a proportion
of the income is typically derived from facility
charges for on-site plants.

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The general vacuum business supplying pumping systems
to a wide variety of industrial and laboratory
customers outside the semiconductor industry continued
to grow. New turbomolecular and scroll pumps were
introduced to expand the range of applications and
increased marketing effort also helped to stimulate
increased sales in all geographies.

     Although lower prices for semiconductor devices
discouraged manufacturers from expanding capacity, they
also led to a sharper focus on production costs.
Several manufacturers therefore persisted with
investments in new technologies that are expected to
lead to lower unit costs. BOC Edwards continued product
development work with these companies so that it could
be in the strongest possible position to gain maximum
benefit from the next investment cycle. BOC Edwards
worked with the leading investors in 300mm wafer
technology and introduced a range of methylsilane
materials for low-k dielectrics that are needed in the
transition to ever narrower line widths. New proximity
pumping systems were developed including the iPX pump
that provides on-tool high vacuum to atmospheric
pumping in a single unit. In chemical management, work
continued to expand the range of products for copper
technology including new electrolyte bath maintenance
(iPURE) and planarisation slurry dispensing systems as
well as new products for post-process cleaning. Wet
cleaning products were added to the range of exhaust
management technology.

     Nitrogen trifluoride (NF3) production was increased
in 2001. Other developments during 2001
included the introduction of SemiServe, an
Internet-based health and safety training system for
the semiconductor industry.

     The Coating Technology business had a difficult
year in 2001 because orders for architectural glass
coating systems were at a low level. This was partly
offset by increased sales of Temescal coaters for the
compound semiconductor industry.

     Pharmaceutical Systems introduced new products in
2001 and achieved an excellent performance as several
pharmaceutical manufacturers stepped up their
investment in automated freeze-drying and filling
systems.

Afrox hospitals

Turnover was £287.8 million in 2001 and arose only in
Africa. The decline in sterling revenues compared with
2000 was wholly attributable to exchange rate
movements. On the constant currency basis used for all
the comparisons in the performance review, turnover
increased ten per cent. Operating profit excluding
exceptional items was £32.3 million, up 33 per cent.

     Occupancy rates in the South African private
hospital sector as a whole were lower in 2001 but Afrox
hospitals benefited from a marginal increase in
admissions and an increase in revenue per patient day
in hospital. Lower costs were largely responsible for
the improvement in margins. Further benefits were
obtained from the integration of the PresMed facilities
and from more efficient working practices.

     Health care services, including Direct Medicines,
which facilitates a prescription medicines service
providing essential chronic care, and Hospital Medical
Systems, a pathology management company, performed well
during 2001.

Gist (formerly Distribution Services)

Turnover was £231.4 million, up two per cent and came
from Europe (£229.6 million) and Asia/Pacific (£1.8
million). Operating profit excluding exceptional items
was £21.3 million, up 15 per cent. The comparative
operating profit for the previous year included a
non-recurring compensation payment. The improvement
reflects the additional benefits of business
re-alignment, productivity gains and new contracts.

     In 2001, Gist secured a five year contract to
service all warehousing and distribution operations for
Budgens, the UK convenience food retailer, and a five
year contract to supply warehousing operations for an
electronic food-retailing venture. BOC agreed to
construct a purpose-built warehouse to support
fulfilment operations for Ocado, a company established
to provide home delivery services on behalf of
Waitrose, a major UK food supermarket chain forming
part of the John Lewis Partnership.

43  The BOC Group plc Report and accounts 2002

 

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Finance and treasury review

Restructuring

In August 2001 the company announced a business initiative with
the objectives of releasing cash tied up in unproductive assets,
improving cash generation and identifying restructuring
opportunities. Programmes were implemented to divest some assets
and to restructure and improve returns in the businesses being
retained.

Divestments Proceeds of £39.0 million have been received in the
year, in addition to the £41.2 million received last year, making a
total of £80.2 million received to date. Management now expects
further proceeds of some £30 million to be received in 2003. Proceeds
from divestments will cover the cash costs of restructuring.

Restructuring Costs of restructuring programmes amounting to £47.2
million have been charged this year, in addition to the £35.8 million
charged in 2001. The cost of restructuring this year includes £34.4
million related to the programmes announced in August 2001, which are
now substantially complete with remaining costs of some £4 million
expected to be charged in 2003. These programmes have resulted in
1,516 job losses with some 100 more expected. Further restructuring
opportunities have been identified resulting in an additional cost of
£12.8 million charged this year. Management expects the restructuring
programmes to deliver efficiency and cost savings amounting to £55
million a year when completed, of which a run rate of £36 million has
already been achieved.

Operational efficiency Operational efficiencies in Process Gas
Solutions have been identified. These programmes were originally
targeted to achieve further savings of some £50 million a year by
the end of 2003, which has already been achieved. Further
opportunities for savings from operational efficiencies in
Industrial and Special Products have been identified.

Corporate transactions

In March 2002 BOC announced plans to merge its process plant operations with
Linde Engineering in the US to form a new company, Linde BOC Process
Plants LLC. The transaction was completed in September 2002. The
costs of £21.3 million for closing BOC’s Process Plants business
have been charged this year as an exceptional item. Management
expects cost savings to be worth some £15 million a year. This
transaction is also explained in note 2 b) to the financial
statements.
     In
September 2002 BOC and Air Liquide announced a conditional
agreement to merge their industrial and medical gases businesses in
Japan to form a combined company to be called Japan Air Gases.
Valuations undertaken as part of the proposed business combination
have resulted in an exceptional write down of £21.2 million in the
profit and loss account in 2002. The transaction remains subject to
approval by the Japanese competition authority. It is expected that
Japan Air Gases will achieve synergy benefits estimated at £26
million a year by 2005. This transaction is also explained in note 2
b) to the financial statements.

Pre-conditional offer for the Group

As indicated last year, further costs associated with the
pre-conditional offer for the Group were incurred during 2002. These
were £6.1 million for share option and other costs related to the
retention of key employees. All of the costs have been taken to the
profit and loss account as exceptional items. There are no further
costs to come.

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:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	2001	 	2000
	 	 	2002	 	(restated)	 	(restated)
	 	 	
	 	
	 	

	Interest cover (times)1
	 	 	4.9	 	 	 	4.3	 	 	 	4.5	 
	Interest cover (times)2
	 	 	4.8	 	 	 	4.2	 	 	 	3.8	 
	Net debt/equity (%)
	 	 	73.6	 	 	 	57.2	 	 	 	49.0	 
	Net debt/capital employed (%)
	 	 	36.9	 	 	 	32.0	 	 	 	29.4	 
	Average cost of net borrowings,
before capitalised interest (%)
	 	 	6.3	 	 	 	7.4	 	 	 	8.2	 
	Average cost of net borrowings,
after capitalised interest (%)
	 	 	6.2	 	 	 	7.2	 	 	 	7.7	 
	Group tax rate (%)3
	 	 	30.0	 	 	 	32.5	 	 	 	33.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

	1.	 	Before exceptional and FRS17 financing items.
	2.	 	Before exceptional and FRS17 financing items and excluding interest
capitalised.
	3.	 	Before exceptional items.

The ratios are commented on below in the appropriate section.

 

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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$420
million of committed multi-currency facilities with a group of
relationship banks. These facilities mature between 2002 and 2004
and provide back-up for the issue of commercial paper. Additional
committed facilities are maintained by the principal operating
units in the Group.
     Overall,
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. In 2001, net debt decreased by
£36.3 million as a result of a net cash outflow of £2.3 million
offset by £16.9 million inflow from the issue of shares and £21.7
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 2002 compared
with 32.0 per cent in 2001 and 29.4 per cent in 2000. 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
2002 year end net debt/equity ratio was 73.6 per cent, compared with
57.2 per cent in 2001 and 49.0 per cent in 2000. As with the gearing
ratio, the increase in the ratio in 2002 was mainly due to the
decline in the value of pension fund assets.
     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 presently anticipates that capital expenditure in
2003 will be at a slightly higher level than in 2002 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.

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, 86 per
cent of net debt (2001: 88 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 £360.7 million (2001: £359.6 million)
spread over a range of currencies. The fair value of such swaps is
included in note 3 d) 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 71. 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 executed
in the UK (which includes cover for exposures on net trade flows
of the Group’s companies in the US and certain other
countries), Australia, Japan and South Africa. The aggregate
principal amount of forward cover outstanding at 30 September 2002
amounted to £133.9 million (2001: £245.0 million).

Interest rate risk At 30
September 2002, the Group’s net debt position
after interest rate hedging activity included a net exposure of
£497.3 million (2001: £379.4 million) to floating interest rates.
Based on the Group’s 2002 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 £5.0 million
per annum (2001: £3.8 million).

 

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Finance and treasury review

In order to manage interest rate risk the Group maintains both
floating rate and fixed rate debt. At 30 September 2002, there was a
38:62 ratio (2001: 30:70) 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 2002, the aggregate of the notional principal
values of swap agreements which affect the floating rate/fixed rate
mix was £420.0 million (2001: £375.4 million). The fair value of such
swaps is included in note 3 d) i) to the financial statements.

Foreign exchange risk At 30 September 2002, the Group had
outstanding forward exchange contracts totalling £133.9 million
(2001: £245.0 million) in respect of its actual and forecast
transaction exposures. The fair value of these contracts at 30
September 2002 amounted to a gain of £4.9 million
(2001: a loss of
£9.1 million). A ten per cent appreciation of sterling would
increase the fair value of these contracts by £7.4 million
(2001: £19.2 million).
     In
addition to these forward contracts, the Group is exposed to
foreign exchange movements on its net debt position. At 30 September
2002 net debt, after currency swaps, comprised net sterling
liabilities of £345.2 million (2001: £298.2 million) and net currency
liabilities of £980.4 million
(2001: £973.9 million). Based on the
Group’s 2002 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 £89.1 million
(2001: £88.5 million).
     The
Group does not undertake any trading activity in financial
instruments nor does it enter into any leveraged derivative
transactions.

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 2002 is shown in note 3 to the
financial statements. Further information on financial risk
management is also given in note 3 to the financial statements.

Interest on net debt

The net charge before deducting capitalised interest and before the
Group’s share of interest of joint ventures and associates was £80.6
million in 2002, which represented 6.3 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 £103.1 million. Interest cover (the number of times that
the interest charge on net debt is covered by operating profit before
exceptional items) increased to 4.9 times (2001:4.3 times, 2000: 4.5
times). The amount of interest capitalised in subsidiaries during the
year was £2.0 million (2001: £2.5 million, 2000: £7.1 million). After
deducting capitalised interest and excluding joint ventures and
associates, the net charge was £78.6 million which represents 6.2 per
cent of average net borrowings.

Net interest on pension financing items

The interest on pension scheme liabilities was £106.1 million in 2002 compared
with £107.2 million in 2001. The expected return on pension scheme assets
was £139.1 million in 2002 compared with
£166.9 million in 2001. The
decrease was due to the decline in world equity markets which has
reduced the value of the pension scheme assets on which the expected
return on assets is based.

Debt maturity profile

The maturity profile of the Group’s gross borrowings is as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001
	 	 	
	 	

	 	 	£ million	 	%	 	£ million	 	%
	 	 	
	 	
	 	
	 	

	More than five years
	 	 	549.5	 	 	 	36.4	 	 	 	630.1	 	 	 	41.8	 
	Two to five years
	 	 	390.6	 	 	 	25.8	 	 	 	237.0	 	 	 	15.7	 
	One to two years
	 	 	180.9	 	 	 	12.0	 	 	 	152.8	 	 	 	10.2	 
	Within one year
	 	 	390.1	 	 	 	25.8	 	 	 	486.4	 	 	 	32.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	1,511.1	 	 	 	100.0	 	 	 	1,506.3	 	 	 	100.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

     The lengthening of the maturity profile was accomplished primarily
through the issuance of one bond and two smaller medium-term notes.
These funds, raised by the parent company, were used to support
acquisition activity and to re-finance existing short-term debt.

     A
portion of the debt which matures within one year is
commercial paper issued by various Group companies. The Group
maintains US$420 million of committed multi-currency facilities with
a group of relationship banks. These facilities mature between 2002
and 2004 and provide back-up for the issue of commercial paper.
Additional committed facilities are maintained by the principal
operating units in the Group.

 

     46  The BOC Group plc Report and accounts 2002

 

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Other contractual obligations

The maturity of other contractual obligations of the Group is as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Total
	 	 	 	 	Unconditional	 	contractual
	 	 	Operating	 	purchase	 	cash
	 	 	leases	 	obligations	 	obligations
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	Due after more than five years
	 	 	96.1	 	 	 	195.4	 	 	 	291.5	 
	Due within two to five years
	 	 	59.6	 	 	 	191.7	 	 	 	251.3	 
	Due within one to two years
	 	 	29.8	 	 	 	66.6	 	 	 	96.4	 
	Due within one year
	 	 	35.6	 	 	 	67.8	 	 	 	103.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	221.1	 	 	 	521.5	 	 	 	742.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

In addition, the Group has provided guarantees to third parties of £158.0
million at 30 September 2002. These predominantly relate to guarantees of the
borrowings of BOC’s joint venture company which supplies nitrogen
to the Mexican oil company, Pemex. These borrowings are scheduled
to be repaid over the next eight years.

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 2002 of £106.2 million is calculated in
accordance with UK accounting standards, including FRS19 (deferred
tax), under which full provision is made for deferred taxes.
     Excluding
exceptional items, the effective tax rate in 2002 was
30 per cent, a reduction of 2.5 per cent from 2001. Including
exceptional items, the tax rate was 32 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 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 by reference to
accounting principles. Management believes that the Group has
adequately provided for contingencies which are likely to become
payable in the future. None of these contingencies is material to
the Group’s financial condition, results of operations or liquidity.

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 will be disposed of without material effect on the Group’s financial condition,
results of operations or liquidity.
     Similar
to many other companies, BOC has been named, in the
ordinary course of its business, in civil proceedings involving
claims of toxic tort bodily injury related to asbestos and certain
metals and arising out of the use of certain of the company’s
welding products.
     Since
BOC acquired Airco in 1978, all proceedings that have
been concluded thus far have either been successfully defended or
otherwise resolved on terms favourable to the company. To date, the
costs of defending or otherwise resolving these proceedings, have
not been material to the company’s financial statements.
     The
company believes that it has strong defences to the claims
asserted in these proceedings and intends to vigorously defend such
claims. Based on the company’s experience to date, together with the
company’s current assessment of the merits of the claims being
asserted, and applicable insurance, the company believes that
continued defence and resolution of these proceedings will not have
a material adverse effect on its financial statements.

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.

 

47  The BOC Group plc Report and accounts 2002

 

Table of Contents

Finance and treasury review

Critical accounting policies

The principal accounting policies affecting the results of operations
and financial condition are set out on pages 71 to 73 of the financial
statements. The application of certain of these policies requires
assumptions or subjective judgements by management. Management bases
these on a combination of past experience and any other evidence that is
relevant to the particular circumstances.

     The application of these assumptions and judgements affects the
reported amounts of profit during the year and the assets and
liabilities at the balance sheet date. Actual results may differ from
the estimates calculated using these assumptions and judgements.
Management believes that the following are the critical policies where
the assumptions and judgements made could have a significant impact on
the consolidated financial statements.

Tangible fixed assets A significant part of the capital employed of the
Group, particularly in the Process Gas Solutions and Industrial and
Special Products lines of business, is invested in tangible fixed assets.
The nature of the business demands significant capital investment to
renew or increase production capacity or to enable the business to
achieve greater productivity and efficiency.

     It is the 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.

Intangible fixed assets In a similar manner to tangible fixed assets,
management uses its judgement to determine the extent to which goodwill
arising from the acquisition of a business has a value that will benefit
the performance of the Group over future periods. It is the Group’s
policy to amortise goodwill 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.

Retirement benefits Results of the Group include costs relating to the
provision of retirement benefits for employees. It is the directors’
responsibility to set the assumptions used in determining the key
elements of the costs of meeting such future obligations. The assumptions
are based on actual historical experience and are set after consultation
with the 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.

Environmental provisions In certain parts of the business, mainly in the
US, the Group has obligations to carry out environmental clean-ups at
former and current production sites. Many of these obligations will not
arise for a number of years, and the costs are difficult to predict
accurately. Management uses its judgement and experience to provide an
appropriate amount for the likely cost of such clean-ups, and the
amounts, if material, are discounted to present values. Both the amount
of anticipated costs, and the interest rates used to discount such costs,
are subjective. The use of different assumptions would impact the
earnings of the Group.

Current asset provisions In the course of normal
trading activities, management uses its judgement in establishing the net
realisable value of various elements of working capital — principally
stocks, work-in-progress and accounts receivable. Provisions are
established for obsolete or slow moving stocks, bad or doubtful debts and
product warranties. Actual costs in future periods may be different from
the provisions established and any such differences would affect future
earnings of the Group.

Accounting

The accounts this year comply with the requirements of the new UK
accounting standard on deferred tax (FRS19). In addition, the UK
accounting standard on retirement benefits (FRS17) has been fully
adopted. Last year the Group applied the transitional arrangements
permitted under this standard. Comparative figures for 2001 and 2000 have
been restated for these two standards.

     The report and accounts also continues to include US reporting
requirements. 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.

48  The BOC Group
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As a global business the Group supports initiatives to harmonise accounting standards. Its own
accounting policies are based on accounting principles generally accepted in the UK (UK GAAP)
but the Group also considers the implications of US GAAP and International Accounting Standards.
The Group is planning for the move to report under International Accounting Standards in line
with the timetable set out in European Union legislation. This will first apply to the report and
accounts 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 16 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 profit before tax 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
profit before tax for the year ended 30 September 2002 under US GAAP was
£413.9 million (2001: £377.1 million, 2000:
£417.7 million), compared with profit before tax of
£335.3 million in 2002 (2001: £362.2 million,
2000: £441.8 million) under UK GAAP. Shareholders’
funds at 30 September 2002 under US GAAP were
£2,061.0 million (2001: £2,138.9 million),
compared with £1,684.1 million (2001: £2,086.2 million) under UK GAAP. The difference primarily
results from the differing accounting treatment of pensions, goodwill, financial instruments,
restructuring costs, investments and fixed asset revaluations.
 

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 2002, sterling strengthened against three of the principal currencies affecting
the Group: by two per cent against the US dollar, by eight per cent against the Japanese yen
and by 36 per cent against the South African rand. Against the Australian dollar, sterling was
almost unchanged.
     In
2001, sterling weakened against the US dollar, but strengthened against the Australian dollar,
the Japanese yen and the South African rand.
     In
2000, sterling weakened against the US dollar and Japanese yen but strengthened against
the South African rand. It was almost unchanged against the Australian dollar.
     The
rates of exchange to sterling for the currencies which have principally affected the Group’s
results over the last five years were:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

	 
	 	 	2002	 	2001	 	2000	 	1999	 	1998
	

	
	 	
	 	
	 	
	 	
	 
	US dollar
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At 30 September
	 	 	1.57	 	 	 	1.47	 	 	 	1.48	 	 	 	1.65	 	 	 	1.70	 
	Average for the year
	 	 	1.47	 	 	 	1.44	 	 	 	1.56	 	 	 	1.63	 	 	 	1.65	 
	Highest rate during year
	 	 	1.58	 	 	 	1.50	 	 	 	1.67	 	 	 	1.72	 	 	 	1.71	 
	Lowest rate during year
	 	 	1.41	 	 	 	1.37	 	 	 	1.40	 	 	 	1.55	 	 	 	1.61	 
	

	
	 	
	 	
	 	
	 	
	 
	Australian dollar
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At 30 September
	 	 	2.89	 	 	 	2.98	 	 	 	2.73	 	 	 	2.52	 	 	 	2.87	 
	Average for the year
	 	 	2.77	 	 	 	2.76	 	 	 	2.56	 	 	 	2.55	 	 	 	2.55	 
	Highest rate during year
	 	 	3.00	 	 	 	3.03	 	 	 	2.85	 	 	 	2.87	 	 	 	2.96	 
	Lowest rate during year
	 	 	2.54	 	 	 	2.62	 	 	 	2.45	 	 	 	2.33	 	 	 	2.19	 
	

	
	 	
	 	
	 	
	 	
	 
	Japanese yen
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At 30 September
	 	 	191.45	 	 	 	175.09	 	 	 	159.77	 	 	 	175.34	 	 	 	231.32	 
	Average for the year
	 	 	184.34	 	 	 	170.04	 	 	 	166.03	 	 	 	191.43	 	 	 	218.08	 
	Highest rate during year
	 	 	193.05	 	 	 	181.26	 	 	 	178.67	 	 	 	230.73	 	 	 	240.27	 
	Lowest rate during year
	 	 	173.82	 	 	 	153.13	 	 	 	149.77	 	 	 	168.23	 	 	 	194.20	 
	

	
	 	
	 	
	 	
	 	
	 
	South African rand
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At 30 September
	 	 	16.58	 	 	 	13.24	 	 	 	10.68	 	 	 	9.88	 	 	 	9.99	 
	Average for the year
	 	 	15.64	 	 	 	11.47	 	 	 	10.24	 	 	 	9.82	 	 	 	8.74	 
	Highest rate during year
	 	 	19.49	 	 	 	13.26	 	 	 	11.18	 	 	 	10.43	 	 	 	10.86	 
	Lowest rate during year
	 	 	13.00	 	 	 	10.54	 	 	 	9.92	 	 	 	9.12	 	 	 	7.53	 
	

	
	 	
	 	
	 	
	 	
	 

On 12 November 2002, 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 1.59; Australian
dollar 2.83; Japanese yen 190.08; South African rand 15.59.
The highest and lowest rates of exchange for sterling against the US dollar for the last six

 

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Finance and treasury review

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	months were:	May	 	June	 	July	 	August	 	September	 	October
	 	 	
	 	
	 	
	 	
	 	
	 	

	High
	 	 	1.47	 	 	 	1.53	 	 	 	1.58	 	 	 	1.57	 	 	 	1.57	 	 	 	1.57	 
	Low
	 	 	1.45	 	 	 	1.46	 	 	 	1.52	 	 	 	1.52	 	 	 	1.53	 	 	 	1.54	 
	 	 	
	 	
	 	
	 	
	 	
	 	

Europe’s single currency

Europe’s single currency, the euro, was launched for
business-to-business use on 1 January 1999. On 1 January 2002 the euro
was adopted for all purposes in those countries participating. Sterling
continued unaffected for use in the UK.

     BOC businesses in Europe were able to operate in euros from January
1999. Subsequent system upgrades have provided for full euro
functionality, and BOC suffered no issues with the full changeover.
Costs to date have been fully expensed.

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.
	•	 	Osaka Sanso Kogyo KK, a Japanese company, in which the Group’s shareholding is 97 per cent.
	•	 	African Oxygen Limited, a South African company, in which the Group’s shareholding is 55 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 52 days at 30 September 2002.

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 12 November 2002 are
shown on page 115.

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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.

Board and
committees

The board comprised five executive directors including the chief
executive and six non-executive directors including the chairman at 30
September 2002. Roberto Mendoza was appointed as an additional
non-executive director on 9 October 2002. Biographies of each of the
directors and their board committee memberships can be found on pages 8
and 9. The non-executive directors bring a wide range of experience and
expertise to the board and are all considered by the board to be
independent. Göran Lundberg is the senior independent director, having
been appointed to this role in November 2001. The roles of chairman and
chief executive are separate. This has been the case since 1994.

     There is a formal schedule of matters reserved to the board which
includes the review of strategic and policy issues. 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 meets six times a year, with two meetings being held at
major operating subsidiaries of The BOC Group, one at a location outside
the UK.

     There are six principal board committees and further details can be
found on page 9. All the independent non-executive directors are members
of both the audit and management resources committees with the exception
of the independent non-executive chairman who attends by invitation. The
nomination committee comprises all the independent non-executive
directors and the chief executive.

     In addition to ensuring the timely issue of board meeting papers,
regular reports on the company and market sector activity together with
updates on governance and regulatory matters affecting BOC are provided
to the board.

     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.

     The Group has long recognised the vital role that non-executive
directors have in ensuring high governance standards and the BOC board
has for many years had a significant non-executive element of high
calibre. The nomination committee identify, evaluate and nominate
candidates to fill vacancies for approval by the board as a whole.
Non-executive directors are initially appointed for a three year term
after which their appointment, whilst not automatic, may be extended
subject to mutual agreement and shareholder approval.

     The non-executive directors have full access to both management
and internal and external auditors, and are encouraged to stay fully
abreast of the Group’s business through site visits and meetings with
senior management. Training and briefings are available to all
directors on appointment and subsequently, as necessary, taking into
account existing qualification and experience.

     During October 2002 the directors completed a self evaluation which
included a review of processes and arrangements for the board and the
audit, management resources and nomination committees. The findings and
recommendations for change are currently being implemented including a
more comprehensive training and induction programme for directors.

Directors and officers

     The directors holding office at the date of this report are named on
pages 8 and 9. Each of the following new non-executive directors were
appointed: Rob Margetts on 4 October 2001, Fabiola Arredondo on 8
November 2001, Matthew Miau on 23 January 2002 and Roberto Mendoza on 9
October 2002.

     At the conclusion of the Annual General Meeting held on 18 January
2002 Sir David John stepped down as chairman. He also retired as a
non-executive director, as did Howard Macdonald and Harry Groome.

     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 2002 and there
have been no changes up to the date of this report.

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Corporate governance

Directors’ remuneration

The management resources committee review and make recommendations to
the board on remuneration policy. A report on remuneration is set out
on pages 56 to 63.

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.
The chairmen of each of the board committees are present at the meeting.
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.

     The company’s website (www.boc.com) provides financial and other
business information about The BOC Group.

Accountability and audit

Statements of the respective responsibilities of the directors and
auditors for these accounts are set out on pages 64 and 65.

     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 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.

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 The BOC risk management programme assists
management throughout the Group to identify, assess and mitigate
business risk.

     Introduced in 2001, 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
100 risk workshops and reviews around the world in the past two years.
These risk assessments have been broad, covering: risks in strategy;
risks in 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.

     As part of the
strategy review conducted in 2002, BOC has identified
six areas that have to be managed well to achieve our objectives. These
are; managing growth within a competitive environment, managing the
challenges in Asia, the semiconductor cycle, pricing and productivity,
managing change successfully and understanding the global economic
environment and its impact on BOC’s plans.

     A report is made to the board twice a year. Line of business chief
executives made presentations to the board in May and October
2002, covering actions which had been completed and the status of
continuing action plans to manage the Group’s key risks. The risks
reviewed include those described in the risk factors section on pages 29
and 30.

     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.

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Internal controls The directors have delegated to executive management
the establishment and implementation of a system of internal controls
appropriate to the various business environments in which it operates.
The Group operates under a system of controls that has been developed and
refined over time to meet its current and future needs and the risks and
opportunities to which it is exposed. These controls, which are
communicated through various operating and procedural manuals and
processes, include but are not limited to:

	•	 	the definition of the
organisational structure and the appropriate delegation of authorities to
operational management.
	 
	•	 	procedures for the review and authorisation of capital investments
through the investment committee including post-acquisition reviews and
appraisals.
	 
	•	 	strategic planning and the related annual planning and
re-forecasting 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 of the board 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 and up to the date of this report and
accounts.

     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.

     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.

Disclosure controls and procedures

The Group chief executive and Group finance director, after evaluating
the effectiveness of the Group’s disclosure controls and procedures (as
defined in US Exchange Act Rule 13a-14(c)) within 90 days of the date of
this report, have concluded that, as of such date, the Group’s disclosure
controls and procedures were effective to ensure that material
information relating to the Group was made known to them by others within
the Group particularly during the period in which this annual report and
accounts was being prepared.

     There were no significant changes in the Group’s internal controls
or in other factors that could significantly affect these controls
subsequent to the date the Group chief executive and Group finance
director completed their evaluation, nor were there any significant
deficiencies or material weaknesses in the Group’s internal controls
requiring corrective actions.

Going concern

The directors’ report on going concern is included in the finance and treasury
review on page 50.

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 during the year has moved to a position of
full compliance in the following areas:

	a)	 	on 8 November 2001 Göran
Lundberg was appointed to the role of senior independent non-executive
director; and
	 
	b)	 	the share award plan, established in 2000 following the
lapse of the offer by Air Liquide and Air Products to provide a mid-term
incentive for senior managers, vested in June 2002. No further awards have been, or will be, made under the plan. Further
details can be found on page 58.

With regard to executive directors’ service contracts, the company has
recently moved to a policy for all executive directors, which policy is
in the course of being implemented, of service contracts that can be
terminated by the company on one year’s notice and an explanation can be
found on page 58.

     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.

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Corporate governance

Corporate social investment

In 2002, The BOC Group’s corporate social investment programme had three
key objectives. The first was to continue to focus on projects designed
to improve environmental stewardship. The second was to continue to
devolve the choices of social investment donations to our employees.
The third was to broaden the organisation’s involvement in social
programmes around the world.

     BOC made a number of positive contributions to environmental
projects including the BOC New Zealand Community Environmental Grants
Programme which provides assistance to schools and community groups.
Together with the New Zealand Water Environment Research Foundation, we
now manage a scheme providing funding to help communities maintain,
protect and improve their water environment.

     Our 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 so far supported 110 projects
focusing on waste management, water quality and pollution control. This
year, the Group contributed £214,000 to the Foundation and saw 11 new
projects come on stream. Since the Foundation’s inception BOC has
donated £3.5 million. Combined funding from BOC and its co-sponsoring
partners now exceeds £11 million.

     As in previous years, BOC has managed a balanced charitable
donations programme in which we direct our resources at areas where we
feel we can make a difference or where our employees have a direct
involvement. Social investment projects around the world have increased
in number since last year and retain a local context.

     In 2002, BOC made charitable donations totalling £1.28 million
including £458,000 to UK-registered charities through direct
donations from the company and matched giving. As in previous years,
no political donations were made in the UK.

     At a local level, BOC employees have continued to involve themselves
in charitable fundraising and voluntary support. To this end, our 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, but this year there has been a marked increase in employee
involvement. In the course of 2002, BOC in the UK donated a record
£245,000 (included in the UK total above) through the Charities Aid
Foundation to match employee beneficence — a rise of 38 per cent on the
previous year. In the US, BOC’s employees contributed a record sum
equivalent to £80,000.

     In addition to the numerous causes supported through matched giving,
we also supported a number of projects on a Group basis, including the
Royal British Legion, Children’s Direct Aid and ProShare. We also
launched the BOC Emerging Artist Award in March to encourage and support
a committed UK-based artist for a year. We were delighted with the
interest this received and are pleased to say the 2002 award was won by
Royal College of Art graduate Simon Keenleyside, from Raleigh,
Essex. Simon emerged as the overall winner of the £20,000 bursary from
nearly 200 other young artists from across the UK.

     Outside the UK, the development of community programmes also rests
in the hands of our local companies, each one being responsible for its
own project selection and funding. This devolved approach, both inside
and outside the UK, 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 a
Science Can Be Fun day for teenagers, a day spent building wheelchair
access ramps to allow disabled girls to attend Girl Scout summer camps
and a drive to collect used mobile phones to be distributed to local
women at risk from domestic abuse.

     In the south Pacific, our employees requested that the company
matches their fundraising in relation to three charities a year. In
Australia, employees 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, our
employees selected Daffodil Day, the Westpac Rescue Helicopter and the
Society for the Prevention of Cruelty to Animals.

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BOC in Australia already has an established relationship with the
Malcolm Sargent Cancer Fund for Children. BOC employees have renewed and
deepened this relationship with additional 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, which includes the
management of 115 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 8,000 children attended events hosted by
BOC staff. This year, in celebration of Afrox’s 75th anniversary, the
company contributed an additional £96,000 to its social investment fund,
increasing its Bumbanani activities and lifting the sum spent on good
causes to £192,000. This year’s Bumbanani activities reached 1,000 more
children than they did last year.

     In addition, Afrox hospitals engage in a wide range of health care
and safety initiatives, including sponsorship of the South African Heart
Foundation. This year, the first Mended Hearts support group and cardiac
rehabilitation team to assist people in their recuperation and
rehabilitation after heart surgery, was launched in Cape Town from the
Vincent Pallotti hospital.

     Some Afrox hospitals have a special outreach 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 is given for the contraction of sexually
transmitted diseases as well as antiretroviral drugs.

     BOC and its employees have also been active in many other markets.
BOC in Pakistan, for example, has been running a social investment
programme for some time, particularly in support of leading medical
institutions. 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 Venezuela, we donated funds and helium balloons to schools and
orphanages and breathing oxygen to local fire stations. In Curacao, we
channel support through the local Rotary Club and contributed to various
youth education and care for the elderly projects. In India, we made a
number of contributions across a range of community welfare interests.

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 17 January 2003 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)	 	reappointment of Matthew Miau, Roberto Mendoza, Göran Lundberg,
René Médori, and ‘Raj’ Rajagopal as directors;
	 
	c)	 	reappointment of PricewaterhouseCoopers as auditors and granting
authority to the directors to fix their remuneration;
	 
	d)	 	the dividend policy;
	 
	e)	 	the directors’ remuneration report and the remuneration policy;
	 
	f)	 	amendment to the rules of the all-employee share option scheme;
	 
	g)	 	establishment of a new long-term incentive plan and executive share
option scheme;
	 
	h)	 	political donations and expenditure pursuant to the Political
Parties, Elections and Referendums Act 2000;
	 
	i)	 	renewal of the authority of the directors to allot shares;
	 
	j)	 	renewal of the authority for the directors to allot shares for cash
other than to existing shareholders in proportion to their holdings;
and
	 
	k)	 	granting of general authority for the company to purchase its own
shares up to a maximum of ten per cent of issued share capital. No
purchases were made following last year’s authority.

The report of the directors has been approved by the board and signed on
its behalf by:

Nick Deeming Secretary

Windlesham, 22 November 2002

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Report on remuneration

The management
resources committee

The management resources committee (MRC) comprises all the independent
non-executive directors with the exception of the Group chairman, Rob Margetts.
Its members are Göran Lundberg (Chairman), Fabiola Arredondo (appointed
November 2001), Julie Baddeley, Matthew Miau (appointed January 2002), and
Chris O’Donnell. Roberto Mendoza was appointed a non-executive director in
October 2002 and has become a member of the MRC. Until their retirement on 18
January 2002 Harry Groome and Howard Macdonald had been members of the MRC.
Whilst neither the Group chairman nor the chief executive are members of the
MRC they both attend the meetings by invitation but are not present when their
personal remuneration is discussed and reviewed. The Group human resources
director, Rob Lourey, attends in an advisory capacity and acts as secretary.

Remuneration policy

The MRC sets the overall remuneration policy of The BOC Group and makes
recommendations to the board on the framework of executive remuneration. It
meets approximately six times a year. The terms of reference conform with best
practice. The MRC 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 MRC does not
retain remuneration consultants but appoints professional external advisors as
it sees fit. During the year professional advice was sought from external
consultants Deloitte & Touche. These advisors did not provide any other
services to the Group. The MRC is also provided with information and data from
national and international surveys on executive pay and conditions such as
those provided by Towers Perrin, Mercer Human Resources consultants, Watson
Wyatt and Monks Partnership Limited.

     The MRC also reviews the remuneration of the Group chairman following a
recommendation from the chief executive and senior independent director, though
the board as a whole determine the non-executive directors’ fees.

     The fees of the non-executive directors are set at a level which will
attract individuals with the necessary experience and ability to make a
significant contribution to The BOC Group’s affairs and are benchmarked with
those fees paid by other UK listed companies. Non-executive directors’ fees
will be increased from £30,000 to £37,000 per annum and the committee chair
fees increased from £5,000 to £8,000 per annum, effective
1 January 2003. These
increases, after tax, will be used to acquire shares in the company which will
be held by the non-executive directors for the remaining period of their term
of office with the company.

     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 BOC Group is managed successfully to the benefit of its
stakeholders. In setting remuneration levels the MRC takes into account the
remuneration practices found in other UK listed companies of similar size,
internationality and complexity and seeks to benchmark its whole remuneration
at about the median level for this group.

     During the year the MRC carried out a review of 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. In reaching its conclusions
the MRC took the view that performance related remuneration should form a
substantial element of total remuneration thereby aligning the interests of
directors with those of shareholders, which would be reflected through share
price growth and dividends. As such, a proposal will be put to shareholders at
the Annual General Meeting to adopt new long-term incentive arrangements. These
arrangements 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.

     The performance measures for the Long Term Incentive Plan (LTIP) will be
based one third on Earnings Per Share (EPS) before exceptional items, one third
on Return on Capital Employed (ROCE) before exceptional items and one third on
the company’s Total Shareholder Return (TSR) performance relative to industry
based comparator groups — that is, an index of FTSE based manufacturing
companies and a global industrial gases group. The performance measure for the
Executive Share Option Scheme (ESOS 2003) will be assessed on the growth in
basic EPS before exceptional items as reported in the annual report and
accounts. The MRC consider these performance measures to be important drivers
of sustainable improvement in shareholder value that focus executives’
attention and effort on profitable growth and capital efficiency in both the
short and long term.

     Details of the arrangements are summarised in the chairman’s letter and
explanatory notes to the Notice of the Annual General Meeting. The MRC believes
that executives’ interests in long-term share price performance is an important
link to future organisational performance. Additionally, the MRC encourages the
executive management group to grow personal shareholdings in the business over
time. It is anticipated that each executive would build towards a shareholding
equivalent in value to one year’s gross salary. The MRC believes that the
vehicle of the long-term incentive package will facilitate the building of such
a shareholding over a period of time.

Remuneration components

Basic salary Salaries for executive directors and executive management board
members are based on median market rates drawn from external market data 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 MRC. Remuneration for
those executives of businesses outside the UK is denominated in the local
currency.

Benefits in kind Benefits in kind comprise company car benefits and membership
of BOC’s health care insurance scheme and, 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 assignment programme. Such
benefits are in line with those offered by peer group companies. Benefits in
kind do not form part of pensionable earnings.

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Variable compensation plan The executive directors and senior management
participate in the variable compensation bonus plan. The plan focuses on annual
objectives and links individual performance with business plans. The financial
targets for the executive directors and other executive management board
members are set on an annual basis by the MRC and performance against these
targets is reviewed by the MRC on a six monthly basis. The MRC considers that a
six monthly review acts as a significant incentive and is conducive to
sustaining performance throughout the year. The targets are based on EPS before
exceptional items and ROCE before exceptional items at Group level. 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. Executives can be awarded an annual bonus of 80
per cent of salary for the achievement in full of both stretch financial
targets and their personal objectives. Bonuses in excess of 80 per cent of
salary can be paid for exceptional financial performance. 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 MRC review. Details of the
payments to directors are included in the directors’ remuneration for the year.

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 pensions 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.

     In the US, the BOC Top-Hat pension plan is an unfunded, non-tax-qualified,
defined benefit pension arrangement.

     Details of the individual directors’ pension arrangements are shown on page 58.

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,
and certain benefits, for the notice period.

     All current executive directors have service contracts which are summarised on
page 58.

     The non-executive directors do not have contracts of service. They do not
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.

Share option plans Executive directors and other eligible employees
participate in The BOC Group Executive Share Option Scheme (ESOS) which was
introduced in 1995. The scheme uses newly issued and purchased shares. The MRC
sets out the guidelines for the awards each year. The guidelines take account
of personal performance and local market practice. Options are granted at the
full market value of the company’s shares at the time of grant and are
exercisable between three and ten years from the date of grant subject to the
performance condition, set by the MRC, being met. The options vest when the
company’s EPS growth (before exceptional items) 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. The MRC considers this performance condition to
be a challenging performance hurdle when compared to the company’s ten year EPS
compound annual growth rate (before exceptional items) of around four per cent.
The performance measure is assessed annually and is based on basic EPS before
exceptional items as reported in the annual report. In countries where it is
not appropriate to grant share options, grants are made as share appreciation
rights and, on exercise, the gain is delivered in cash. The rules for such
grants are similar to those for share options. Subject to shareholder approval
of the proposed ESOS 2003 no further options will be granted under this scheme.

     Prior to 1995 options were granted to executive directors under the Senior
Executive Share Option Scheme, the 1994 Executive Option Scheme and the
Executive Share Purchase Plan. In line with market practice at that time the
vesting of these awards is not subject to performance conditions. UK based
directors are also eligible to participate in the Inland Revenue approved BOC
Savings Related Share Option Scheme which is open to all UK employees with one
year’s service or more.

	 	 	 
	

		 	
This graph shows BOC’s TSR performance compared to the
FTSE 100 index TSR over the last five years. TSR is
defined as share price growth plus reinvested dividends.
This provides a basis for comparison as a relevant equity
index in which BOC is a constituent member. The company
believes that other indices and time periods display
aspects of relative performance on a more appropriate
basis (see Group chairman’s statement and LTIP proposals).
	

57  The BOC Group plc  Report and accounts 2002

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Report on remuneration

Other specific arrangements

Share award plan The awards made in June 2000 under the share award plan which
was introduced as an immediate retention programme following the lapse of the
offer from Air Liquide and Air Products vested in June 2002. Under the plan the
shares awarded vested after two years provided a performance condition was met.
The performance condition required EPS growth before exceptional items to
equal, or exceed, the growth in the RPI by three per cent per annum over a two
year period. Details of awards made to directors prior to their appointment to
the board and which vested during the year are shown on page 63. No further
awards will be made under the plan.

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
under the plan matured in November 2002.

     Details of directors’ individual remuneration, share options and share
awards, share incentive units and share holdings are given on pages 59 to 63.

Individual pension arrangements

Mr Grant’s pension is provided for under the US cash balance retirement plan
and the US Top-Hat pension plan, which, in combination, entitle Mr Grant to a
lump sum benefit on retirement at age 65 equivalent to a pension of
approximately 72 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 Grant’s bonus is pensionable.

     Mr Isaac’s pension to his contractual retirement age is being funded in
the UK through a combination of a tax-approved personal pension plan and a
funded unapproved retirement benefit scheme, which is underpinned by a
guarantee for which provision will be made in the accounts if appropriate.

     Mr Médori’s pension benefits are funded under the UK senior executive
pension scheme on earnings up to the ‘pension 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 a pension of
approximately 60 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 on page 60.

Individual service contracts

Mr Grant has a contract effective from 1 May 1999 which expires on 1 April
2011. This contract can be terminated by the company on two years’ notice, and
provides for the payment of the value of base salary for the unexpired portion
of the notice period. Additionally, the unexpired portion of Mr Grant’s notice
period would be added to his pensionable service in the calculation of his
pension entitlement.

     Mr Isaac has a contract
effective from 19 November 2002 (which reflects
the new arrangements announced on 21 May 2002) which expires on 30 June 2005
(subject to possible extension by mutual agreement). The contract can be
terminated by the company on twelve 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 ‘pension 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 21 November 2002, which expires on 23 September 2017. The contract can be terminated by the company on twelve 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 capped 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 (as amended by a deed of
variation dated 22 November 2002) which expires on 14 December 2013. The
contract can be terminated by the company on twelve 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, which expires on 10 August
2015. The contract can be terminated by the company on twelve 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 (three months in the case of Mr Grant).

58  The BOC Group plc  Report and accounts 2002

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Remuneration and interests

a) Directors’ remuneration

	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001
	i) Charged against profit in the year	 	£'000	 	£'000
	
	 	
	 	

	Salaries and benefits
	 	 	2,586	 	 	 	2,292	 
	Annual bonuses payable for the year
	 	 	1,631	 	 	 	1,231	 
	Other emoluments4
	 	 	500	 	 	 	—	 
	Fees to non-executive directors
	 	 	352	 	 	 	179	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	5,069	 	 	 	3,702	 
	Company pension contributions to money purchase schemes
	 	 	184	 	 	 	154	 
	Company pension contributions to defined benefit schemes
	 	 	927	 	 	 	793	 
	Provision for share incentive scheme1
	 	 	4	 	 	 	(203	)
	Provision for share award plan1
	 	 	190	 	 	 	214	 
	Payments to former directors and their dependants2
	 	 	52	 	 	 	54	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	6,426	 	 	 	4,714	 
	 
	 	 	
	 	 	 	
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Year ended 30 September 2002	 	2001
	 	 	
	 	

	 	 	 	 	 	 	Allowances	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Basic	 	and	 	Bonus	 	Other	 	Total	 	Total
	 	 	salary/fees	 	benefits3	 	payable	 	emoluments4	 	remuneration	 	remuneration
	ii) Individual remuneration	 	£'000	 	£'000	 	£'000	 	£'000	 	£'000	 	£'000
	
	 	
	 	
	 	
	 	
	 	
	 	

	Chairman
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	R J Margetts5
	 	 	180	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	180	 	 	 	—	 
	Executive directors
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	R S Grant
	 	 	385	 	 	 	16	 	 	 	325	 	 	 	—	 	 	 	726	 	 	 	681	 
	A E Isaac4
	 	 	623	 	 	 	147	 	 	 	536	 	 	 	500	 	 	 	1,806	 	 	 	1,231	 
	R Médori
	 	 	316	 	 	 	280	 	 	 	266	 	 	 	—	 	 	 	862	 	 	 	685	 
	Dr K Rajagopal
	 	 	311	 	 	 	16	 	 	 	263	 	 	 	—	 	 	 	590	 	 	 	502	 
	J L Walsh5
	 	 	285	 	 	 	131	 	 	 	241	 	 	 	—	 	 	 	657	 	 	 	113	 
	Non-executive directors6
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	F R Arredondo5
	 	 	27	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	27	 	 	 	—	 
	J M Baddeley
	 	 	34	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	34	 	 	 	11	 
	G U U Lundberg
	 	 	34	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	34	 	 	 	30	 
	M
F C Miau5
	 	 	21	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	21	 	 	 	—	 
	C J O’Donnell
	 	 	34	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	34	 	 	 	18	 
	Chairman retiring in the year
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Sir David John
	 	 	47	 	 	 	29	 	 	 	—	 	 	 	—	 	 	 	76	 	 	 	311	 
	Non-executive directors retiring in the year
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	H C Groome
	 	 	11	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	11	 	 	 	35	 
	J H Macdonald
	 	 	11	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	11	 	 	 	35	 
	Non-executive directors retiring in 2001
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	R F Chase
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	29	 
	Dr D Chatterji
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	10	 
	C P King
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	11	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	2,319	 	 	 	619	 	 	 	1,631	 	 	 	500	 	 	 	5,069	 	 	 	3,702	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	1.	 	This represents the amount charged to operating profit during the year
for those elements of the share incentive scheme and the share award plan
relating to directors.
	2.	 	This represents payments to former directors and/or their dependants
which were not provided for in previous years.
	3.	 	Includes overseas and relocation expenses.
	4.	 	Mr Isaac was the highest paid
director in 2002. Mr Isaac’s remuneration in
2000 included a payment of £250,000 which represented an additional
discretionary bonus for his commitment and performance during the period
of the offer. As part of the same arrangement, Mr Isaac received a further
payment of £500,000 in 2002.
	5.	 	Mr Margetts was appointed to
the board on 4 October 2001, Mrs Arredondo
was appointed to the board on 8 November 2001, and Mr Miau was appointed to
the board on 23 January 2002. Mr Walsh was appointed to the board on 11
July 2001. The remuneration above is the total remuneration earned since
their appointment.
	6.	 	Non-executive directors do not normally participate in the Group’s
incentive programmes, nor is their remuneration pensionable. With the
exception of the chairman, they were paid at the rate of £30,000 per
annum, plus a further fee of £5,000 where they acted as chairman of a
board committee.
	7.	 	The aggregate remuneration charged against profits for directors and
members of the executive management board in the year was £9.4 million.
Remuneration of members of the executive management board other than
directors is given in b) below.

59  The BOC Group plc  Report and accounts 2002

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Report on remuneration

b) Executive officers

The aggregate remuneration of members of the executive
management board, other
than directors, for services in all capacities during 2002 was as follows:

	 	 	 	 	 
	 	 	2002
	Charged against profit in the year	 	£'000
	
	 	

	Salaries and benefits
	 	 	1,637	 
	Annual bonuses payable for the year
	 	 	950	 
	Provision for share award plan1
	 	 	222	 
	Company pension contributions
	 	 	152	 
	 
	 	 	
	 
	 
	 	 	2,961	 
	 
	 	 	
	 

	1.	 	This represents the amount charged to operating profit for the portion of
the share award plan relating to executive officers.

c) Directors’ pensions

Details of the executive directors’ pension arrangements are given on page 58.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Defined
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	contribution
	 	 	 	 	 	 	Defined benefit plans	 	plans
	 	 	 	 	 	 	
	 	

	 	 	 	 	 	 	Deferred benefit at	 	Increase in year	 	Transfer value of increase	 	 	 	 
	 	 	 	 	 	 	30 September	 	net of inflation	 	less members' contributions	 	Company
	 	 	 	 	 	 	
	 	
	 	
	 	contributions
	 	 	 	 	 	 	Pension	 	Lump sum	 	Pension	 	Lump sum	 	Pension	 	Lump sum	 	in year
	 	 	 	 	 	 	£'000	 	£'000	 	£'000	 	£'000	 	£'000	 	£'000	 	£'000
	 	 	 	 	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	UK-based directors
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	A E Isaac
	 	 	2002	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	155	 
	 
	 	 	2001	 	 	 	—	 	 	 	344	 	 	 	—	 	 	 	307	 	 	 	—	 	 	 	303	 	 	 	147	 
	Sir David John
	 	 	2002	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	 	 	2001	 	 	 	38	 	 	 	—	 	 	 	3	 	 	 	—	 	 	 	46	 	 	 	—	 	 	 	—	 
	R Médori
	 	 	2002	 	 	 	7	 	 	 	153	 	 	 	3	 	 	 	2	 	 	 	17	 	 	 	2	 	 	 	—	 
	 
	 	 	2001	 	 	 	4	 	 	 	159	 	 	 	3	 	 	 	11	 	 	 	21	 	 	 	11	 	 	 	—	 
	Dr K Rajagopal
	 	 	2002	 	 	 	137	 	 	 	—	 	 	 	21	 	 	 	—	 	 	 	152	 	 	 	—	 	 	 	—	 
	 
	 	 	2001	 	 	 	114	 	 	 	—	 	 	 	16	 	 	 	—	 	 	 	143	 	 	 	—	 	 	 	—	 
	J L Walsh
	 	 	2002	 	 	 	—	 	 	 	376	 	 	 	—	 	 	 	142	 	 	 	—	 	 	 	142	 	 	 	13	 
	 
	 	 	2001	 	 	 	—	 	 	 	246	 	 	 	—	 	 	 	12	 	 	 	—	 	 	 	12	 	 	 	2	 
	US-based directors
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	R S Grant
	 	 	2002	 	 	 	—	 	 	 	1,607	 	 	 	—	 	 	 	423	 	 	 	—	 	 	 	423	 	 	 	16	 
	 
	 	 	2001	 	 	 	—	 	 	 	1,242	 	 	 	—	 	 	 	294	 	 	 	—	 	 	 	294	 	 	 	5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

The transfer value equivalent excludes directors’ contributions and has been
calculated in accordance with Actuarial Guidance Note GN11.

In accordance with his original contract of employment, Mr Isaac’s initial
pension arrangements became payable on his 60th birthday at which time the
combined value of the tax-approved personal pension plan and the funded
unapproved retirement benefit scheme fell short of the amount guaranteed under
Mr Isaac’s contract. Accordingly, during the year, a payment amounting to
£423,000 was made to Mr Isaac’s funded unapproved retirement benefit scheme.

     Sir David John retired during the year. As permitted by the terms of his
contract of employment, he elected to commute his pension of £39,000 per annum
for a cash payment of £708,000.

60  The BOC Group plc  Report and accounts 2002

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d) Directors’ share interests

i) Directors’ share interests at 30 September 2002

The directors of the company and their families had the following beneficial
interests in the company’s securities and rights under the share incentive
scheme:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	At 30 September 2002	 	At 1 October 2001 (or at date of appointment if later)
	 	 	
	 	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Share	 	 	 	 	 	 	 	 	 	 	 	 	 	Share
	 	 	Ordinary	 	Share	 	Share	 	incentive	 	Ordinary	 	Share	 	Share	 	incentive
	 	 	shares	 	options	 	awards	 	units	 	shares	 	options	 	awards	 	units
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	F R Arredondo
	 	 	500	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	J M Baddeley
	 	 	500	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	500	 	 	 	—	 	 	 	—	 	 	 	—	 
	R S Grant
	 	 	62,803	 	 	 	542,697	 	 	 	—	 	 	 	—	 	 	 	40,000	 	 	 	510,000	 	 	 	15,000	 	 	 	—	 
	A E Isaac
	 	 	5,700	 	 	 	947,357	 	 	 	—	 	 	 	45,000	 	 	 	700	 	 	 	747,357	 	 	 	—	 	 	 	45,000	 
	G U U Lundberg
	 	 	5,000	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	5,000	 	 	 	—	 	 	 	—	 	 	 	—	 
	R J Margetts
	 	 	6,000	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	R Médori
	 	 	16,772	 	 	 	367,112	 	 	 	—	 	 	 	—	 	 	 	4,772	 	 	 	287,112	 	 	 	12,000	 	 	 	—	 
	M F C Miau
	 	 	2,281	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	10,000	 	 	 	—	 	 	 	—	 
	C J O’Donnell
	 	 	2,081	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	2,000	 	 	 	—	 	 	 	—	 	 	 	—	 
	Dr K Rajagopal
	 	 	14,416	 	 	 	460,009	 	 	 	—	 	 	 	—	 	 	 	5,447	 	 	 	379,647	 	 	 	15,000	 	 	 	—	 
	J L Walsh
	 	 	8,175	 	 	 	387,500	 	 	 	—	 	 	 	—	 	 	 	1,000	 	 	 	312,500	 	 	 	12,000	 	 	 	—	 
	Directors retiring in the year
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	H C Groome
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3,300	 	 	 	—	 	 	 	—	 	 	 	—	 
	Sir David John
	 	 	637	 	 	 	196,736	 	 	 	—	 	 	 	—	 	 	 	3,732	 	 	 	300,000	 	 	 	—	 	 	 	—	 
	J H Macdonald
	 	 	1,228	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,228	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

There has been no change in the interest of any of the directors between 1
October 2002 and 12 November 2002. No director had a non-beneficial interest at
30 September 2002 or between 1 October 2002 and 12 November 2002. 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 2002, members of the executive management board, other than
directors, had the following aggregate beneficial interests in the company’s
securities: 54,821 Ordinary shares; 1,064,015 share options; nil share awards and
nil rights to share incentive units. 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.

ii) Directors’ share interests — movements during the year

Share options

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	At	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	1 October	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2001	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Market price	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	(or at date of	 	 	 	 	 	 	 	 	 	At	 	 	 	 	 	at date	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	appointment	 	 	 	 	 	 	 	 	 	30 September	 	Exercise price	 	of exercise	 	Earliest	 	Latest	 	 	 	 
	 	 	if later)	 	Granted	 	Exercised	 	2002	 	(pence)	 	(pence)	 	exercise date	 	exercise date	 	Notes
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	R S Grant
	 	 	30,000	 	 	 	—	 	 	 	30,000	 	 	 	—	 	 	 	742	 	 	 	1081	 	 	12 Feb 1997	 	12 Feb 2003	 	 	b.	 
	 
	 	 	30,000	 	 	 	—	 	 	 	10,104	 	 	 	19,896	 	 	 	677	 	 	 	1081	 	 	11 Feb 1998	 	11 Feb 2004	 	 	b.	 
	 
	 	 	25,000	 	 	 	—	 	 	 	—	 	 	 	25,000	 	 	 	722	 	 	 	 	 	 	10 Feb 1998	 	10 Feb 2005	 	 	d.	 
	 
	 	 	25,000	 	 	 	—	 	 	 	—	 	 	 	25,000	 	 	 	919	 	 	 	 	 	 	14 Feb 1999	 	14 Feb 2006	 	 	d.	 
	 
	 	 	20,000	 	 	 	—	 	 	 	—	 	 	 	20,000	 	 	 	848	 	 	 	 	 	 	14 Aug 1999	 	14 Aug 2006	 	 	d.	 
	 
	 	 	35,000	 	 	 	—	 	 	 	—	 	 	 	35,000	 	 	 	980	 	 	 	 	 	 	21 Feb 2000	 	21 Feb 2007	 	 	d.	 
	 
	 	 	75,000	 	 	 	—	 	 	 	—	 	 	 	75,000	 	 	 	914	 	 	 	 	 	 	11 Feb 2001	 	11 Feb 2008	 	 	d.	 
	 
	 	 	75,000	 	 	 	—	 	 	 	7,199	 	 	 	67,801	 	 	 	851	 	 	 	1081	 	 	10 Feb 2002	 	10 Feb 2009	 	 	d.	 
	 
	 	 	120,000	 	 	 	—	 	 	 	—	 	 	 	120,000	 	 	 	937	 	 	 	 	 	 	26 May 2003	 	26 May 2010	 	 	 	 
	 
	 	 	75,000	 	 	 	—	 	 	 	—	 	 	 	75,000	 	 	 	993	 	 	 	 	 	 	7 Feb 2004	 	7 Feb 2011	 	 	 	 
	 
	 	 	—	 	 	 	80,000	 	 	 	—	 	 	 	80,000	 	 	 	1016	 	 	 	 	 	 	6 Feb 2005	 	6 Feb 2012	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	510,000	 	 	 	80,000	 	 	 	47,303	 	 	 	542,697	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	A E Isaac
	 	 	45,000	 	 	 	—	 	 	 	—	 	 	 	45,000	 	 	 	716	 	 	 	 	 	 	16 Nov 1998	 	16 Nov 2004	 	 	b.	 
	 
	 	 	50,000	 	 	 	—	 	 	 	—	 	 	 	50,000	 	 	 	722	 	 	 	 	 	 	10 Feb 1998	 	10 Feb 2005	 	 	d.	 
	 
	 	 	50,000	 	 	 	—	 	 	 	—	 	 	 	50,000	 	 	 	919	 	 	 	 	 	 	14 Feb 1999	 	14 Feb 2006	 	 	d.	 
	 
	 	 	2,357	 	 	 	—	 	 	 	—	 	 	 	2,357	 	 	 	827	 	 	 	 	 	 	1 May 2003	 	31 Oct 2003	 	 	a.b.	 
	 
	 	 	50,000	 	 	 	—	 	 	 	—	 	 	 	50,000	 	 	 	980	 	 	 	 	 	 	21 Feb 2000	 	21 Feb 2007	 	 	d.	 
	 
	 	 	50,000	 	 	 	—	 	 	 	—	 	 	 	50,000	 	 	 	914	 	 	 	 	 	 	11 Feb 2001	 	11 Feb 2008	 	 	d.	 
	 
	 	 	50,000	 	 	 	—	 	 	 	—	 	 	 	50,000	 	 	 	851	 	 	 	 	 	 	10 Feb 2002	 	10 Feb 2009	 	 	d.	 
	 
	 	 	250,000	 	 	 	—	 	 	 	—	 	 	 	250,000	 	 	 	937	 	 	 	 	 	 	26 May 2003	 	26 May 2010	 	 	 	 
	 
	 	 	200,000	 	 	 	—	 	 	 	—	 	 	 	200,000	 	 	 	993	 	 	 	 	 	 	7 Feb 2004	 	7 Feb 2011	 	 	 	 
	 
	 	 	—	 	 	 	200,000	 	 	 	—	 	 	 	200,000	 	 	 	1016	 	 	 	 	 	 	6 Feb 2005	 	6 Feb 2012	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	747,357	 	 	 	200,000	 	 	 	—	 	 	 	947,357	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

61  The BOC Group plc  Report and accounts 2002

Table of Contents

Report on remuneration

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	At	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	1 October	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2001	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Market price	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	(or date of	 	 	 	 	 	 	 	 	 	At	 	 	 	 	 	at date	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	appointment	 	 	 	 	 	 	 	 	 	30 September	 	Exercise price	 	of exercise	 	Earliest	 	Latest	 	 	 	 
	 	 	if later)	 	Granted	 	Exercised	 	2002	 	(pence)	 	(pence)	 	exercise date	 	exercise date	 	Notes
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	Sir David John
	 	 	150,000	 	 	 	—	 	 	 	103,264	 	 	 	46,736	 	 	 	919	 	 	 	1067.5	 	 	14 Feb 1999	 	14 Feb 2006	 	 	d.	 
	 
	 	 	75,000	 	 	 	—	 	 	 	—	 	 	 	75,000	 	 	 	980	 	 	 	 	 	 	21 Feb 2000	 	21 Feb 2007	 	 	d.	 
	 
	 	 	75,000	 	 	 	—	 	 	 	—	 	 	 	75,000	 	 	 	914	 	 	 	 	 	 	11 Feb 2001	 	11 Feb 2008	 	 	d.	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	300,000	 	 	 	—	 	 	 	103,264	 	 	 	196,736	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	R Médori
	 	 	10,000	 	 	 	—	 	 	 	—	 	 	 	10,000	 	 	 	742	 	 	 	 	 	 	12 Feb 1997	 	12 Feb 2003	 	 	b.	 
	 
	 	 	20,000	 	 	 	—	 	 	 	—	 	 	 	20,000	 	 	 	677	 	 	 	 	 	 	11 Feb 1998	 	11 Feb 2004	 	 	b.	 
	 
	 	 	15,000	 	 	 	—	 	 	 	—	 	 	 	15,000	 	 	 	722	 	 	 	 	 	 	10 Feb 1998	 	10 Feb 2005	 	 	d.	 
	 
	 	 	15,000	 	 	 	—	 	 	 	—	 	 	 	15,000	 	 	 	919	 	 	 	 	 	 	14 Feb 1999	 	14 Feb 2006	 	 	d.	 
	 
	 	 	15,000	 	 	 	—	 	 	 	—	 	 	 	15,000	 	 	 	980	 	 	 	 	 	 	21 Feb 2000	 	21 Feb 2007	 	 	d.	 
	 
	 	 	30,000	 	 	 	—	 	 	 	—	 	 	 	30,000	 	 	 	914	 	 	 	 	 	 	11 Feb 2001	 	11 Feb 2008	 	 	d.	 
	 
	 	 	30,000	 	 	 	—	 	 	 	—	 	 	 	30,000	 	 	 	851	 	 	 	 	 	 	10 Feb 2002	 	10 Feb 2009	 	 	d.	 
	 
	 	 	100,000	 	 	 	—	 	 	 	—	 	 	 	100,000	 	 	 	937	 	 	 	 	 	 	26 May 2003	 	26 May 2010	 	 	 	 
	 
	 	 	2,112	 	 	 	—	 	 	 	—	 	 	 	2,112	 	 	 	870	 	 	 	 	 	 	1 Aug 2007	 	31 Jan 2008	 	 	a.b.	 
	 
	 	 	50,000	 	 	 	—	 	 	 	—	 	 	 	50,000	 	 	 	993	 	 	 	 	 	 	7 Feb 2004	 	7 Feb 2011	 	 	 	 
	 
	 	 	—	 	 	 	80,000	 	 	 	—	 	 	 	80,000	 	 	 	1016	 	 	 	 	 	 	6 Feb 2005	 	6 Feb 2012	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	287,112	 	 	 	80,000	 	 	 	—	 	 	 	367,112	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	M F C Miau
	 	 	5,000	 	 	 	—	 	 	 	5,000	 	 	 	—	 	 	 	722	 	 	 	1044.5	 	 	10 Feb 1998	 	10 Feb 2005	 	 	c.d.	 
	 
	 	 	5,000	 	 	 	—	 	 	 	5,000	 	 	 	—	 	 	 	919	 	 	 	1044.5	 	 	14 Feb 1999	 	14 Feb 2006	 	 	c.d.	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	10,000	 	 	 	—	 	 	 	10,000	 	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Dr K Rajagopal
	 	 	10,000	 	 	 	—	 	 	 	—	 	 	 	10,000	 	 	 	742	 	 	 	 	 	 	12 Feb 1997	 	12 Feb 2003	 	 	b.	 
	 
	 	 	15,000	 	 	 	—	 	 	 	—	 	 	 	15,000	 	 	 	677	 	 	 	 	 	 	11 Feb 1998	 	11 Feb 2004	 	 	b.	 
	 
	 	 	25,000	 	 	 	—	 	 	 	—	 	 	 	25,000	 	 	 	722	 	 	 	 	 	 	10 Feb 1998	 	10 Feb 2005	 	 	d.	 
	 
	 	 	35,000	 	 	 	—	 	 	 	—	 	 	 	35,000	 	 	 	919	 	 	 	 	 	 	14 Feb 1999	 	14 Feb 2006	 	 	d.	 
	 
	 	 	471	 	 	 	—	 	 	 	—	 	 	 	471	 	 	 	827	 	 	 	 	 	 	1 May 2003	 	31 Oct 2003	 	 	a.b.	 
	 
	 	 	20,000	 	 	 	—	 	 	 	—	 	 	 	20,000	 	 	 	848	 	 	 	 	 	 	14 Aug 1999	 	14 Aug 2006	 	 	d.	 
	 
	 	 	35,000	 	 	 	—	 	 	 	—	 	 	 	35,000	 	 	 	980	 	 	 	 	 	 	21 Feb 2000	 	21 Feb 2007	 	 	d.	 
	 
	 	 	50,000	 	 	 	—	 	 	 	—	 	 	 	50,000	 	 	 	914	 	 	 	 	 	 	11 Feb 2001	 	11 Feb 2008	 	 	d.	 
	 
	 	 	1,676	 	 	 	—	 	 	 	—	 	 	 	1,676	 	 	 	823	 	 	 	 	 	 	1 May 2003	 	31 Oct 2003	 	 	a.b.	 
	 
	 	 	50,000	 	 	 	—	 	 	 	—	 	 	 	50,000	 	 	 	851	 	 	 	 	 	 	10 Feb 2002	 	10 Feb 2009	 	 	d.	 
	 
	 	 	87,500	 	 	 	—	 	 	 	—	 	 	 	87,500	 	 	 	937	 	 	 	 	 	 	26 May 2003	 	26 May 2010	 	 	 	 
	 
	 	 	50,000	 	 	 	—	 	 	 	—	 	 	 	50,000	 	 	 	993	 	 	 	 	 	 	7 Feb 2004	 	7 Feb 2011	 	 	 	 
	 
	 	 	—	 	 	 	80,000	 	 	 	—	 	 	 	80,000	 	 	 	1016	 	 	 	 	 	 	6 Feb 2005	 	6 Feb 2012	 	 	 	 
	 
	 	 	—	 	 	 	362	 	 	 	—	 	 	 	362	 	 	 	914	 	 	 	 	 	 	1 May 2007	 	31 Oct 2007	 	 	a.b.	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	379,647	 	 	 	80,362	 	 	 	—	 	 	 	460,009	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	J L Walsh
	 	 	5,000	 	 	 	—	 	 	 	5,000	 	 	 	—	 	 	 	627	 	 	 	1016	 	 	14 Feb 1996	 	14 Feb 2002	 	 	b.	 
	 
	 	 	10,000	 	 	 	—	 	 	 	—	 	 	 	10,000	 	 	 	742	 	 	 	 	 	 	12 Feb 1997	 	12 Feb 2003	 	 	b.	 
	 
	 	 	15,000	 	 	 	—	 	 	 	—	 	 	 	15,000	 	 	 	677	 	 	 	 	 	 	11 Feb 1998	 	11 Feb 2004	 	 	b.	 
	 
	 	 	10,000	 	 	 	—	 	 	 	—	 	 	 	10,000	 	 	 	722	 	 	 	 	 	 	10 Feb 1998	 	10 Feb 2005	 	 	d.	 
	 
	 	 	10,000	 	 	 	—	 	 	 	—	 	 	 	10,000	 	 	 	919	 	 	 	 	 	 	14 Feb 1999	 	14 Feb 2006	 	 	d.	 
	 
	 	 	12,500	 	 	 	—	 	 	 	—	 	 	 	12,500	 	 	 	980	 	 	 	 	 	 	21 Feb 2000	 	21 Feb 2007	 	 	d.	 
	 
	 	 	30,000	 	 	 	—	 	 	 	—	 	 	 	30,000	 	 	 	914	 	 	 	 	 	 	11 Feb 2001	 	11 Feb 2008	 	 	d.	 
	 
	 	 	70,000	 	 	 	—	 	 	 	—	 	 	 	70,000	 	 	 	851	 	 	 	 	 	 	10 Feb 2002	 	10 Feb 2009	 	 	d.	 
	 
	 	 	100,000	 	 	 	—	 	 	 	—	 	 	 	100,000	 	 	 	937	 	 	 	 	 	 	26 May 2003	 	26 May 2010	 	 	 	 
	 
	 	 	50,000	 	 	 	—	 	 	 	—	 	 	 	50,000	 	 	 	993	 	 	 	 	 	 	7 Feb 2004	 	7 Feb 2011	 	 	 	 
	 
	 	 	—	 	 	 	80,000	 	 	 	—	 	 	 	80,000	 	 	 	1016	 	 	 	 	 	 	6 Feb 2005	 	6 Feb 2012	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	312,500	 	 	 	80,000	 	 	 	5,000	 	 	 	387,500	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

	a.	 	Options granted under the Save As You Earn 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 page 57.
	c.	 	At date of appointment, Mr Miau held 10,000 executive share options which
had been granted to him in February 1995 and February 1996. He exercised
the options and sold the resulting shares in March 2002.
	d.	 	The performance conditions attaching to these options have been
satisfied.
	e.	 	No options have lapsed during the year.

The total gains made by directors on options exercised during the year were
£354,000 (2001: £100,000).

     At 30 September 2002, there were 2,319,210 options outstanding where the
exercise price exceeded the market price of 867p. During the year, the share
price ranged from a high of 1108p to a low of 836p.

62  The BOC Group plc  Report and accounts 2002

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Share awards

No awards under the scheme were made during the year to any executive director
and there were no awards of shares outstanding at 30 September 2002. The
following awards vested during the year:

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Market
	 	 	 	 	 	 	price on
	 	 	 	 	 	 	vesting date
	Share awards vested — during the year	 	Number	 	(pence)
	
	 	
	 	

	R S Grant
	 	 	15,000	 	 	 	1001.5	 
	R Médori
	 	 	12,000	 	 	 	1001.5	 
	Dr K Rajagopal
	 	 	15,000	 	 	 	1001.5	 
	J L Walsh
	 	 	12,000	 	 	 	1001.5	 
	 
	 	 	
	 	 	 	
	 

Share incentive units

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	At 30 September 2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Units not yet converted
	 	 	Cash on	 	 	 	 	 	 	 	 	 	 	 	 	 	

	 	 	deposit at	 	Gain	 	 	 	 	 	Cash on	 	 	 	 	 	Weighted
	 	 	1 October	 	converted to	 	Paid in	 	deposit and	 	 	 	 	 	average
	 	 	2001	 	cash in year1	 	year	 	not yet paid	 	Number	 	price
	 	 	£'000	 	£'000	 	£'000	 	£'000	 	of units	 	(pence)
	
	 	
	 	
	 	
	 	
	 	
	 	

	Current
directors
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	A E Isaac
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	45,000	 	 	 	716	 
	Former executive directors
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Dr D Chatterji
	 	 	144	 	 	 	49	 	 	 	(193	)	 	 	—	 	 	 	—	 	 	 	—	 
	A P Dyer
	 	 	1,522	 	 	 	14	 	 	 	(1,536	)	 	 	—	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	1.	 	The amounts shown as converted to cash in the year include interest
earned from the date of conversion.

The share incentive unit plan provides for cash payments to executives based on
increases in the share price over a period of up to eight years from the time
of grant. Grants under the plan were made between 1989 and 1995 to supplement
or substitute for grants under the share option schemes. No grants have been
made since 1995.

     Executives may elect to convert share incentive units to cash provided
that the units have been held for three years. The fixed cash sum, determined
by reference to the share price on the date of election over and above the
original grant price, will earn interest at one per cent above the HSBC base
rate. A full cash payment can only be received by an executive after eight
years but limited early payments may be made in certain circumstances between
the fourth and eighth years, at the discretion of the management resources
committee. The plan includes significant forfeiture penalties in the event that
an executive leaves the company other than on retirement before the expiration
of the eight year period.

     On normal retirement, or earlier at the discretion of the management
resources committee, an executive will normally continue to participate in the
scheme so long as he observes a non-compete covenant in favour of the company.
Full payment will be made at the eighth anniversary or earlier at the
discretion of the management resources committee.

     Former directors were granted their share incentive units when they were
executive directors of the company.

The report on remuneration has been approved by the board and signed on its behalf by:

Nick Deeming Secretary

Windlesham, 22 November 2002

63  The BOC Group plc  Report and accounts 2002

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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.

64  The BOC Group plc  Report and accounts 2002

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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 examined the amounts disclosed relating to the
remuneration, share options and long-term incentive schemes’ interests of the
directors which form part of the report on remuneration.

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 are set out in the statement of directors’
responsibilities.

     Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements, United Kingdom Auditing Standards
issued by the Auditing Practices Board and the Listing Rules of the Financial
Services Authority. This opinion has been prepared for, and only for, the
company’s members in accordance with Section 235 of the Companies Act 1985 and
for no other purpose. We do not, in giving this opinion, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or in to whose hands it may come save where expressly agreed by our
prior consent in writing.

     We report to you our opinion as to whether the financial statements give a
true and fair view and are 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 or the Listing Rules 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,
performance review, finance and treasury review, 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. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the financial
statements. 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
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 opinion In our opinion the financial statements give a true and
fair view of the state of affairs of the company and the Group at 30 September
2002 and of the profit and cash flows of the Group for the year then ended and
have been properly prepared in accordance with the United Kingdom Companies Act
1985.

United States opinion In our opinion the financial statements present fairly,
in all material respects, the consolidated financial position of the Group at
30 September 2002 and 2001 and the results of its operations and its cash flows
for each of the three years in the period ended 30 September 2002 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. The application of the latter would have affected the
determination of net income expressed in sterling for each of the three years
in the period ended 30 September 2002 and the determination of shareholders’
equity also expressed in sterling at 30 September 2002 and 2001 to the extent
summarised in note 16 to the financial statements.

     As shown in note 17 to the financial statements, the Group adopted two new
accounting standards, for retirement benefits and deferred tax, in
2002. The
change has been accounted for by restating comparative information at 30
September 2001 and 2000 and for the years then ended.

PricewaterhouseCoopers

Chartered Accountants and Registered Auditors

London, England 22 November 2002

65  The BOC Group plc  Report and accounts 2002

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Group profit and loss account

Years ended 30 September

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	2002	 	2001	 	2000
	 	 	 	 	 	 	 	 	(restated)	 	(restated)
	 	 	 	 	 	 	
	 	
	 	

	 	 	 	 	 	 	Before	 	 	 	 	 	After	 	Before	 	 	 	 	 	After	 	Before	 	 	 	 	 	After
	 	 	 	 	 	 	exceptional	 	Exceptional	 	exceptional	 	exceptional	 	Exceptional	 	exceptional	 	exceptional	 	Exceptional	 	exceptional
	 	 	 	 	 	 	items	 	items	 	items	 	items	 	items	 	items	 	items	 	items	 	items
	 	 	Notes	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	Turnover
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Continuing operations
	 	 	 	 	 	 	3,890.8	 	 	 	—	 	 	 	3,890.8	 	 	 	4,159.2	 	 	 	—	 	 	 	4,159.2	 	 	 	3,878.8	 	 	 	—	 	 	 	3,878.8	 
	Acquisitions
	 	 	 	 	 	 	127.1	 	 	 	—	 	 	 	127.1	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Turnover, including share of
joint ventures and associates
	 	 	1	 	 	 	4,017.9	 	 	 	—	 	 	 	4,017.9	 	 	 	4,159.2	 	 	 	—	 	 	 	4,159.2	 	 	 	3,878.8	 	 	 	—	 	 	 	3,878.8	 
	Less: Share of turnover of
joint ventures
	 	 	 	 	 	 	324.1	 	 	 	—	 	 	 	324.1	 	 	 	340.0	 	 	 	—	 	 	 	340.0	 	 	 	258.0	 	 	 	—	 	 	 	258.0	 
	Share of turnover of
associates
	 	 	 	 	 	 	36.1	 	 	 	—	 	 	 	36.1	 	 	 	46.3	 	 	 	—	 	 	 	46.3	 	 	 	41.1	 	 	 	—	 	 	 	41.1	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Turnover of subsidiary undertakings
	 	 	 	 	 	 	3,657.7	 	 	 	—	 	 	 	3,657.7	 	 	 	3,772.9	 	 	 	—	 	 	 	3,772.9	 	 	 	3,579.7	 	 	 	—	 	 	 	3,579.7	 
	Cost of sales
	 	 	2	(a)	 	 	(2,089.7	)	 	 	(15.1	)	 	 	(2,104.8	)	 	 	(2,164.2	)	 	 	(44.6	)	 	 	(2,208.8	)	 	 	(2,035.2	)	 	 	(0.6	)	 	 	(2,035.8	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Gross profit
	 	 	 	 	 	 	1,568.0	 	 	 	(15.1	)	 	 	1,552.9	 	 	 	1,608.7	 	 	 	(44.6	)	 	 	1,564.1	 	 	 	1,544.5	 	 	 	(0.6	)	 	 	1,543.9	 
	Net operating expenses
	 	 	2	(a)	 	 	(1,142.4	)	 	 	(58.9	)	 	 	(1,201.3	)	 	 	(1,150.3	)	 	 	(61.1	)	 	 	(1,211.4	)	 	 	(1,104.7	)	 	 	(3.8	)	 	 	(1,108.5	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Operating profit
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Continuing operations
	 	 	 	 	 	 	421.2	 	 	 	(67.8	)	 	 	353.4	 	 	 	458.4	 	 	 	(105.7	)	 	 	352.7	 	 	 	439.8	 	 	 	(4.4	)	 	 	435.4	 
	Acquisitions
	 	 	 	 	 	 	4.4	 	 	 	(6.2	)	 	 	(1.8	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Operating profit of
subsidiary undertakings
	 	 	 	 	 	 	425.6	 	 	 	(74.0	)	 	 	351.6	 	 	 	458.4	 	 	 	(105.7	)	 	 	352.7	 	 	 	439.8	 	 	 	(4.4	)	 	 	435.4	 
	Share of operating profit of
joint ventures
	 	 	 	 	 	 	63.8	 	 	 	(0.5	)	 	 	63.3	 	 	 	59.0	 	 	 	(2.2	)	 	 	56.8	 	 	 	48.1	 	 	 	—	 	 	 	48.1	 
	Share of operating profit of associates
	 	 	 	 	 	 	10.7	 	 	 	—	 	 	 	10.7	 	 	 	13.2	 	 	 	(0.4	)	 	 	12.8	 	 	 	8.5	 	 	 	—	 	 	 	8.5	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total operating profit including
share of joint ventures
and associates
	 	 	1	 	 	 	500.1	 	 	 	(74.5	)	 	 	425.6	 	 	 	530.6	 	 	 	(108.3	)	 	 	422.3	 	 	 	496.4	 	 	 	(4.4	)	 	 	492.0	 
	Loss on termination/disposal of
businesses — continuing operations
	 	 	2	(b)	 	 	—	 	 	 	(20.2	)	 	 	(20.2	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Profit on disposal of health care
discontinued business
	 	 	2	(b)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	12.5	 	 	 	12.5	 
	Profit on disposal of fixed assets
— continuing operations
	 	 	2	(b)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3.6	 	 	 	3.6	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Profit on ordinary activities
before interest
	 	 	 	 	 	 	500.1	 	 	 	(94.7	)	 	 	405.4	 	 	 	530.6	 	 	 	(104.7	)	 	 	425.9	 	 	 	496.4	 	 	 	8.1	 	 	 	504.5	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	
	 	 	 	
	 	 	 	 	 	 	 	
	 	 	 	
	 	 	 	 	 
	Interest on net debt
	 	 	3	(a)	 	 	 	 	 	 	 	 	 	 	(103.1	)	 	 	 	 	 	 	 	 	 	 	(123.4	)	 	 	 	 	 	 	 	 	 	 	(111.5	)
	Interest on pension scheme liabilities
	 	 	6	(e)	 	 	 	 	 	 	 	 	 	 	(106.1	)	 	 	 	 	 	 	 	 	 	 	(107.2	)	 	 	 	 	 	 	 	 	 	 	(100.7	)
	Expected return on pension
scheme assets
	 	 	6	(e)	 	 	 	 	 	 	 	 	 	 	139.1	 	 	 	 	 	 	 	 	 	 	 	166.9	 	 	 	 	 	 	 	 	 	 	 	149.5	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 
	Net interest
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(70.1	)	 	 	 	 	 	 	 	 	 	 	(63.7	)	 	 	 	 	 	 	 	 	 	 	(62.7	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 
	Profit on ordinary activities
before tax
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	335.3	 	 	 	 	 	 	 	 	 	 	 	362.2	 	 	 	 	 	 	 	 	 	 	 	441.8	 
	Tax on profit on ordinary activities
	 	 	4	(a)	 	 	 	 	 	 	 	 	 	 	(106.2	)	 	 	 	 	 	 	 	 	 	 	(104.6	)	 	 	 	 	 	 	 	 	 	 	(135.2	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 
	Profit on ordinary activities after tax
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	229.1	 	 	 	 	 	 	 	 	 	 	 	257.6	 	 	 	 	 	 	 	 	 	 	 	306.6	 
	Minority interests — equity
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(26.2	)	 	 	 	 	 	 	 	 	 	 	(33.5	)	 	 	 	 	 	 	 	 	 	 	(28.0	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 
	Profit for the financial year
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	202.9	 	 	 	 	 	 	 	 	 	 	 	224.1	 	 	 	 	 	 	 	 	 	 	 	278.6	 
	Dividends
	 	 	12	(a)	 	 	 	 	 	 	 	 	 	 	(186.6	)	 	 	 	 	 	 	 	 	 	 	(180.3	)	 	 	 	 	 	 	 	 	 	 	(170.2	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 
	Retained profit for the financial year
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	16.3	 	 	 	 	 	 	 	 	 	 	 	43.8	 	 	 	 	 	 	 	 	 	 	 	108.4	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 
	Earnings per 25p
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Ordinary share, basic
	 	 	2	(d)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	— on published earnings
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	41.36p	 	 	 	 	 	 	 	 	 	 	 	46.03p	 	 	 	 	 	 	 	 	 	 	 	57.19p	 
	— on exceptional items
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	14.58p	 	 	 	 	 	 	 	 	 	 	 	11.48p	 	 	 	 	 	 	 	 	 	 	 	(3.66)p	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 
	— before exceptional items
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	55.94p	 	 	 	 	 	 	 	 	 	 	 	57.51p	 	 	 	 	 	 	 	 	 	 	 	53.53p	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 
	Earnings per 25p
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Ordinary share, diluted
	 	 	2	(d)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	— on published earnings
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	41.21p	 	 	 	 	 	 	 	 	 	 	 	45.87p	 	 	 	 	 	 	 	 	 	 	 	56.90p	 
	— on exceptional items
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	14.53p	 	 	 	 	 	 	 	 	 	 	 	11.44p	 	 	 	 	 	 	 	 	 	 	 	(3.64)p	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 
	— before exceptional items
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	55.74p	 	 	 	 	 	 	 	 	 	 	 	57.31p	 	 	 	 	 	 	 	 	 	 	 	53.26p	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 

All turnover and operating profit arose from continuing operations.

66  The BOC Group plc  Report and accounts 2002

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Group balance sheet

At 30 September

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	2001
	 	 	 	 	 	 	2002	 	(restated)
	 	 	Notes	 	£ million	 	£ million
	 	 	
	 	
	 	

	Fixed assets
	 	 	 	 	 	 	 	 	 	 	 	 
	Intangible assets
	 	 	7	 	 	 	150.7	 	 	 	48.1	 
	Tangible assets
	 	 	8	 	 	 	3,027.4	 	 	 	3,168.6	 
	Investment
in joint ventures
	 	 	 	 	 	 	 	 	 	 	 	 
	— share of gross assets
	 	 	 	 	 	 	616.2	 	 	 	615.2	 
	— share of gross liabilities
	 	 	 	 	 	 	(410.7	)	 	 	(410.4	)
	 
	 	 	 	 	 	 	205.5	 	 	 	204.8	 
	— loans to joint ventures
	 	 	 	 	 	 	111.8	 	 	 	97.6	 
	Investment in associates
	 	 	 	 	 	 	 	 	 	 	 	 
	— share of net assets
	 	 	 	 	 	 	57.5	 	 	 	47.1	 
	— loans to associates
	 	 	 	 	 	 	6.2	 	 	 	9.1	 
	Investment in own shares
	 	 	 	 	 	 	42.5	 	 	 	59.5	 
	Other investments
	 	 	 	 	 	 	45.1	 	 	 	31.7	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Investments
	 	 	9	 	 	 	468.6	 	 	 	449.8	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	 
	 	 	 	 	 	 	3,646.7	 	 	 	3,666.5	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Current assets
	 	 	 	 	 	 	 	 	 	 	 	 
	Stocks
	 	 	10	(a)	 	 	260.0	 	 	 	275.2	 
	Debtors falling due within one year
	 	 	10	(b)	 	 	733.8	 	 	 	713.3	 
	Debtors falling due after more than one year
	 	 	10	(c)	 	 	28.3	 	 	 	21.3	 
	Investments
	 	 	 	 	 	 	38.8	 	 	 	43.2	 
	Cash at bank and in hand
	 	 	10	(d)	 	 	185.5	 	 	 	233.5	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	 
	 	 	 	 	 	 	1,246.4	 	 	 	1,286.5	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Current liabilities
	 	 	 	 	 	 	 	 	 	 	 	 
	Creditors: amounts falling due within one year
	 	 	 	 	 	 	 	 	 	 	 	 
	Borrowings and finance leases
	 	 	10	(e)	 	 	(390.1	)	 	 	(486.4	)
	Other creditors
	 	 	10	(f)	 	 	(857.8	)	 	 	(795.3	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	 
	 	 	 	 	 	 	(1,247.9	)	 	 	(1,281.7	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Net current (liabilities)/assets
	 	 	 	 	 	 	(1.5	)	 	 	4.8	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Total assets less current liabilities
	 	 	 	 	 	 	3,645.2	 	 	 	3,671.3	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Long-term liabilities
	 	 	 	 	 	 	 	 	 	 	 	 
	Creditors: amounts falling due after more than one year
	 	 	 	 	 	 	 	 	 	 	 	 
	Borrowings and finance leases
	 	 	11	(a)	 	 	(1,121.0	)	 	 	(1,019.9	)
	Other creditors
	 	 	 	 	 	 	(58.0	)	 	 	(59.4	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	 
	 	 	 	 	 	 	(1,179.0	)	 	 	(1,079.3	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Provisions for liabilities and charges
	 	 	11	(b)	 	 	(407.5	)	 	 	(419.2	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Total net assets excluding pension assets and liabilities
	 	 	 	 	 	 	2,058.7	 	 	 	2,172.8	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Pension assets
	 	 	6	(e)	 	 	54.3	 	 	 	107.0	 
	Pension liabilities
	 	 	6	(e)	 	 	(311.0	)	 	 	(56.0	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Total net assets including pension assets and liabilities
	 	 	 	 	 	 	1,802.0	 	 	 	2,223.8	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Capital and reserves
	 	 	 	 	 	 	 	 	 	 	 	 
	Equity called up share capital
	 	 	12	(b)	 	 	124.3	 	 	 	123.6	 
	Share premium account
	 	 	12	(c)	 	 	362.1	 	 	 	335.8	 
	Revaluation reserves
	 	 	12	(c)	 	 	27.8	 	 	 	47.9	 
	Profit and loss account
	 	 	12	(c)	 	 	1,304.8	 	 	 	1,400.3	 
	Pensions reserves
	 	 	12	(c)	 	 	(256.5	)	 	 	47.1	 
	Joint ventures’ reserves
	 	 	12	(c)	 	 	88.1	 	 	 	98.1	 
	Associates’ reserves
	 	 	12	(c)	 	 	33.5	 	 	 	33.4	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Equity shareholders’ funds
	 	 	 	 	 	 	1,684.1	 	 	 	2,086.2	 
	Minority shareholders’ equity interests
	 	 	 	 	 	 	117.9	 	 	 	137.6	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Total capital and reserves
	 	 	 	 	 	 	1,802.0	 	 	 	2,223.8	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 

The financial statements were approved by the board of directors on 22 November
2002 and are signed on its behalf by:

A E Isaac Director R Médori Director

67  The BOC Group plc  Report and accounts 2002

Table of Contents

Group cash flow statement

Years ended 30 September

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	2001	 	2000	 	 
	 	 	 	 	2002	 	(restated)	 	(restated)
	 	 	Notes	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	

	Net cash inflow from operating activities
	 	 	14	(a)	 	 	759.3	 	 	 	787.8	 	 	 	705.0	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Dividends from joint ventures and associates
	 	 
	Dividends from joint ventures
	 	 	 	 	 	 	30.5	 	 	 	19.4	 	 	 	20.0	 
	Dividends from associates
	 	 	 	 	 	 	3.4	 	 	 	4.1	 	 	 	2.1	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Dividends from joint ventures and associates
	 	 	 	 	 	 	33.9	 	 	 	23.5	 	 	 	22.1	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Returns on investments and servicing of finance
	 	 
	Interest paid
	 	 	 	 	 	 	(89.6	)	 	 	(95.4	)	 	 	(124.9	)
	Interest received
	 	 	 	 	 	 	18.5	 	 	 	23.1	 	 	 	27.2	 
	Dividends paid to minorities in subsidiaries
	 	 	 	 	 	 	(13.9	)	 	 	(7.7	)	 	 	(6.1	)
	Interest element of finance lease rental payments
	 	 	 	 	 	 	(5.7	)	 	 	(7.2	)	 	 	(1.4	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Returns on investments and servicing of finance
	 	 	 	 	 	 	(90.7	)	 	 	(87.2	)	 	 	(105.2	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Tax paid
	 	 	 	 	 	 	(96.2	)	 	 	(100.6	)	 	 	(62.8	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Capital expenditure and financial investment
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Purchases of tangible fixed assets
	 	 	 	 	 	 	(352.1	)	 	 	(349.8	)	 	 	(405.8	)
	Sales of tangible fixed assets
	 	 	 	 	 	 	31.6	 	 	 	47.1	 	 	 	24.2	 
	Purchases of intangible fixed assets
	 	 	 	 	 	 	(0.1	)	 	 	(0.3	)	 	 	(0.4	)
	Net sales/(purchases) of current asset investments
	 	 	 	 	 	 	4.3	 	 	 	(6.5	)	 	 	0.9	 
	Purchases of trade and other investments
	 	 	 	 	 	 	(19.7	)	 	 	(10.2	)	 	 	(29.8	)
	Sales of trade and other investments
	 	 	 	 	 	 	11.5	 	 	 	7.8	 	 	 	2.6	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Capital expenditure and financial investment
	 	 	 	 	 	 	(324.5	)	 	 	(311.9	)	 	 	(408.3	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Acquisitions and disposals
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Acquisitions of businesses
	 	 	15	(a)	 	 	(207.3	)	 	 	(145.9	)	 	 	(32.1	)
	Net overdrafts acquired with subsidiaries
	 	 	 	 	 	 	(7.4	)	 	 	—	 	 	 	—	 
	Disposals of businesses
	 	 	15	(a)	 	 	10.6	 	 	 	2.7	 	 	 	0.4	 
	Investments in joint ventures
	 	 	 	 	 	 	(12.6	)	 	 	—	 	 	 	(33.6	)
	Divestments/repayments from joint ventures
	 	 	 	 	 	 	—	 	 	 	10.8	 	 	 	3.0	 
	Investments in associates
	 	 	 	 	 	 	(0.5	)	 	 	(2.7	)	 	 	(0.7	)
	Divestments/repayments from associates
	 	 	 	 	 	 	1.7	 	 	 	1.5	 	 	 	1.0	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Acquisitions and disposals
	 	 	 	 	 	 	(215.5	)	 	 	(133.6	)	 	 	(62.0	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Equity dividends paid
	 	 	 	 	 	 	(186.6	)	 	 	(180.3	)	 	 	(170.2	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net cash outflow before use of liquid resources and financing
	 	 	 	 	 	 	(120.3	)	 	 	(2.3	)	 	 	(81.4	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Management of liquid resources
	 	 
	Net sales of short-term investments
	 	 	 	 	 	 	52.6	 	 	 	102.8	 	 	 	9.6	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Financing
	 	 
	Issue of shares
	 	 	 	 	 	 	25.0	 	 	 	16.9	 	 	 	10.1	 
	Increase/(decrease) in debt
	 	 	14	(d)	 	 	64.1	 	 	 	(51.3	)	 	 	64.9	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net cash inflow/(outflow) from financing
	 	 	 	 	 	 	89.1	 	 	 	(34.4	)	 	 	75.0	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Increase in cash
	 	 	 	 	 	 	21.4	 	 	 	66.1	 	 	 	3.2	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 

A reconciliation of the increase in cash to the movement in net debt in
the year is given in note 14 b).

Liquid resources are defined as
short-term deposits.

68  The BOC Group plc Report and accounts 2002

 

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Total recognised gains and losses

Years ended 30 September

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	2001	 	2000
	 	 	 	 	2002	 	(restated)	 	(restated)
	 	 	Notes	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	

	Parent1
	 	 	 	 	 	 	26.2	 	 	 	12.1	 	 	 	129.7	 
	Subsidiary undertakings
	 	 	 	 	 	 	170.1	 	 	 	199.8	 	 	 	141.1	 
	Joint ventures
	 	 	 	 	 	 	4.5	 	 	 	10.3	 	 	 	6.5	 
	Associates
	 	 	 	 	 	 	2.1	 	 	 	1.9	 	 	 	1.3	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Profit for the financial year
	 	 	 	 	 	 	202.9	 	 	 	224.1	 	 	 	278.6	 
	Actuarial (loss)/gain recognised on the pension schemes
	 	 	 	 	 	 	(431.2	)	 	 	(464.9	)	 	 	114.2	 
	Movement on deferred tax relating to actuarial loss/(gain) on pensions
	 	 	 	 	 	 	134.0	 	 	 	154.5	 	 	 	(35.2	)
	Unrecognised loss on write down of revaluation reserve
	 	 	 	 	 	 	(11.5	)	 	 	—	 	 	 	—	 
	Exchange translation effect on:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	— results for the year of subsidiaries
	 	 	 	 	 	 	(5.2	)	 	 	(3.9	)	 	 	(2.2	)
	— results for the year of joint ventures
	 	 	 	 	 	 	(2.6	)	 	 	(1.5	)	 	 	0.8	 
	— results for the year of associates
	 	 	 	 	 	 	(0.3	)	 	 	(0.1	)	 	 	0.2	 
	— foreign currency net investments in subsidiaries
	 	 	 	 	 	 	(114.6	)	 	 	(55.8	)	 	 	95.1	 
	— foreign currency net investments in joint ventures
	 	 	 	 	 	 	(11.9	)	 	 	(1.6	)	 	 	7.9	 
	— foreign currency net investments in associates
	 	 	 	 	 	 	(1.7	)	 	 	0.4	 	 	 	6.8	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total recognised gains and losses for the financial year
	 	 	12	(c)	 	 	(242.1	)	 	 	(148.8	)	 	 	466.2	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Prior year adjustment
	 	 	 	 	 	 	(220.1	)	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 
	Total recognised gains and losses since last annual report
	 	 	 	 	 	 	(462.2	)	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 

	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 2002, 2001 and 2000.

	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 charge of
£13.5 million (2001: £nil, 2000: £nil) has been
recognised directly in the Group reserves.

Movement in shareholders’ funds

Years ended 30 September

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	2001	 	2000
	 	 	2002	 	(restated)	 	(restated)
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	Profit for the financial year
	 	 	202.9	 	 	 	224.1	 	 	 	278.6	 
	Dividends
	 	 	(186.6	)	 	 	(180.3	)	 	 	(170.2	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	16.3	 	 	 	43.8	 	 	 	108.4	 
	Other recognised gains and losses
	 	 	(445.0	)	 	 	(372.9	)	 	 	187.6	 
	Shares issued
	 	 	24.6	 	 	 	16.9	 	 	 	8.9	 
	Credit in relation to share options
	 	 	2.0	 	 	 	4.4	 	 	 	3.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Net (decrease)/increase in shareholders’ funds for the financial year
	 	 	(402.1	)	 	 	(307.8	)	 	 	308.5	 
	Shareholders’ funds at 1 October — previously reported
	 	 	2,306.3	 	 	 	2,273.6	 	 	 	2,013.1	 
	Prior year adjustment
	 	 	(220.1	)	 	 	120.4	 	 	 	72.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Shareholders’ funds at 1 October — restated
	 	 	2,086.2	 	 	 	2,394.0	 	 	 	2,085.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Shareholders’ funds at 30 September
	 	 	1,684.1	 	 	 	2,086.2	 	 	 	2,394.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

69  The BOC Group plc Report and accounts 2002

 

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Balance sheet of The BOC Group plc

At 30 September

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	2001
	 	 	 	 	2002	 	(restated)
	 	 	Notes	 	£ million	 	£ million
	 	 	
	 	
	 	

	Fixed assets

	 	 	 	 	 	 	 	 	 	 	 	 
	
Tangible assets
	 	 	8	(e)	 	 	14.0	 	 	 	18.8	 
	Investments
	 	 	9	(d)	 	 	2,844.4	 	 	 	2,702.0	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	 
	 	 	 	 	 	 	2,858.4	 	 	 	2,720.8	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Current assets

	 	 	 	 	 	 	 	 	 	 	 	 
	
Debtors falling due within one year
	 	 	10	(b)	 	 	515.6	 	 	 	408.6	 
	Cash at bank and in hand
	 	 	10	(d)	 	 	–	 	 	 	51.7	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	 
	 	 	 	 	 	 	515.6	 	 	 	460.3	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Current liabilities

	 	 	 	 	 	 	 	 	 	 	 	 
	Creditors: amounts falling due within one year

	 	 	 	 	 	 	 	 	 	 	 	 
	
Borrowings and finance leases
	 	 	10	(e)	 	 	(178.9	)	 	 	(315.6	)
	Other creditors
	 	 	10	(f)	 	 	(953.8	)	 	 	(717.3	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	 
	 	 	 	 	 	 	(1,132.7	)	 	 	(1,032.9	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Net current liabilities
	 	 	 	 	 	 	(617.1	)	 	 	(572.6	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Total assets less current liabilities
	 	 	 	 	 	 	2,241.3	 	 	 	2,148.2	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Long-term liabilities

	 	 	 	 	 	 	 	 	 	 	 	 
	Creditors: amounts falling due after more than one year

	 	 	 	 	 	 	 	 	 	 	 	 
	
Borrowings and finance leases
	 	 	11	(a)	 	 	(801.0	)	 	 	(570.4	)
	Other creditors
	 	 	 	 	 	 	(13.0	)	 	 	(16.5	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	 
	 	 	 	 	 	 	(814.0	)	 	 	(586.9	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Total net assets
	 	 	 	 	 	 	1,427.3	 	 	 	1,561.3	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Capital and reserves

	 	 	 	 	 	 	 	 	 	 	 	 
	
Equity called up share capital
	 	 	12	(b)	 	 	124.3	 	 	 	123.6	 
	Share premium account
	 	 	12	(d)	 	 	362.1	 	 	 	335.8	 
	Other reserves
	 	 	12	(d)	 	 	113.7	 	 	 	111.7	 
	Profit and loss account
	 	 	12	(d)	 	 	827.2	 	 	 	990.2	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 
	Total capital and reserves
	 	 	 	 	 	 	1,427.3	 	 	 	1,561.3	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 

The financial statements were approved by the board of directors on 22 November
2002 and are signed on its behalf by:

A E Isaac Director R Médori Director

 

 

 

 

 

70  The BOC Group plc Report and accounts 2002

 

Table of Contents

Accounting
policies

General

	•
	 	Basis of preparation These 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 profit before tax and shareholders’ funds are shown in note
16 to the financial statements. Disclosure requirements of both the UK and US
are incorporated throughout the notes to these financial statements.

	•
	 	Basis of consolidation The 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.

	•
	 	New accounting policies This year, the Group has fully adopted the
following two new accounting standards issued by the UK Accounting
Standards Board:

	
	 	FRS17 – Retirement benefits

	
	 	FRS19 – Deferred tax

	
	 	For the
year ended 30 September 2001, the Group followed the transitional
arrangements permitted by FRS17 under which disclosure on retirement
benefits was given in the notes to the financial statements. For the year
ended 30 September 2002, the standard has been fully adopted and the
accounting impact reflected throughout the financial statements. The
impact of FRS19 is also reflected throughout the financial statements. The
impact is explained further in note 17 to the financial statements.

	
	 	     Comparative figures
have been restated for both FRS17 and FRS19. Changes
to existing policies as a result of adopting these new standards are
described, where appropriate, below.

	•
	 	Exchange Profit 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 on page 49.

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

Following the full adoption of 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 net interest. 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 net interest.
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.

 

 

 

71  The BOC Group plc Report and accounts 2002

 

Table of Contents

Accounting policies

Intangible fixed assets

	•
	 	Goodwill Goodwill 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.

	•
	 	Intangibles Other material intangible assets acquired, such as patents
and trademarks, are capitalised and written off on the straight line basis
over their effective economic lives.

Tangible fixed assets

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 annum
	 	 	

	Freehold 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 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 discounting
estimated future cash flows, 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.

 

 

 

 

 

 

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Deferred tax

Following the adoption of FRS19, 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 exposures The 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 exposures A 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 exposures The 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.

 

 

 

 

 

 

73  The BOC Group plc Report and accounts 2002

 

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Notes to the financial statements

1. Segmental information

a) Turnover (including share of joint ventures and
associates)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Continuing operations
	 	 	

	 	 	 	 	 	 	Industrial	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Process Gas	 	and Special	 	BOC	 	Afrox	 	 	 	 	 	Total Group	 	Total Group
	 	 	Solutions	 	Products	 	Edwards	 	hospitals	 	Gist	 	by origin	 	by destination
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Europe
	 	 	257.1	 	 	 	399.3	 	 	 	150.0	 	 	 	—	 	 	 	263.2	 	 	 	1,069.6	 	 	 	1,055.3	 
	Americas
	 	 	528.1	 	 	 	464.8	 	 	 	298.9	 	 	 	—	 	 	 	—	 	 	 	1,291.8	 	 	 	1,240.1	 
	Africa
	 	 	23.6	 	 	 	158.4	 	 	 	—	 	 	 	259.0	 	 	 	—	 	 	 	441.0	 	 	 	443.3	 
	Asia/Pacific
	 	 	391.8	 	 	 	582.8	 	 	 	239.3	 	 	 	—	 	 	 	1.6	 	 	 	1,215.5	 	 	 	1,279.2	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Turnover
	 	 	1,200.6	 	 	 	1,605.3	 	 	 	688.2	 	 	 	259.0	 	 	 	264.8	 	 	 	4,017.9	 	 	 	4,017.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	2001
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Europe
	 	 	240.2	 	 	 	375.3	 	 	 	157.4	 	 	 	—	 	 	 	229.6	 	 	 	1,002.5	 	 	 	979.6	 
	Americas
	 	 	529.7	 	 	 	464.5	 	 	 	393.3	 	 	 	—	 	 	 	—	 	 	 	1,387.5	 	 	 	1,326.1	 
	Africa
	 	 	25.6	 	 	 	192.2	 	 	 	—	 	 	 	287.8	 	 	 	—	 	 	 	505.6	 	 	 	504.9	 
	Asia/Pacific
	 	 	397.5	 	 	 	541.9	 	 	 	322.4	 	 	 	—	 	 	 	1.8	 	 	 	1,263.6	 	 	 	1,348.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Turnover
	 	 	1,193.0	 	 	 	1,573.9	 	 	 	873.1	 	 	 	287.8	 	 	 	231.4	 	 	 	4,159.2	 	 	 	4,159.2	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	2000
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Europe
	 	 	226.6	 	 	 	357.3	 	 	 	171.3	 	 	 	—	 	 	 	225.3	 	 	 	980.5	 	 	 	948.9	 
	Americas
	 	 	433.3	 	 	 	428.5	 	 	 	378.1	 	 	 	—	 	 	 	—	 	 	 	1,239.9	 	 	 	1,160.6	 
	Africa
	 	 	26.7	 	 	 	181.3	 	 	 	—	 	 	 	292.8	 	 	 	—	 	 	 	500.8	 	 	 	499.9	 
	Asia/Pacific
	 	 	358.6	 	 	 	548.3	 	 	 	249.6	 	 	 	—	 	 	 	1.1	 	 	 	1,157.6	 	 	 	1,269.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Turnover
	 	 	1,045.2	 	 	 	1,515.4	 	 	 	799.0	 	 	 	292.8	 	 	 	226.4	 	 	 	3,878.8	 	 	 	3,878.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

b) Business analysis

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Continuing operations
	 	 	

	 	 	 	 	 	 	Industrial	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Process Gas	 	and Special	 	BOC	 	Afrox	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Solutions	 	Products	 	Edwards	 	hospitals	 	Gist	 	Corporate	 	Total Group
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total operating profit before exceptional items1
	 	 	185.2	 	 	 	248.0	 	 	 	26.1	 	 	 	29.7	 	 	 	25.5	 	 	 	(14.4	)	 	 	500.1	 
	Operating exceptional items1
	 	 	(24.0	)	 	 	(18.7	)	 	 	(27.5	)	 	 	—	 	 	 	—	 	 	 	(4.3	)	 	 	(74.5	)
	(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	)	 	 	3,593.1	 
	Capital expenditure3
	 	 	157.3	 	 	 	123.6	 	 	 	42.0	 	 	 	9.2	 	 	 	19.0	 	 	 	3.2	 	 	 	354.3	 
	Depreciation and amortisation3
	 	 	167.7	 	 	 	96.8	 	 	 	41.1	 	 	 	7.2	 	 	 	16.1	 	 	 	2.0	 	 	 	330.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	2001 (restated)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total operating profit before exceptional items1
	 	 	156.5	 	 	 	248.8	 	 	 	78.8	 	 	 	32.3	 	 	 	21.3	 	 	 	(7.1	)	 	 	530.6	 
	Operating exceptional items1
	 	 	(52.8	)	 	 	(21.8	)	 	 	(16.1	)	 	 	—	 	 	 	(0.7	)	 	 	(16.9	)	 	 	(108.3	)
	(Loss)/profit on disposal of fixed assets1
	 	 	(0.3	)	 	 	(3.1	)	 	 	(1.3	)	 	 	0.9	 	 	 	—	 	 	 	7.4	 	 	 	3.6	 
	Capital employed2
	 	 	2,004.9	 	 	 	1,152.7	 	 	 	589.9	 	 	 	98.5	 	 	 	81.4	 	 	 	47.1	 	 	 	3,974.5	 
	Capital expenditure3
	 	 	170.6	 	 	 	95.5	 	 	 	53.8	 	 	 	10.3	 	 	 	17.9	 	 	 	4.5	 	 	 	352.6	 
	Depreciation and amortisation3
	 	 	169.4	 	 	 	97.4	 	 	 	37.2	 	 	 	6.7	 	 	 	15.6	 	 	 	3.2	 	 	 	329.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	2000 (restated)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total operating profit before exceptional items1
	 	 	127.2	 	 	 	254.6	 	 	 	71.1	 	 	 	27.2	 	 	 	18.6	 	 	 	(2.3	)	 	 	496.4	 
	Operating exceptional items1
	 	 	(5.5	)	 	 	(15.8	)	 	 	(4.5	)	 	 	—	 	 	 	1.5	 	 	 	19.9	 	 	 	(4.4	)
	Capital employed2
	 	 	2,120.8	 	 	 	1,374.7	 	 	 	640.5	 	 	 	120.5	 	 	 	128.0	 	 	 	68.7	 	 	 	4,453.2	 
	Capital expenditure3
	 	 	222.2	 	 	 	99.1	 	 	 	59.1	 	 	 	15.5	 	 	 	16.8	 	 	 	1.0	 	 	 	413.7	 
	Depreciation and amortisation3
	 	 	157.9	 	 	 	93.8	 	 	 	33.3	 	 	 	7.2	 	 	 	17.1	 	 	 	4.0	 	 	 	313.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	1.	 	Including share of joint ventures and associates.
	2.	 	Capital employed comprises the
capital and reserves of the Group, its long-term liabilities and all current borrowings net of cash and deposits.
	3.	 	Subsidiary undertakings only.

74  The BOC Group plc Report and accounts 2002

 

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1. Segmental information continued

c) Regional analysis

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Total
	 	 	Europe	 	Americas	 	Africa	 	Asia/Pacific	 	Group
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	

	2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total operating profit before exceptional items1
	 	 	155.2	 	 	 	121.3	 	 	 	56.7	 	 	 	166.9	 	 	 	500.1	 
	Operating exceptional items1
	 	 	(38.4	)	 	 	(8.1	)	 	 	(0.4	)	 	 	(27.6	)	 	 	(74.5	)
	(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	 	 	 	3,593.1	 
	Capital expenditure3
	 	 	121.4	 	 	 	134.7	 	 	 	25.6	 	 	 	72.6	 	 	 	354.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	2001 (restated)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total operating profit before exceptional items1
	 	 	165.5	 	 	 	137.2	 	 	 	69.4	 	 	 	158.5	 	 	 	530.6	 
	Operating exceptional items1
	 	 	(42.9	)	 	 	(40.5	)	 	 	—	 	 	 	(24.9	)	 	 	(108.3	)
	(Loss)/profit on disposal of fixed assets1
	 	 	(2.2	)	 	 	4.6	 	 	 	2.6	 	 	 	(1.4	)	 	 	3.6	 
	Capital employed2
	 	 	1,221.1	 	 	 	1,305.5	 	 	 	259.0	 	 	 	1,188.9	 	 	 	3,974.5	 
	Capital expenditure3
	 	 	134.6	 	 	 	108.6	 	 	 	26.4	 	 	 	83.0	 	 	 	352.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	2000 (restated)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total operating profit before exceptional items1
	 	 	171.3	 	 	 	117.3	 	 	 	66.1	 	 	 	141.7	 	 	 	496.4	 
	Operating exceptional items1
	 	 	22.9	 	 	 	(25.4	)	 	 	(0.6	)	 	 	(1.3	)	 	 	(4.4	)
	Capital employed2
	 	 	1,412.5	 	 	 	1,424.9	 	 	 	328.3	 	 	 	1,287.5	 	 	 	4,453.2	 
	Capital expenditure3
	 	 	127.2	 	 	 	121.9	 	 	 	31.8	 	 	 	132.8	 	 	 	413.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	1.	 	Including share of joint ventures and associates.
	2.	 	Capital employed comprises the
capital and reserves of the Group, its long-term liabilities and all current borrowings net of cash and deposits.
	3.	 	Subsidiary undertakings only.

d) Joint ventures and associates — business analysis

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Joint ventures	 	Associates
	 	 	
	 	

	 	 	 	 	 	 	Industrial	 	 	Industrial	 	 	 	 	 
	 	 	Process Gas	 	and Special	 	BOC	 	Process Gas	 	and Special	 	BOC	 	Afrox
	 	 	Solutions	 	Products	 	Edwards	 	Solutions	 	Products	 	Edwards	 	hospitals
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Turnover1
	 	 	119.9	 	 	 	142.7	 	 	 	61.5	 	 	 	10.6	 	 	 	7.9	 	 	 	7.1	 	 	 	10.5	 
	Operating profit before exceptional items1
	 	 	30.9	 	 	 	20.8	 	 	 	12.1	 	 	 	5.0	 	 	 	1.9	 	 	 	1.7	 	 	 	2.1	 
	Operating exceptional items1
	 	 	(0.4	)	 	 	(0.1	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Capital employed2
	 	 	93.6	 	 	 	63.8	 	 	 	48.1	 	 	 	40.1	 	 	 	11.9	 	 	 	2.1	 	 	 	3.4	 
	Capital expenditure
	 	 	46.5	 	 	 	7.5	 	 	 	8.0	 	 	 	8.3	 	 	 	1.8	 	 	 	1.5	 	 	 	0.6	 
	Group share
	 	 	23.0	 	 	 	3.7	 	 	 	4.0	 	 	 	2.6	 	 	 	0.6	 	 	 	0.4	 	 	 	0.2	 
	Other partners
	 	 	23.5	 	 	 	3.8	 	 	 	4.0	 	 	 	5.7	 	 	 	1.2	 	 	 	1.1	 	 	 	0.4	 
	Depreciation and amortisation1
	 	 	20.9	 	 	 	8.2	 	 	 	6.1	 	 	 	2.9	 	 	 	0.7	 	 	 	0.1	 	 	 	0.2	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	2001 (restated)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Turnover1
	 	 	122.1	 	 	 	144.4	 	 	 	73.5	 	 	 	9.2	 	 	 	7.7	 	 	 	8.0	 	 	 	21.4	 
	Operating profit before exceptional items1
	 	 	28.2	 	 	 	16.8	 	 	 	14.0	 	 	 	4.1	 	 	 	3.0	 	 	 	2.1	 	 	 	4.0	 
	Operating exceptional items1
	 	 	(0.6	)	 	 	(1.6	)	 	 	—	 	 	 	(0.2	)	 	 	(0.1	)	 	 	(0.1	)	 	 	—	 
	Capital employed2
	 	 	99.3	 	 	 	61.6	 	 	 	43.9	 	 	 	27.4	 	 	 	10.5	 	 	 	2.4	 	 	 	6.8	 
	Capital expenditure
	 	 	55.9	 	 	 	12.0	 	 	 	35.4	 	 	 	2.5	 	 	 	0.4	 	 	 	0.2	 	 	 	3.3	 
	Group share
	 	 	27.8	 	 	 	5.9	 	 	 	17.7	 	 	 	0.7	 	 	 	0.1	 	 	 	0.1	 	 	 	1.0	 
	Other partners
	 	 	28.1	 	 	 	6.1	 	 	 	17.7	 	 	 	1.8	 	 	 	0.3	 	 	 	0.1	 	 	 	2.3	 
	Depreciation and amortisation1
	 	 	20.5	 	 	 	7.9	 	 	 	5.4	 	 	 	2.5	 	 	 	0.5	 	 	 	0.1	 	 	 	0.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	2000 (restated)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Turnover1
	 	 	72.4	 	 	 	135.4	 	 	 	50.2	 	 	 	8.3	 	 	 	6.9	 	 	 	5.8	 	 	 	20.1	 
	Operating profit1
	 	 	19.6	 	 	 	16.9	 	 	 	11.6	 	 	 	1.6	 	 	 	2.5	 	 	 	1.2	 	 	 	3.2	 
	Capital employed2
	 	 	96.2	 	 	 	74.8	 	 	 	44.9	 	 	 	25.5	 	 	 	9.7	 	 	 	1.3	 	 	 	7.5	 
	Capital expenditure
	 	 	146.2	 	 	 	36.1	 	 	 	28.6	 	 	 	0.8	 	 	 	1.2	 	 	 	0.4	 	 	 	4.0	 
	Group share
	 	 	49.5	 	 	 	17.9	 	 	 	14.3	 	 	 	0.3	 	 	 	0.3	 	 	 	0.1	 	 	 	1.1	 
	Other partners
	 	 	96.7	 	 	 	18.2	 	 	 	14.3	 	 	 	0.5	 	 	 	0.9	 	 	 	0.3	 	 	 	2.9	 
	Depreciation and amortisation1
	 	 	9.9	 	 	 	10.1	 	 	 	3.8	 	 	 	2.3	 	 	 	0.5	 	 	 	—	 	 	 	0.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

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

75  The BOC Group plc Report and accounts 2002

 

Table of Contents

Notes to the financial statements

1. Segmental information continued

e) Joint ventures and associates — regional analysis

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Joint ventures	 	 	Associates
	 	 	
	 	

	 	 	Americas	 	Asia/Pacific	 	Americas	 	Africa	 	Asia/Pacific
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	

	2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Turnover1
	 	 	85.4	 	 	 	238.7	 	 	 	—	 	 	 	10.5	 	 	 	25.6	 
	Operating profit before exceptional items1
	 	 	21.9	 	 	 	41.9	 	 	 	—	 	 	 	2.1	 	 	 	8.6	 
	Operating exceptional items1
	 	 	—	 	 	 	(0.5	)	 	 	—	 	 	 	—	 	 	 	—	 
	Capital employed2
	 	 	25.2	 	 	 	180.3	 	 	 	13.7	 	 	 	3.4	 	 	 	40.4	 
	Capital expenditure
	 	 	3.4	 	 	 	58.6	 	 	 	5.5	 	 	 	0.6	 	 	 	6.1	 
	Group share
	 	 	1.4	 	 	 	29.3	 	 	 	1.7	 	 	 	0.2	 	 	 	1.9	 
	Other partners
	 	 	2.0	 	 	 	29.3	 	 	 	3.8	 	 	 	0.4	 	 	 	4.2	 
	Depreciation and amortisation1
	 	 	14.6	 	 	 	20.6	 	 	 	—	 	 	 	0.2	 	 	 	3.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	2001 (restated)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Turnover1
	 	 	88.5	 	 	 	251.5	 	 	 	—	 	 	 	21.4	 	 	 	24.9	 
	Operating profit before exceptional items1
	 	 	18.5	 	 	 	40.5	 	 	 	—	 	 	 	4.0	 	 	 	9.2	 
	Operating exceptional items1
	 	 	—	 	 	 	(2.2	)	 	 	—	 	 	 	—	 	 	 	(0.4	)
	Capital employed2
	 	 	27.7	 	 	 	177.1	 	 	 	—	 	 	 	6.8	 	 	 	40.3	 
	Capital expenditure
	 	 	35.2	 	 	 	68.1	 	 	 	—	 	 	 	3.3	 	 	 	3.1	 
	Group share
	 	 	17.4	 	 	 	34.0	 	 	 	—	 	 	 	1.0	 	 	 	0.9	 
	Other partners
	 	 	17.8	 	 	 	34.1	 	 	 	—	 	 	 	2.3	 	 	 	2.2	 
	Depreciation and amortisation1
	 	 	14.7	 	 	 	19.1	 	 	 	—	 	 	 	0.6	 	 	 	3.1	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	2000 (restated)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Turnover1
	 	 	43.1	 	 	 	214.9	 	 	 	—	 	 	 	20.1	 	 	 	21.0	 
	Operating profit1
	 	 	12.6	 	 	 	35.5	 	 	 	—	 	 	 	3.2	 	 	 	5.3	 
	Capital employed2
	 	 	33.6	 	 	 	182.3	 	 	 	—	 	 	 	7.5	 	 	 	36.5	 
	Capital expenditure
	 	 	120.7	 	 	 	90.2	 	 	 	—	 	 	 	4.0	 	 	 	2.4	 
	Group share
	 	 	36.6	 	 	 	45.1	 	 	 	—	 	 	 	1.1	 	 	 	0.7	 
	Other partners
	 	 	84.1	 	 	 	45.1	 	 	 	—	 	 	 	2.9	 	 	 	1.7	 
	Depreciation and amortisation1
	 	 	6.5	 	 	 	17.3	 	 	 	—	 	 	 	0.5	 	 	 	2.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

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

f) Significant country analysis

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	UK	 	US
	 	 	
	 	

	 	 	 	 	 	 	2001	 	2000	 	 	 	 	 	2001	 	2000
	 	 	2002	 	(restated)	 	(restated)	 	2002	 	(restated)	 	(restated)
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	

	Turnover
	 	 	868.7	 	 	 	837.2	 	 	 	835.5	 	 	 	1,065.6	 	 	 	1,167.7	 	 	 	1,082.7	 
	Total operating profit before exceptional items
	 	 	115.2	 	 	 	125.5	 	 	 	136.4	 	 	 	50.5	 	 	 	66.9	 	 	 	77.6	 
	Operating exceptional items
	 	 	(36.5	)	 	 	(41.9	)	 	 	22.7	 	 	 	(25.7	)	 	 	(34.5	)	 	 	(24.8	)
	Exceptional (loss)/profit on disposal of fixed assets
	 	 	—	 	 	 	(1.7	)	 	 	—	 	 	 	—	 	 	 	4.6	 	 	 	—	 
	Capital employed1
	 	 	733.9	 	 	 	928.6	 	 	 	1,180.8	 	 	 	1,091.6	 	 	 	1,231.0	 	 	 	1,275.5	 
	Capital expenditure
	 	 	110.0	 	 	 	126.3	 	 	 	116.8	 	 	 	124.8	 	 	 	99.8	 	 	 	106.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	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

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	2001	 	 	 	2000	 
	 	 	 	2002	 	 	 	(restated)	 	 	 	(restated)	 
	i) Expense category	 	 	£ million	 	 	 	£ million	 	 	 	£ million	 
	
	 	 	
	 	 	 	
	 	 	 	
	 
	Cost of sales
	 	 	(2,104.8	)	 	 	(2,208.8	)	 	 	(2,035.8	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Distribution costs
	 	 	(344.1	)	 	 	(339.3	)	 	 	(327.2	)
	Administrative expenses1
	 	 	(861.4	)	 	 	(874.1	)	 	 	(781.9	)
	Income from other fixed asset investments
	 	 	4.2	 	 	 	2.0	 	 	 	0.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Net operating expenses
	 	 	(1,201.3	)	 	 	(1,211.4	)	 	 	(1,108.5	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 

	1.	 	Included in total administrative expenses is research and development
expenditure of £47.0 million (2001:
£59.7 million, 2000: £59.2 million).

76  The BOC Group plc Report and accounts 2002

 

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2. Profit and loss continued

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Total	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	before	 	 	 	 	 	 	 	 
	 	 	Continuing	 	 	 	 	 	exceptional	 	Exceptional	 
	 	 	operations	 	Acquisitions	 	items	 	items	 	Total
	ii) 2002 analysis	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	
	 	
	 	
	 	
	 	
	 	

	Cost of sales
	 	 	(1,998.2	)	 	 	(91.5	)	 	 	(2,089.7	)	 	 	(15.1	)	 	 	(2,104.8	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Distribution costs
	 	 	(332.2	)	 	 	(9.7	)	 	 	(341.9	)	 	 	(2.2	)	 	 	(344.1	)
	Administrative expenses1
	 	 	(783.2	)	 	 	(21.5	)	 	 	(804.7	)	 	 	(56.7	)	 	 	(861.4	)
	Income from other fixed asset investments
	 	 	4.2	 	 	 	—	 	 	 	4.2	 	 	 	—	 	 	 	4.2	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net operating expenses
	 	 	(1,111.2	)	 	 	(31.2	)	 	 	(1,142.4	)	 	 	(58.9	)	 	 	(1,201.3	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Continuing	 	 	 	 	 	 	 	 
	 	 	operations	 	 	 	 	 	 	 	 
	 	 	before	 	 	 	 	 	 	 	 
	 	 	exceptional	 	Exceptional	 	 	 	 
	 	 	items	 	items	 	Total
	iii) 2001 analysis (restated)	 	£ million	 	£ million	 	£ million
	
	 	
	 	
	 	

	Cost 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	 	 	 	—	 	 	 	2.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Net operating expenses
	 	 	(1,150.3	)	 	 	(61.1	)	 	 	(1,211.4	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	iv) 2000 analysis (restated)
	 	 	 	 	 	 	 	 	 	 	 	 
	Cost of sales
	 	 	(2,035.2	)	 	 	(0.6	)	 	 	(2,035.8	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Distribution costs
	 	 	(327.2	)	 	 	—	 	 	 	(327.2	)
	Administrative expenses1
	 	 	(778.1	)	 	 	(3.8	)	 	 	(781.9	)
	Income from other fixed asset investments
	 	 	0.6	 	 	 	—	 	 	 	0.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Net operating expenses
	 	 	(1,104.7	)	 	 	(3.8	)	 	 	(1,108.5	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 

	1.	 	Included in total administrative expenses is research and development
expenditure of £47.0 million (2001:
£59.7 million, 2000: £59.2 million).

b) Exceptional items analysis

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	2001	 	 	 	 
	 	 	2002	 	(restated)	 	2000
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	(Charged)/credited in arriving at operating profit
	 	 	 	 	 	 	 	 	 	 	 	 
	Restructuring costs
	 	 	(47.2	)	 	 	(35.8	)	 	 	(18.8	)
	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	)	 	 	—	 
	Business systems investments
	 	 	—	 	 	 	—	 	 	 	(6.0	)
	Costs of proposed takeover
	 	 	(6.1	)	 	 	(10.3	)	 	 	(45.6	)
	Break fee
	 	 	—	 	 	 	—	 	 	 	66.0	 
	 	 	 	
	 	 	 	
	 	 	 	

	Total operating exceptional items
	 	 	(74.5	)	 	 	(108.3	)	 	 	(4.4	)
	 	 	 	
	 	 	 	
	 	 	 	

 

i) Restructuring costs

The business initiative announced in August 2001 included a number of
restructuring programmes. The major programmes included the restructuring of BOC
Edwards manufacturing capacity, closure of production at the Process Plants
Edmonton site in the UK, investments in information technology and information
management systems, restructuring to deliver operational efficiencies in Process
Gas Solutions and restructuring of operational networks in Industrial and
Special Products. Cash flow from operating activities includes an outflow of
£48.0 million in 2002 in respect of these exceptional items.

ii) Write-downs of assets

In September 2002 BOC and Air Liquide announced a conditional agreement to
merge their industrial and medical gases businesses in Japan to form a combined
company to be called 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, have been
reduced to an appropriate amount based on valuations performed ahead of the
merger. This has resulted in a write-down of £32.7 million, of which £11.5
million has been taken against the revaluation reserves, and the balance of
£21.2 million has been charged as an exceptional item in the profit and loss
account 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.

77  The BOC Group plc Report and accounts 2002

 

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Notes to the financial statements

2. Profit and loss continued

iii) Costs of proposed takeover and break fee

The final costs associated with the pre-conditional offer for the Group have
been incurred in 2002 in respect of share options and other costs related to
the retention of key employees. There are no further costs to come. The break fee
was received in 2000 from the potential bidders on the failure of the
pre-conditional offer. Cash flow from operating activities includes an outflow
of £4.5 million in 2002 in respect of these exceptional items.

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2000
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	(Charged)/credited after operating profit

	 	 	 	 	 	 	 	 	 	 	 	 
	Closure of businesses — continuing operations
	 	 	(21.3	)	 	 	—	 	 	 	—	 
	Profit on disposal of businesses — continuing operations
	 	 	1.1	 	 	 	—	 	 	 	—	 
	Profit on disposal of businesses — discontinued business
	 	 	—	 	 	 	—	 	 	 	12.5	 
	Profit on disposal of fixed assets — continuing operations
	 	 	—	 	 	 	13.6	 	 	 	—	 
	Loss on disposal of fixed assets — continuing operations
	 	 	—	 	 	 	(10.0	)	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total non-operating exceptional items
	 	 	(20.2	)	 	 	3.6	 	 	 	12.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

iv) 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 have
been charged as an exceptional item this year. This includes severance costs for
215 employees, the write-down of assets and the costs of winding down the
business. Cash flow from operating activities includes an outflow of £12.5
million in 2002 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.

v) The profit on
disposal of the health care discontinued business in 2000 of £12.5 million
arose from the release of provisions established at the time of disposal in
1998.

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

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2000
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	Audit
fees (Parent: £0.3 million, 2001: £0.3  million,
2000: £0.3 million)
	 	 	1.9	 	 	 	2.0	 	 	 	1.8	 
	Non audit fees
	 	 	 	 	 	 	 	 	 	 	 	 
	Tax advice and compliance
	 	 	2.5	 	 	 	1.6	 	 	 	2.3	 
	Expatriate tax administration
	 	 	1.4	 	 	 	0.5	 	 	 	—	 
	Acquisition related work
	 	 	0.8	 	 	 	—	 	 	 	—	 
	Other advice
	 	 	0.4	 	 	 	0.1	 	 	 	1.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total non audit fees
	 	 	5.1	 	 	 	2.2	 	 	 	3.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total fees paid to auditors
	 	 	7.0	 	 	 	4.2	 	 	 	5.1	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

Tax compliance and expatriate administration work was outsourced following
competitive tender processes. See also page 52 of the corporate governance
report.

d) Earnings per share

Basic earnings per share is 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.

     Earnings per share before exceptional items are presented in order to show the
underlying earnings performance of the Group.

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	2001	 	2000
	 	 	2002	 	(restated)	 	(restated)
	i) Earnings	 	£ million	 	£ million	 	£ million
	
	 	
	 	
	 	

	Amounts used in computing the earnings per share
	 	 	 	 	 	 	 	 	 	 	 	 
	Earnings attributable to Ordinary shareholders for the financial year
	 	 	202.9	 	 	 	224.1	 	 	 	278.6	 
	Adjustment for exceptional items1
	 	 	71.4	 	 	 	55.9	 	 	 	(17.8	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Adjusted earnings before exceptional items
	 	 	274.3	 	 	 	280.0	 	 	 	260.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

	1.	 	This comprises the exceptional items before interest of £(94.7) million
(2001: £(104.7) million, 2000: £8.1 million) adjusted for the impact of tax
of £22.8 million (2001: £46.9 million, 2000: £9.7 million) and minority
interests of £0.5 million (2001: £1.9 million,
2000: £nil).

78  The BOC Group plc Report and accounts 2002

Table of Contents

2. Profit and loss continued

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2000
	ii) Average number of 25p Ordinary shares	 	million	 	million	 	million
	
	 	
	 	
	 	

	Average issued share capital
	 	 	496.0	 	 	 	493.3	 	 	 	491.5	 
	Less: Average own shares held in trust
	 	 	5.6	 	 	 	6.4	 	 	 	4.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Basic
	 	 	490.4	 	 	 	486.9	 	 	 	487.1	 
	Add: Dilutive share options
	 	 	1.8	 	 	 	1.7	 	 	 	2.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Diluted
	 	 	492.2	 	 	 	488.6	 	 	 	489.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

3. Treasury information

a) Interest on net debt

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2000
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	Interest payable on borrowings totally repayable within five years
	 	 	47.5	 	 	 	75.1	 	 	 	94.1	 
	Interest payable on all other borrowings
	 	 	55.7	 	 	 	50.1	 	 	 	41.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Interest payable and similar charges
	 	 	103.2	 	 	 	125.2	 	 	 	135.5	 
	Interest capitalised
	 	 	(2.0	)	 	 	(2.5	)	 	 	(7.1	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Interest payable (net of interest capitalised)
	 	 	101.2	 	 	 	122.7	 	 	 	128.4	 
	Interest receivable and similar income
	 	 	(22.6	)	 	 	(24.2	)	 	 	(27.7	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Interest (net)
	 	 	78.6	 	 	 	98.5	 	 	 	100.7	 
	Share of interest of joint ventures (net)
	 	 	23.2	 	 	 	22.6	 	 	 	7.9	 
	Share of interest of associates
	 	 	1.3	 	 	 	2.3	 	 	 	2.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total interest on net debt
	 	 	103.1	 	 	 	123.4	 	 	 	111.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Interest payable on finance leases
	 	 	5.3	 	 	 	6.9	 	 	 	4.6	 
	Interest payable on borrowings repayable by instalments
	 	 	19.5	 	 	 	29.1	 	 	 	27.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

Share of interest of joint ventures and associates is after deducting
capitalised interest of £nil (2001: £1.0 million, 2000: £12.9 million). The
interest capitalised in 2000 was mainly in BOC’s joint venture in Mexico.

b) Currency, interest rate 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 45 and 46 in the finance and
treasury review under the heading ‘management of financial risks’.

Interest rate swaps

At 30 September 2002, the Group had entered into six interest rate swap
agreements (2001:five) with notional principal amounts of £420.0 million
(2001: £375.4 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:

	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001
	Maturity profile	 	£ million	 	£ million
	
	 	
	 	

	Beyond five years
	 	 	295.0	 	 	 	68.0	 
	Four to five years
	 	 	—	 	 	 	—	 
	Three to four years
	 	 	—	 	 	 	—	 
	Two to three years
	 	 	—	 	 	 	125.0	 
	One to two years
	 	 	125.0	 	 	 	—	 
	Within one year
	 	 	—	 	 	 	182.4	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	420.0	 	 	 	375.4	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	%	 	 	 	%	 
	Average receivable swap rate
	 	 	5.5	 	 	 	6.0	 
	Average payable swap rate
	 	 	4.8	 	 	 	5.2	 
	 
	 	 	
	 	 	 	
	 

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.

79  The BOC Group plc  Report and accounts 2002

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Notes to the financial statements

3. Treasury information continued

Currency swaps

     At 30 September
2002, the Group had entered into eight currency swap agreements
(2001: nine) with notional principal amounts of £360.7 million
(2001: £359.6 million). The maturity dates range between one month and 33 months
from the balance sheet date (2001: between one month and 24 months). The
following table illustrates the impact of the currency swaps on the Group’s net
debt at 30 September:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001
	 	 	
	 	

	 	 	 	 	 	 	 	 	 	 	Cash at	 	 	 	 	 	 	 	 	 	Capital	 	 	 	 
	 	 	Capital	 	Gross	 	bank and	 	Currency	 	Adjusted net	 	employed	 	Adjusted net
	 	 	employed	 	borrowings	 	in hand	 	swaps	 	borrowings	 	(restated)	 	borrowings
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	Sterling
	 	 	781.7	 	 	 	(615.4	)	 	 	13.6	 	 	 	256.6	 	 	 	(345.2	)	 	 	1,103.0	 	 	 	(298.2	)
	US dollar
	 	 	1,190.5	 	 	 	(327.2	)	 	 	8.5	 	 	 	(185.7	)	 	 	(504.4	)	 	 	1,249.6	 	 	 	(469.5	)
	Australian dollar
	 	 	263.1	 	 	 	(35.6	)	 	 	71.2	 	 	 	(79.6	)	 	 	(44.0	)	 	 	268.5	 	 	 	(109.6	)
	South African rand
	 	 	202.5	 	 	 	(46.6	)	 	 	4.4	 	 	 	—	 	 	 	(42.2	)	 	 	218.6	 	 	 	(47.8	)
	Japanese yen
	 	 	237.4	 	 	 	(206.2	)	 	 	51.5	 	 	 	(52.2	)	 	 	(206.9	)	 	 	260.8	 	 	 	(199.2	)
	Canadian dollar
	 	 	85.8	 	 	 	(41.1	)	 	 	1.0	 	 	 	—	 	 	 	(40.1	)	 	 	80.9	 	 	 	(38.5	)
	Thai baht
	 	 	120.6	 	 	 	(64.0	)	 	 	6.3	 	 	 	—	 	 	 	(57.7	)	 	 	73.7	 	 	 	(38.7	)
	Other
	 	 	711.5	 	 	 	(175.0	)	 	 	29.0	 	 	 	60.9	 	 	 	(85.1	)	 	 	719.4	 	 	 	(70.6	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	3,593.1	 	 	 	(1,511.1	)	 	 	185.5	 	 	 	—	 	 	 	(1,325.6	)	 	 	3,974.5	 	 	 	(1,272.1	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

The average receivable interest rate on currency swaps was 4.0 per cent
(2001: 4.9 per cent) and the average payable interest rate was 2.8 per cent
(2001: 3.5 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.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001
	 	 	
	 	

	 	 	Fixed rate	 	Floating rate	 	Total	 	Fixed rate	 	Floating rate	 	Total
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	

	Sterling
	 	 	300.0	 	 	 	45.2	 	 	 	345.2	 	 	 	299.0	 	 	 	(0.8	)	 	 	298.2	 
	US dollar
	 	 	225.5	 	 	 	278.9	 	 	 	504.4	 	 	 	241.2	 	 	 	228.3	 	 	 	469.5	 
	Australian dollar
	 	 	35.6	 	 	 	8.4	 	 	 	44.0	 	 	 	35.9	 	 	 	73.7	 	 	 	109.6	 
	South African rand
	 	 	23.7	 	 	 	18.5	 	 	 	42.2	 	 	 	78.0	 	 	 	(30.2	)	 	 	47.8	 
	Japanese yen
	 	 	165.9	 	 	 	41.0	 	 	 	206.9	 	 	 	178.2	 	 	 	21.0	 	 	 	199.2	 
	Canadian dollar
	 	 	—	 	 	 	40.1	 	 	 	40.1	 	 	 	1.0	 	 	 	37.5	 	 	 	38.5	 
	Thai baht
	 	 	52.1	 	 	 	5.6	 	 	 	57.7	 	 	 	30.4	 	 	 	8.3	 	 	 	38.7	 
	Other
	 	 	25.5	 	 	 	59.6	 	 	 	85.1	 	 	 	29.0	 	 	 	41.6	 	 	 	70.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	828.3	 	 	 	497.3	 	 	 	1,325.6	 	 	 	892.7	 	 	 	379.4	 	 	 	1,272.1	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

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.

80  The BOC Group plc  Report and accounts 2002

Table of Contents

3. Treasury information continued

c) Net borrowings and finance leases

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Group	 	Parent
	 	 	
	 	

	 	 	2002	 	2001	 	2002	 	2001
	i) Analysis	 	£ million	 	£ million	 	£ million	 	£ million
	
	 	
	 	
	 	
	 	

	Secured
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Finance leases
	 	 	33.8	 	 	 	45.6	 	 	 	—	 	 	 	—	 
	Other secured borrowings
	 	 	68.0	 	 	 	71.7	 	 	 	—	 	 	 	—	 
	Unsecured
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	12 1/4% Unsecured Loan Stock 2012/2017
	 	 	100.0	 	 	 	100.0	 	 	 	100.0	 	 	 	100.0	 
	7 1/4% Notes 2002
	 	 	—	 	 	 	150.0	 	 	 	—	 	 	 	150.0	 
	6 1/4% Notes 2002
	 	 	34.6	 	 	 	33.6	 	 	 	—	 	 	 	—	 
	7.45% Guaranteed Notes 2006
	 	 	159.2	 	 	 	170.0	 	 	 	—	 	 	 	—	 
	Pollution Control and Industrial Bonds
	 	 	19.3	 	 	 	39.2	 	 	 	—	 	 	 	—	 
	European Investment Bank loans
	 	 	82.8	 	 	 	85.1	 	 	 	—	 	 	 	—	 
	6.75% Bonds 2004
	 	 	125.0	 	 	 	125.0	 	 	 	125.0	 	 	 	125.0	 
	1.00% Euroyen Bond 2006
	 	 	130.6	 	 	 	142.8	 	 	 	130.6	 	 	 	142.8	 
	5 7/8% Bonds 2009
	 	 	200.0	 	 	 	—	 	 	 	200.0	 	 	 	—	 
	6.50% Bonds 2016
	 	 	200.0	 	 	 	200.0	 	 	 	200.0	 	 	 	200.0	 
	Medium term notes
	 	 	57.4	 	 	 	—	 	 	 	57.4	 	 	 	—	 
	Commercial paper
	 	 	147.0	 	 	 	94.7	 	 	 	—	 	 	 	36.5	 
	Other borrowings
	 	 	153.4	 	 	 	248.6	 	 	 	166.9	 	 	 	131.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total borrowings and finance leases
	 	 	1,511.1	 	 	 	1,506.3	 	 	 	979.9	 	 	 	886.0	 
	Less: Cash at bank and in hand — due within one year
	 	 	185.5	 	 	 	233.5	 	 	 	—	 	 	 	51.7	 
	— due beyond one year
	 	 	—	 	 	 	0.7	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net borrowings and finance leases
	 	 	1,325.6	 	 	 	1,272.1	 	 	 	979.9	 	 	 	834.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

A reconciliation of net cash flow to the movement in net debt is given in note 14 b).

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Group	 	Parent
	 	 	
	 	

	 	 	2002	 	2001	 	2002	 	2001
	ii) Maturity	 	£ million	 	£ million	 	£ million	 	£ million
	
	 	
	 	
	 	
	 	

	Long and medium-term bank loans
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Repayable — beyond five years
	 	 	11.5	 	 	 	7.3	 	 	 	—	 	 	 	—	 
	— two to five years
	 	 	41.8	 	 	 	58.2	 	 	 	—	 	 	 	—	 
	— one to two years
	 	 	36.9	 	 	 	40.0	 	 	 	—	 	 	 	—	 
	Loans other than from banks
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Repayable — beyond five years
	 	 	536.0	 	 	 	618.5	 	 	 	531.3	 	 	 	442.8	 
	— two to five years
	 	 	342.7	 	 	 	159.7	 	 	 	148.8	 	 	 	127.6	 
	— one to two years
	 	 	129.4	 	 	 	101.0	 	 	 	120.9	 	 	 	—	 
	Finance leases
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Repayable beyond one year
	 	 	22.7	 	 	 	35.2	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Borrowings
and finance leases (note 11 a))
	 	 	1,121.0	 	 	 	1,019.9	 	 	 	801.0	 	 	 	570.4	 
	Short-term — repayable within one year
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Bank loans and overdrafts
	 	 	196.7	 	 	 	187.9	 	 	 	178.9	 	 	 	119.1	 
	Loans other than from banks
	 	 	182.3	 	 	 	288.1	 	 	 	—	 	 	 	196.5	 
	Finance leases
	 	 	11.1	 	 	 	10.4	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total borrowings and finance leases
	 	 	1,511.1	 	 	 	1,506.3	 	 	 	979.9	 	 	 	886.0	 
	Less: Cash at bank and in hand — repayable within one year
	 	 	185.5	 	 	 	233.5	 	 	 	—	 	 	 	51.7	 
	— repayable beyond one year
	 	 	—	 	 	 	0.7	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net borrowings and finance leases
	 	 	1,325.6	 	 	 	1,272.1	 	 	 	979.9	 	 	 	834.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001
	 	 	
	 	

	 	 	Finance	 	 	 	 	 	 	 	 	 	Finance	 	 	 	 	 	 	 	 
	 	 	leases	 	Borrowings	 	Total	 	leases	 	Borrowings	 	Total
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	

	Repayment profile of borrowings and finance leases
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Long-term repayable
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	— beyond five years
	 	 	2.0	 	 	 	547.5	 	 	 	549.5	 	 	 	4.3	 	 	 	625.8	 	 	 	630.1	 
	— four to five years
	 	 	2.0	 	 	 	142.5	 	 	 	144.5	 	 	 	2.2	 	 	 	31.6	 	 	 	33.8	 
	— three to four years
	 	 	2.4	 	 	 	179.7	 	 	 	182.1	 	 	 	2.4	 	 	 	33.3	 	 	 	35.7	 
	— two to three years
	 	 	1.7	 	 	 	62.3	 	 	 	64.0	 	 	 	14.5	 	 	 	153.0	 	 	 	167.5	 
	— one to two years
	 	 	14.6	 	 	 	166.3	 	 	 	180.9	 	 	 	11.8	 	 	 	141.0	 	 	 	152.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	22.7	 	 	 	1,098.3	 	 	 	1,121.0	 	 	 	35.2	 	 	 	984.7	 	 	 	1,019.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

81  The BOC Group plc  Report and accounts 2002

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Notes to the financial statements

3. Treasury information continued

iii) Short-term interest rates

The average interest rate on commercial paper for the year to 30 September 2002
was 3.4 per cent (2001: 6.4 per cent) and on other short-term borrowings was 9.0
per cent (2001: 11.4 per cent).

iv) 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$420.0
million (2001: US$420.0 million) for general corporate purposes. These
facilities were undrawn both at 30 September 2002 and 30 September 2001. The
following table shows the maturity profile of these facilities.

	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001
	 	 	$ million	 	$ million
	 	 	
	 	

	Within one year
	 	 	200.0	 	 	 	—	 
	One to two years
	 	 	220.0	 	 	 	200.0	 
	Two to three years
	 	 	—	 	 	 	220.0	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	420.0	 	 	 	420.0	 
	 
	 	 	
	 	 	 	
	 

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

v) Security

The secured loans, maturing between 2002 and 2019, are principally secured by
charges over the property, plant and machinery, stocks and trade debtors of
certain overseas subsidiaries.

d) Fair value information

i) Fair values of financial instruments

Set out below is a comparison of the carrying amount of the Group’s financial
instruments (excluding short-term debtors and creditors) at 30 September
2002. Further details of the Group’s financial instruments are
given in notes 3 f) i) and ii).

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	2002	 	2001
	 	 	 	 	 	 	
	 	

	 	 	 	 	 	 	Carrying	 	 	 	 	 	Carrying	 	 	 	 
	 	 	 	 	 	 	amount	 	Fair value	 	amount	 	Fair value
	 	 	Note	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	

	Primary financial instruments
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Loans to joint ventures and associates
	 	 	1	 	 	 	118.0	 	 	 	118.0	 	 	 	106.7	 	 	 	106.7	 
	Other fixed asset investments
	 	 	2	 	 	 	45.1	 	 	 	44.0	 	 	 	31.7	 	 	 	32.6	 
	Current asset investments
	 	 	3	 	 	 	38.8	 	 	 	39.5	 	 	 	43.2	 	 	 	44.1	 
	Cash at bank and in hand
	 	 	4	 	 	 	185.5	 	 	 	185.5	 	 	 	234.2	 	 	 	234.2	 
	Borrowings and finance leases (excluding swap agreements)
	 	 	5	 	 	 	(1,530.6	)	 	 	(1,635.7	)	 	 	(1,491.7	)	 	 	(1,563.5	)
	Provisions for liabilities and charges
	 	 	6	 	 	 	(16.9	)	 	 	(16.9	)	 	 	(21.7	)	 	 	(21.7	)
	Derivative financial instruments held to manage the Group’s interest rate and
currency risk profile
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Foreign currency and interest rate swap agreements
	 	 	7	 	 	 	19.5	 	 	 	31.1	 	 	 	(14.6	)	 	 	(8.5	)
	Forward foreign exchange contracts
	 	 	8	 	 	 	—	 	 	 	4.9	 	 	 	—	 	 	 	(9.1	)
	 
	 	 		 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net financial instruments
	 	 	 	 	 	 	(1,140.6	)	 	 	(1,229.6	)	 	 	(1,112.2	)	 	 	(1,185.2	)
	 
	 	 		 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Financial assets
	 	 	 	 	 	 	387.4	 	 	 	 	 	 	 	415.8	 	 	 	 	 
	Financial liabilities9
	 	 	 	 	 	 	(1,528.0	)	 	 	 	 	 	 	(1,528.0	)	 	 	 	 
	 
	 	 		 	 	 	
	 	 	 		 	 	 	
	 	 	 		 
	Net financial instruments
	 	 	 	 	 	 	(1,140.6	)	 	 	 	 	 	 	(1,112.2	)	 	 	 	 
	 
	 	 		 	 	 	
	 	 	 		 	 	 	
	 	 	 		 

	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.
	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.	 	Both the carrying amount and the fair value are based on current market
prices and interest rates.
	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.

82  The BOC Group plc  Report and accounts 2002

Table of Contents

3. Treasury information continued

ii) Hedges

As explained on pages 45 and 46 of the finance and treasury 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 3 d) 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 agreements
	 	 	

	 	 	Gains	 	Losses	 	Net
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	Deferred gains and losses
	 	 	 	 	 	 	 	 	 	 	 	 
	Deferred gains and losses on hedges at 1 October 2001
	 	 	7.3	 	 	 	(21.9	)	 	 	(14.6	)
	Gains and losses on hedges maturing in 2002
	 	 	(5.0	)	 	 	12.1	 	 	 	7.1	 
	Deferred gains and losses on hedges recognised in the
statement of total recognised gains and losses in 2002
	 	 	23.6	 	 	 	3.4	 	 	 	27.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Deferred gains and losses on hedges at 30 September 2002
	 	 	25.9	 	 	 	(6.4	)	 	 	19.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

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 3 d) i)) is analysed in the unrecognised gains and losses table below.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Forward foreign	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	exchange contracts	 	Swap agreements
	 	 	
	 	

	 	 	Gains	 	Losses	 	Gains	 	Losses	 	Net total
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	

	Unrecognised gains and losses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Unrecognised gains and losses on hedges at 1 October 2001
	 	 	1.7	 	 	 	(10.8	)	 	 	12.3	 	 	 	(6.2	)	 	 	(3.0	)
	Gains and losses arising in previous years that were recognised in 2002
	 	 	(1.5	)	 	 	7.8	 	 	 	(4.3	)	 	 	0.1	 	 	 	2.1	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Gains and losses arising before 2002 that were not recognised in 2002
	 	 	0.2	 	 	 	(3.0	)	 	 	8.0	 	 	 	(6.1	)	 	 	(0.9	)
	Gains and losses arising in 2002 that were not recognised in 2002
	 	 	5.4	 	 	 	2.3	 	 	 	14.1	 	 	 	(4.4	)	 	 	17.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Unrecognised gains and losses on hedges at 30 September 2002
	 	 	5.6	 	 	 	(0.7	)	 	 	22.1	 	 	 	(10.5	)	 	 	16.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Of which
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Gains and losses expected to be recognised in 2003
	 	 	5.2	 	 	 	(0.7	)	 	 	0.8	 	 	 	(0.5	)	 	 	4.8	 
	Gains and losses expected to be recognised in 2004 or later
	 	 	0.4	 	 	 	—	 	 	 	21.3	 	 	 	(10.0	)	 	 	11.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

e) Currency exposures

As outlined on page 45 in the finance and treasury 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 2002.

f) Financial instruments

i) Financial assets

The interest rate and currency profile of the Group’s financial assets
(excluding short-term debtors) at 30 September 2002 is shown below. The
categories of the Group’s financial assets are shown in note
3 d) i).

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001
	 	 	
	 	

	 	 	 	 	 	 	 	 	 	 	Financial	 	 	 	 	 	 	 	 	 	 	 	 	 	Financial	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	assets on	 	 	 	 	 	 	 	 	 	 	 	 	 	assets on	 	 	 	 
	 	 	Floating rate	 	Fixed rate	 	which no	 	Total	 	Floating rate	 	Fixed rate	 	which no	 	Total
	 	 	financial	 	financial	 	interest is	 	financial	 	financial	 	financial	 	interest is	 	financial
	 	 	assets	 	assets	 	received	 	assets	 	assets	 	assets	 	received	 	assets
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	Sterling
	 	 	28.1	 	 	 	11.5	 	 	 	1.7	 	 	 	41.3	 	 	 	65.8	 	 	 	10.0	 	 	 	2.3	 	 	 	78.1	 
	US dollar
	 	 	10.4	 	 	 	123.4	 	 	 	21.3	 	 	 	155.1	 	 	 	13.9	 	 	 	115.8	 	 	 	21.2	 	 	 	150.9	 
	Australian dollar
	 	 	82.4	 	 	 	—	 	 	 	—	 	 	 	82.4	 	 	 	20.6	 	 	 	—	 	 	 	—	 	 	 	20.6	 
	South African rand
	 	 	9.0	 	 	 	—	 	 	 	1.6	 	 	 	10.6	 	 	 	44.4	 	 	 	—	 	 	 	2.3	 	 	 	46.7	 
	Japanese yen
	 	 	51.5	 	 	 	—	 	 	 	6.7	 	 	 	58.2	 	 	 	26.5	 	 	 	—	 	 	 	7.7	 	 	 	34.2	 
	Other
	 	 	39.2	 	 	 	—	 	 	 	0.6	 	 	 	39.8	 	 	 	85.2	 	 	 	—	 	 	 	0.1	 	 	 	85.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	220.6	 	 	 	134.9	 	 	 	31.9	 	 	 	387.4	 	 	 	256.4	 	 	 	125.8	 	 	 	33.6	 	 	 	415.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

83  The BOC Group plc  Report and accounts 2002

Table of Contents

Notes to the financial statements

3. Treasury information continued

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001
	 	 	Fixed rate financial assets	 	Fixed rate financial assets
	 	 	
	 	

	 	 	 	 	 	 	Weighted	 	 	 	 	 	Weighted
	 	 	 	 	 	 	average	 	 	 	 	 	average
	 	 	Weighted	 	period for	 	Weighted	 	period for
	 	 	average	 	which rate is	 	average	 	which rate is
	 	 	interest rate	 	fixed	 	interest rate	 	fixed
	 	 	%	 	years	 	%	 	years
	 	 	
	 	
	 	
	 	

	Sterling
	 	 	6.7	 	 	 	2.1	 	 	 	6.1	 	 	 	2.9	 
	US dollar
	 	 	10.3	 	 	 	4.8	 	 	 	10.1	 	 	 	5.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

Financial assets on which no interest is received comprise £30.3 million
(2001: £31.7 million) of non-redeemable equity instruments in other companies
and £1.6 million (2001: £1.9 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 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.

ii) Financial liabilities

The interest rate and currency profile of the Group’s financial liabilities
including swaps (excluding short-term creditors) at 30 September 2002 is shown
below. The categories of the Group’s financial liabilities are
shown in note 3 d) i).

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001
	 	 	
	 	

	 	 	 	 	 	 	 	 	 	 	Financial	 	 	 	 	 	 	 	 	 	 	 	 	 	Financial	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	liabilities on	 	 	 	 	 	 	 	 	 	 	 	 	 	liabilities on	 	 	 	 
	 	 	Floating rate	 	Fixed rate	 	which no	 	Total	 	Floating rate	 	Fixed rate	 	which no	 	Total
	 	 	financial	 	financial	 	interest	 	financial	 	financial	 	financial	 	interest	 	financial
	 	 	liabilities	 	liabilities	 	is paid	 	liabilities	 	liabilities	 	liabilities	 	is paid	 	liabilities
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	Sterling
	 	 	58.8	 	 	 	300.0	 	 	 	—	 	 	 	358.8	 	 	 	66.6	 	 	 	299.0	 	 	 	1.9	 	 	 	367.5	 
	US dollar
	 	 	304.3	 	 	 	225.5	 	 	 	—	 	 	 	529.8	 	 	 	257.9	 	 	 	241.2	 	 	 	—	 	 	 	499.1	 
	Australian dollar
	 	 	79.6	 	 	 	35.6	 	 	 	—	 	 	 	115.2	 	 	 	83.4	 	 	 	35.9	 	 	 	—	 	 	 	119.3	 
	South African rand
	 	 	22.9	 	 	 	23.7	 	 	 	—	 	 	 	46.6	 	 	 	8.3	 	 	 	78.0	 	 	 	—	 	 	 	86.3	 
	Japanese yen
	 	 	92.5	 	 	 	165.9	 	 	 	—	 	 	 	258.4	 	 	 	47.5	 	 	 	178.2	 	 	 	—	 	 	 	225.7	 
	Canadian dollar
	 	 	41.1	 	 	 	—	 	 	 	—	 	 	 	41.1	 	 	 	39.3	 	 	 	1.0	 	 	 	—	 	 	 	40.3	 
	Thai baht
	 	 	11.9	 	 	 	52.1	 	 	 	—	 	 	 	64.0	 	 	 	11.5	 	 	 	30.4	 	 	 	—	 	 	 	41.9	 
	Other
	 	 	88.6	 	 	 	25.5	 	 	 	—	 	 	 	114.1	 	 	 	118.9	 	 	 	29.0	 	 	 	—	 	 	 	147.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	699.7	 	 	 	828.3	 	 	 	—	 	 	 	1,528.0	 	 	 	633.4	 	 	 	892.7	 	 	 	1.9	 	 	 	1,528.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001
	 	 	Fixed rate financial liabilities	 	Fixed rate financial liabilities
	 	 	
	 	

	 	 	 	 	 	 	Weighted	 	 	 	 	 	Weighted
	 	 	 	 	 	 	average	 	 	 	 	 	average
	 	 	Weighted	 	period for	 	Weighted	 	period for
	 	 	average	 	which rate is	 	average	 	which rate is
	 	 	interest rate	 	fixed	 	interest rate	 	fixed
	 	 	%	 	years	 	%	 	years
	 	 	
	 	
	 	
	 	

	Sterling
	 	 	8.3	 	 	 	13.9	 	 	 	8.4	 	 	 	14.9	 
	US dollar
	 	 	7.1	 	 	 	4.2	 	 	 	7.1	 	 	 	5.2	 
	Australian dollar
	 	 	6.2	 	 	 	0.2	 	 	 	6.2	 	 	 	1.3	 
	South African rand
	 	 	11.9	 	 	 	3.9	 	 	 	12.4	 	 	 	2.9	 
	Japanese yen
	 	 	0.9	 	 	 	3.8	 	 	 	1.0	 	 	 	4.2	 
	Thai baht
	 	 	4.0	 	 	 	1.8	 	 	 	6.2	 	 	 	0.4	 
	Other
	 	 	9.7	 	 	 	2.8	 	 	 	10.2	 	 	 	3.2	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

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 the net borrowings is set out in note 3 c) ii). Other floating rate financial liabilities are mainly employee incentive
provisions. These are expected to be utilised over the period to 2004 depending
on the future choices of the relevant employees.

84  The BOC Group plc  Report and accounts 2002

Table of Contents

4. Tax

a) Tax on profit on ordinary activities

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	2001	 	2000
	 	 	2002	 	(restated)	 	(restated)
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	Current tax:
	 	 	 	 	 	 	 	 	 	 	 	 
	Payable in the UK
	 	 	 	 	 	 	 	 	 	 	 	 
	Corporation tax at 30% (2001: 30%, 2000: 30%)
	 	 	51.7	 	 	 	60.4	 	 	 	54.8	 
	Double tax relief
	 	 	(19.7	)	 	 	(17.0	)	 	 	(16.3	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	32.0	 	 	 	43.4	 	 	 	38.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Payable overseas
	 	 	 	 	 	 	 	 	 	 	 	 
	US
— Federal tax at 35% (2001: 35%, 2000: 35%)
	 	 	(1.0	)	 	 	—	 	 	 	2.1	 
	— State and local taxes
	 	 	0.6	 	 	 	1.3	 	 	 	1.6	 
	— Prior year tax
	 	 	—	 	 	 	(2.2	)	 	 	(1.1	)
	Australia
at 30% (2001: 34%, 2000: 36%)
	 	 	14.6	 	 	 	14.0	 	 	 	18.2	 
	South
Africa at 30% (2001: 30%, 2000: 30%)
	 	 	18.0	 	 	 	15.2	 	 	 	14.5	 
	Japan
at 42% (2001: 42%, 2000: 48%)
	 	 	8.3	 	 	 	12.7	 	 	 	11.2	 
	Other countries
	 	 	30.9	 	 	 	27.3	 	 	 	20.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	71.4	 	 	 	68.3	 	 	 	66.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total current tax
	 	 	103.4	 	 	 	111.7	 	 	 	105.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Deferred tax:
	 	 	 	 	 	 	 	 	 	 	 	 
	Origination and reversal of timing differences
	 	 	3.4	 	 	 	(7.1	)	 	 	29.9	 
	Effect of change in tax rate on opening liability
	 	 	(0.6	)	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Total deferred tax
	 	 	2.8	 	 	 	(7.1	)	 	 	29.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Tax on profit on ordinary activities
	 	 	106.2	 	 	 	104.6	 	 	 	135.2	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Analysis of charge in the period by entity type
	 	 	 	 	 	 	 	 	 	 	 	 
	Subsidiary undertakings
	 	 	100.3	 	 	 	97.6	 	 	 	121.6	 
	Share of joint ventures
	 	 	3.6	 	 	 	4.3	 	 	 	11.5	 
	Share of associates
	 	 	2.3	 	 	 	2.7	 	 	 	2.1	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Tax on profit on ordinary activities
	 	 	106.2	 	 	 	104.6	 	 	 	135.2	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

The tax charge includes a credit of £15.3 million for the operating exceptional
charges (2001: £48.8 million, 2000: £12.4 million) and a credit of £7.5 million
for the non-operating exceptional charges (2001: £1.9 million charge, 2000: £2.7
million charge). The effective rate of tax excluding exceptional items was 30.0
per cent (2001: 32.5 per cent, 2000: 33.4 per cent).

b) Deferred tax

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	2001	 	2000
	 	 	2002	 	(restated)	 	(restated)
	i) Deferred tax UK GAAP	 	£ million	 	£ million	 	£ million
	
	 	
	 	
	 	

	Analysis
	 	 	 	 	 	 	 	 	 	 	 	 
	Arising from accelerated depreciation allowances
	 	 	362.1	 	 	 	344.8	 	 	 	326.5	 
	Other timing differences
	 	 	(53.5	)	 	 	(32.5	)	 	 	(20.7	)
	Tax losses and other credits available
	 	 	(24.7	)	 	 	(26.4	)	 	 	(18.5	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	283.9	 	 	 	285.9	 	 	 	287.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Movement during the year
	 	 	 	 	 	 	 	 	 	 	 	 
	At 1 October 2001
	 	 	285.9	 	 	 	287.3	 	 	 	256.8	 
	Exchange adjustment
	 	 	(8.6	)	 	 	(7.3	)	 	 	10.6	 
	Arising
during the year1
	 	 	9.5	 	 	 	(3.1	)	 	 	23.7	 
	Transfers to current tax
	 	 	0.8	 	 	 	3.3	 	 	 	2.3	 
	Other movements
	 	 	(3.7	)	 	 	5.7	 	 	 	(6.1	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	At 30 September 20022
	 	 	283.9	 	 	 	285.9	 	 	 	287.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

	1.	 	Subsidiary undertakings only.
	2.	 	The balance at 30 September 2002 represents deferred tax assets of £7.9
million (2001: £8.4 million, 2000: £8.5 million) and deferred tax liabilities
of £291.8 million (2001: £294.3 million, 2000: £295.8 million).

85  The BOC Group plc  Report and accounts 2002

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Notes to the financial statements

4. Tax continued

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 2002.

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Adjustments	 	 	 	 
	 	 	UK GAAP	 	to US GAAP	 	US GAAP
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	Accelerated capital allowances
	 	 	362.1	 	 	 	—	 	 	 	362.1	 
	Other temporary differences
	 	 	(53.5	)	 	 	72.7	 	 	 	19.2	 
	Tax losses and other credits available
	 	 	(24.7	)	 	 	—	 	 	 	(24.7	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	283.9	1	 	 	72.7	 	 	 	356.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

	1.	 	The UK deferred tax balance of £283.9 million does not include the
deferred tax asset of £106.4 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 6 e)). If it was included
above, it would be wholly reversed in the adjustments to US GAAP.

	 	 	 	 	 
	 	 	US GAAP
	 	 	£ million
	 	 	

	Movement during the year
	 	 	 	 
	At 1 October 2001
	 	 	333.8	 
	Exchange adjustment
	 	 	(7.2	)
	Arising during the year
	 	 	37.5	 
	Transfers from current tax
	 	 	0.8	 
	Other movements
	 	 	(8.3	)
	 
	 	 	
	 
	At 30 September 2002
	 	 	356.6	 
	 
	 	 	
	 

The components of deferred tax assets/(liabilities) at 30 September 2002 were:

	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001
	 	 	£ million	 	£ million
	 	 	
	 	

	Long-term
	 	 	 	 	 	 	 	 
	Asset
	 	 	130.4	 	 	 	44.8	 
	Liability
	 	 	(507.0	)	 	 	(399.3	)
	 
	 	 	
	 	 	 	
	 
	Net liability
	 	 	(376.6	)	 	 	(354.5	)
	 
	 	 	
	 	 	 	
	 
	Short-term

	 	 	 	 	 	 	 	 
	
Asset
	 	 	25.5	 	 	 	22.8	 
	Liability
	 	 	(5.5	)	 	 	(2.1	)
	 
	 	 	
	 	 	 	
	 
	Net asset
	 	 	20.0	 	 	 	20.7	 
	 
	 	 	
	 	 	 	
	 
	Total deferred tax assets
	 	 	155.9	 	 	 	67.6	 
	Total deferred tax liabilities
	 	 	(512.5	)	 	 	(401.4	)
	 
	 	 	
	 	 	 	
	 
	 
	 	 	(356.6	)	 	 	(333.8	)
	 
	 	 	
	 	 	 	
	 

86  The BOC Group plc  Report and accounts 2002

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4. Tax continued

c) Factors affecting the current and Group effective tax charge for the period

The table set out below provides a reconciliation between the UK corporation
tax rate and the Group’s effective tax rate, excluding exceptional items,
computed by taking the various elements of the tax reconciliation as a
percentage of the profit before tax, excluding exceptional items.

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	2001	 	2000
	 	 	2002	 	(restated)	 	(restated)
	 	 	%	 	%	 	%
	 	 	
	 	
	 	

	UK corporation tax rate
	 	 	30.0	 	 	 	30.0	 	 	 	30.0	 
	Difference in tax rates of overseas subsidiaries, joint ventures and associates
	 	 	0.5	 	 	 	1.3	 	 	 	1.2	 
	Excess of tax depreciation over book depreciation
	 	 	(3.9	)	 	 	(3.7	)	 	 	(3.2	)
	Other timing differences
	 	 	2.7	 	 	 	(1.5	)	 	 	(2.0	)
	State and local taxes
	 	 	0.5	 	 	 	0.7	 	 	 	1.0	 
	Net utilisation of losses
	 	 	(1.1	)	 	 	(0.7	)	 	 	(0.7	)
	Investment tax credits
	 	 	(2.4	)	 	 	(1.1	)	 	 	(1.8	)
	Prior year tax
	 	 	0.9	 	 	 	(0.6	)	 	 	(1.3	)
	Permanent items and other items with less than a 5% net effect
	 	 	0.1	 	 	 	1.1	 	 	 	2.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Effective current tax rate before exceptional items
	 	 	27.3	 	 	 	25.5	 	 	 	25.7	 
	Timing differences
	 	 	2.7	 	 	 	7.0	 	 	 	7.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Effective Group tax rate before exceptional items
	 	 	30.0	 	 	 	32.5	 	 	 	33.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

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

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	2001	 	2000
	 	 	2002	 	(restated)	 	(restated)
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	UK
	 	 	66.6	 	 	 	86.4	 	 	 	148.1	 
	Overseas
	 	 	268.7	 	 	 	275.8	 	 	 	293.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	335.3	 	 	 	362.2	 	 	 	441.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

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
£44.4 million. If not offset against taxable income, these losses will expire
as follows:

	 	 	 	 	 
	 	 	Net
	 	 	operating loss
	Year	 	£ million
	
	 	

	2003
	 	 	—	 
	2004
	 	 	11.7	 
	2005
	 	 	—	 
	2006
	 	 	—	 
	2007
	 	 	—	 
	Thereafter, or no expiry date
	 	 	32.7	 
	 
	 	 	
	 

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
2003 or thereafter.

     In addition, the Group has alternative minimum tax credits for US Federal
income tax purposes of approximately £27.7 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.

87  The BOC Group plc  Report and accounts 2002

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Notes to the financial statements

5. Directors

Directors’ remuneration and interests are given in the report on remuneration
on pages 56 to 63.

6. Employees

a) Subsidiaries

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	2002	 	 	 	 	 	2001
	 	 	
	 	 	
	 	 
	 	 	Year end	 	Average	 	Year end	 	Average
	 	 	
	 	
	 	
	 	

	i) Employees by business
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Process Gas Solutions
	 	 	5,806	 	 	 	5,979	 	 	 	6,037	 	 	 	6,076	 
	Industrial and Special Products
	 	 	15,266	 	 	 	14,681	 	 	 	14,369	 	 	 	14,201	 
	BOC Edwards
	 	 	5,367	 	 	 	5,186	 	 	 	4,830	 	 	 	4,916	 
	Afrox hospitals
	 	 	14,152	 	 	 	13,934	 	 	 	12,833	 	 	 	12,804	 
	Gist
	 	 	5,302	 	 	 	5,100	 	 	 	4,774	 	 	 	4,284	 
	Corporate
	 	 	387	 	 	 	376	 	 	 	328	 	 	 	296	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	46,280	 	 	 	45,256	 	 	 	43,171	 	 	 	42,577	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	ii) Employees by region
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Europe
	 	 	13,213	 	 	 	12,739	 	 	 	12,173	 	 	 	11,750	 
	Americas
	 	 	7,243	 	 	 	7,312	 	 	 	7,305	 	 	 	7,262	 
	Africa
	 	 	17,435	 	 	 	17,213	 	 	 	16,120	 	 	 	16,137	 
	Asia/Pacific
	 	 	8,389	 	 	 	7,992	 	 	 	7,573	 	 	 	7,428	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	46,280	 	 	 	45,256	 	 	 	43,171	 	 	 	42,577	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	b) Joint ventures and associates
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Joint ventures
	 	 	3,570	 	 	 	3,596	 	 	 	3,595	 	 	 	3,874	 
	Associates
	 	 	742	 	 	 	728	 	 	 	712	 	 	 	684	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	4,312	 	 	 	4,324	 	 	 	4,307	 	 	 	4,558	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

c) Employment costs

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	2001	 	2000
	 	 	2002	 	(restated)	 	(restated)
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	Wages and salaries
	 	 	813.9	 	 	 	758.8	 	 	 	729.5	 
	Social security costs
	 	 	77.7	 	 	 	74.0	 	 	 	64.3	 
	Other pension costs
	 	 	66.3	 	 	 	76.0	 	 	 	54.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	957.9	 	 	 	908.8	 	 	 	848.2	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

Other pension costs includes an exceptional charge of £nil (2001: £16.7
million, 2000: £nil). See also note 2 b).

88  The BOC Group plc  Report and accounts 2002

Table of Contents

6. Employees continued

d) Option and incentive schemes

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.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Executive
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	share award
	 	 	Employee options	 	Executive options1	 	plan2
	 	 	
	 	
	 	

	 	 	Number of	 	 	 	 	 	Weighted	 	Number of	 	 	 	 	 	Weighted	 	Number of
	 	 	shares	 	Range of	 	average	 	shares	 	Range of	 	average	 	shares
	i) Summary of movements in share options	 	million	 	option prices	 	option price	 	million	 	option prices	 	option price	 	million
	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	Outstanding at 1 October 1999
	 	 	6.1	 	 	 	489p-882p	 	 	 	776p	 	 	 	16.7	 	 	 	532p-1119p	 	 	 	847p	 	 	 	—	 
	Granted
	 	 	1.3	 	 	 	870p	 	 	 	870p	 	 	 	6.7	 	 	 	937p	 	 	 	937p	 	 	 	0.8	 
	Exercised
	 	 	(1.1	)	 	 	489p-762p	 	 	 	692p	 	 	 	(0.6	)	 	 	536p-980p	 	 	 	670p	 	 	 	—	 
	Lapsed
	 	 	(0.4	)	 	 	489p-882p	 	 	 	797p	 	 	 	(1.2	)	 	 	722p-1119p	 	 	 	904p	 	 	 	—	 
	 
	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 
	Outstanding at 30 September 2000
	 	 	5.9	 	 	 	610p-882p	 	 	 	810p	 	 	 	21.6	 	 	 	532p-1119p	 	 	 	877p	 	 	 	0.8	 
	Granted
	 	 	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	 	 	 	0.7	 
	Granted
	 	 	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	 	 	 	—	 
	 
	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 
	Number of participants at 30 September 2002
	 	 	6,100	 	 	 	 	 	 	 	 	 	 	 	1,097	 	 	 	 	 	 	 	 	 	 	 	—	 
	 
	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 
	Options exercisable:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At 30 September 2002
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	8.6	 	 	 	677p-1119p	 	 	 	877p	 	 	 	—	 
	At 30 September 2001
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	2.0	 	 	 	627p-742p	 	 	 	705p	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Fair value of options granted during:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year ended 30 September 2002
	 	 	289p	 	 	 	 	 	 	 	 	 	 	 	242p	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year ended 30 September 2001
	 	 	264p	 	 	 	 	 	 	 	 	 	 	 	232p	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 

	1.	 	Executive options include share options and rights and long-term share
incentive units.
	2.	 	The executive share award plan was 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 (ii) below.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Employee options	 	Executive options3
	 	 	
	 	

	 	 	Number of	 	Weighted	 	Normal	 	Number of	 	Weighted	 	Normal
	 	 	shares	 	average	 	exercisable	 	shares	 	average	 	exercisable
	ii) Analysis of share options	 	thousand	 	option price	 	date	 	thousand	 	option price	 	date
	
	 	
	 	
	 	
	 	
	 	
	 	

	Outstanding at 30 September 2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Date of grant
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	1993
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	242	 	 	 	742p	 	 	 	1996-2003	 
	1994
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	361	 	 	 	678p	 	 	 	1997-2004	 
	1995
	 	 	5	 	 	 	650p	 	 	 	2002-2003	 	 	 	712	 	 	 	722p	 	 	 	1999-2005	 
	1996
	 	 	270	 	 	 	827p	 	 	 	2001-2004	 	 	 	1,110	 	 	 	915p	 	 	 	1999-2006	 
	1997
	 	 	258	 	 	 	882p	 	 	 	2002-2005	 	 	 	1,276	 	 	 	981p	 	 	 	2000-2007	 
	1998
	 	 	843	 	 	 	823p	 	 	 	2001-2006	 	 	 	2,100	 	 	 	915p	 	 	 	2001-2008	 
	1999
	 	 	779	 	 	 	766p	 	 	 	2002-2007	 	 	 	2,809	 	 	 	860p	 	 	 	2002-2009	 
	2000
	 	 	1,090	 	 	 	870p	 	 	 	2003-2008	 	 	 	5,384	 	 	 	937p	 	 	 	2003-2010	 
	2001
	 	 	1,037	 	 	 	894p	 	 	 	2004-2009	 	 	 	4,126	 	 	 	994p	 	 	 	2004-2011	 
	2002
	 	 	1,147	 	 	 	914p	 	 	 	2005-2010	 	 	 	5,353	 	 	 	1016p	 	 	 	2005-2012	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	5,429	 	 	 	 	 	 	 	 	 	 	 	23,473	 	 	 	 	 	 	 	 	 
	 
	 	 	
	 	 	 	 	 	 	 	 	 	 	 	
	 	 	 	 	 	 	 	 	 

	3.	 	Executive options include share options and rights and long-term share
incentive units.

89  The BOC Group plc  Report and accounts 2002

Table of Contents

Notes to the financial statements

6. Employees continued

Executive options are granted at the market price of the company’s shares at
the time of the grant and consequently there is no compensation expense under
UK GAAP. The Group also takes advantage of the exemption granted under
UITF 17, Employee Share Schemes, whereby no compensation expense need be recorded
for employee schemes.

     For US reporting
purposes the company applies APB Opinion 25, Accounting
for Stock Issued to Employees and related interpretations in accounting for its
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. Under the executive schemes, grants of share options are at
the market price of the company’s shares at the time of grant.

     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 US SFAS123, Accounting for Stock Based
Compensation, the Group’s profit before tax under US GAAP would have been
charged with an additional cost of £6.3 million (2001:
£9.7 million, 2000: £8.3
million), basic earnings per share would have been 51.18p
(2001: 46.71p, 2000: 53.99p) and diluted earnings per share would have been 50.99p
(2001: 46.54p, 2000: 53.72p).

     The Black-Scholes model was used to measure the compensation expense under
US SFAS123. The assumptions used for grants in 2002 included a dividend yield of
4.0 per cent (2001: 4.0 per cent, 2000: 3.3 per cent), expected share price
volatility of 31.0 per cent (2001: 30.0 per cent, 2000: 24.6 per
cent), a weighted
average expected life of 5.0 years (2001: 4.2 years, 2000: 4.2 years) and a
weighted average interest rate of 4.9 per cent (2001:5.1 per cent, 2000: 5.9 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.

e) Retirement benefits

i) UK GAAP FRS17 Retirement benefits — Group

The Group operates a number of pension schemes throughout the world. The
majority of the 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 Group operates defined benefit schemes in Europe, Americas, Africa and
Asia/Pacific. The largest schemes are located in the UK, US, South Africa and
Australia. The UK and South African schemes are based on final salary and the
US on annual salary. With effect from 1 January 1998 the Australian scheme
changed to operate primarily as a defined contribution scheme, although it
retains some defined benefit guarantees. The geographical split of the pension
schemes has been amended in 2002 to be consistent with the segmental analysis.

     The most recent actuarial valuations have been updated by an independent
qualified actuary to take account of the requirements of FRS17 in order to
assess the liabilities of the schemes at 30 September 2002. Scheme assets are
stated at their market value at 30 September 2002.

     On the advice of the actuaries, company contributions to the principal UK
scheme will resume from 1 October 2002 at a rate of 14.4 per cent of payroll.
In accordance with South African legislation, contributions recommenced on 7
December 2001 at rates ranging from 10.5 per cent to 12 per cent. Contribution
rates were increased in June 2002 and now range from 14.9 per cent to 19.5 per
cent. As the South African schemes and the defined benefit guarantees of the
Australian scheme are closed schemes, the current service cost as a percentage
of pensionable salaries under the projected unit method will increase as the
members approach retirement. Contributions recommenced to the Australian scheme
on 1 October 2001 at rates ranging from 11 per cent to 17 per cent. In the
US, company contributions to the pension plan remain suspended.

     During the year, the
Pension Funds Second Amendment Act, 2001 was passed in
South Africa. Under this Act, surpluses in pension funds have to be used in a
manner specified under Regulations to the Act to improve current and former
members’ benefits prior to the employer obtaining 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 the
surpluses at 30 September 2002 have been written off in the statement of total
recognised gains and losses in accordance with FRS17.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Main assumptions for FRS17 purposes	 	Europe	 	Americas	 	Africa	 	Asia/Pacific
	
	 	
	 	
	 	
	 	

	Date of latest actuarial valuation	 	31 Mar 02	 	1 Jan 01	 	30 Jun 01	 	31 Dec 00
	2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Rate 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	%
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	2001
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Rate 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	%
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	2000
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Rate of increase in salaries
	 	 	5.0	%	 	 	4.85	%	 	 	12.5	%	 	 	3.5	%
	Rate of increase in pensions in payment
	 	 	3.0	%	 	 	—	 	 	 	9.4	%	 	 	3.5	%
	Discount rate
	 	 	6.2	%	 	 	7.75	%	 	 	15.0	%	 	 	6.25	%
	Inflation
	 	 	3.0	%	 	 	3.75	%	 	 	12.5	%	 	 	2.5	%
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

The assumptions used for the US health care benefits for FRS17 purposes are a
discount rate of 6.5 per cent (2001: 7.25 per cent, 2000: 7.75 per cent) and an
ultimate health care cost trend rate of 4.5 per cent (2001: 4.75 per
cent, 2000: 5.25 per cent).

     Contributions to non defined benefit schemes in the year were £9.6 million
(2001: £6.3 million,2000: £5.5 million) and are included in note 6 c).

90  The BOC Group plc  Report and accounts 2002

Table of Contents

6. Employees continued

The assets in the schemes and the expected rates of return were:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Equities	 	Bonds	 	Other	 	Total
	 	 	
	 	
	 	
	 	

	Long-term rate of return expected at 30 September 2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Europe
	 	 	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	 	 	 	940.0	 
	Americas
	 	 	289.2	 	 	 	51.0	 	 	 	—	 	 	 	340.2	 
	Africa
	 	 	49.6	 	 	 	15.3	 	 	 	5.4	 	 	 	70.3	 
	Asia/Pacific
	 	 	89.8	 	 	 	16.3	 	 	 	16.7	 	 	 	122.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	1,114.8	 	 	 	317.6	 	 	 	40.9	 	 	 	1,473.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Long-term rate of return expected at 30 September 2001
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Europe
	 	 	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	 	 	 	1,143.2	 
	Americas
	 	 	345.0	 	 	 	70.7	 	 	 	—	 	 	 	415.7	 
	Africa
	 	 	54.7	 	 	 	18.2	 	 	 	6.3	 	 	 	79.2	 
	Asia/Pacific
	 	 	92.3	 	 	 	18.0	 	 	 	17.3	 	 	 	127.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	1,389.6	 	 	 	333.7	 	 	 	42.4	 	 	 	1,765.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Long-term rate of return expected at 30 September 2000
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Europe
	 	 	7.5	%	 	 	5.0	%	 	 	6.0	%	 	 	—	 
	Americas
	 	 	9.0	%	 	 	6.0	%	 	 	—	 	 	 	—	 
	Africa
	 	 	15.5	%	 	 	13.5	%	 	 	12.2	%	 	 	—	 
	Asia/Pacific
	 	 	7.5	%	 	 	5.4	%	 	 	5.9	%	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Value at 30 September 2000 (£ million)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Europe
	 	 	1,162.0	 	 	 	250.1	 	 	 	17.2	 	 	 	1,429.3	 
	Americas
	 	 	469.2	 	 	 	70.1	 	 	 	—	 	 	 	539.3	 
	Africa
	 	 	74.8	 	 	 	21.3	 	 	 	6.8	 	 	 	102.9	 
	Asia/Pacific
	 	 	111.7	 	 	 	18.4	 	 	 	18.9	 	 	 	149.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total
	 	 	1,817.7	 	 	 	359.9	 	 	 	42.9	 	 	 	2,220.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

The following amounts at 30 September 2002 were measured in accordance with the
requirements of FRS17:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Americas	 	Americas	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Europe	 	pensions	 	health care	 	Africa	 	Asia/Pacific	 	Total
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	

	2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total market value of assets
	 	 	940.0	 	 	 	340.2	 	 	 	—	 	 	 	70.3	 	 	 	122.8	 	 	 	1,473.3	 
	Present 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	 	 	 	106.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net
pension (liabilities)/assets1
	 	 	(274.1	)	 	 	54.3	 	 	 	(30.3	)	 	 	—	 	 	 	(6.6	)	 	 	(256.7	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	2001
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total market value of assets
	 	 	1,143.2	 	 	 	415.7	 	 	 	—	 	 	 	79.2	 	 	 	127.6	 	 	 	1,765.7	 
	Present 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	)	 	 	86.3	 
	Related 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	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	2000
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total market value of assets
	 	 	1,429.3	 	 	 	539.3	 	 	 	—	 	 	 	102.9	 	 	 	149.0	 	 	 	2,220.5	 
	Present value of scheme liabilities
	 	 	(1,161.9	)	 	 	(233.0	)	 	 	(43.7	)	 	 	(70.8	)	 	 	(146.6	)	 	 	(1,656.0	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Surplus/(deficit) in the scheme
	 	 	267.4	 	 	 	306.3	 	 	 	(43.7	)	 	 	32.1	 	 	 	2.4	 	 	 	564.5	 
	Related deferred tax (liability)/asset
	 	 	(80.2	)	 	 	(121.0	)	 	 	17.3	 	 	 	(9.6	)	 	 	(0.1	)	 	 	(193.6	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net pension assets/(liabilities)1
	 	 	187.2	 	 	 	185.3	 	 	 	(26.4	)	 	 	22.5	 	 	 	2.3	 	 	 	370.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	1.	 	Included in the net pension (liabilities)/assets are assets of £54.3 million
(2001: £107.0 million, 2000: £402.0 million) and liabilities of £311.0 million
(2001: £56.0 million, 2000: £31.1 million).

91  The BOC Group plc  Report and accounts 2002

Table of Contents

Notes to the financial statements

6. Employees continued

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Americas	 	Americas	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Europe	 	pensions	 	health care	 	Africa	 	Asia/Pacific	 	Total
	Analysis of the amount charged to operating profit	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	
	 	
	 	
	 	
	 	
	 	
	 	

	Year to 30 September 2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current service cost
	 	 	(33.5	)	 	 	(12.8	)	 	 	(1.6	)	 	 	(1.7	)	 	 	(7.2	)	 	 	(56.8	)
	Past
service cost2
	 	 	(0.6	)	 	 	0.7	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	0.1	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total operating charge
	 	 	(34.1	)	 	 	(12.1	)	 	 	(1.6	)	 	 	(1.7	)	 	 	(7.2	)	 	 	(56.7	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Year to 30 September 2001
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current service cost
	 	 	(35.8	)	 	 	(8.6	)	 	 	(1.3	)	 	 	(2.2	)	 	 	(4.7	)	 	 	(52.6	)
	Past service cost
	 	 	(0.4	)	 	 	(16.7	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(17.1	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total operating charge
	 	 	(36.2	)	 	 	(25.3	)	 	 	(1.3	)	 	 	(2.2	)	 	 	(4.7	)	 	 	(69.7	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Year to 30 September 2000
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current service cost
	 	 	(31.1	)	 	 	(8.0	)	 	 	(1.0	)	 	 	(2.5	)	 	 	(4.7	)	 	 	(47.3	)
	Past service cost
	 	 	(1.6	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1.6	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Total operating charge
	 	 	(32.7	)	 	 	(8.0	)	 	 	(1.0	)	 	 	(2.5	)	 	 	(4.7	)	 	 	(48.9	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	2.	 	Two amendments have been 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 is a £0.7 million credit against
past service cost in the year.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Americas	 	Americas	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Europe	 	pensions	 	health care	 	Africa	 	Asia/Pacific	 	Total
	Analysis of the amount included in net interest	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	
	 	
	 	
	 	
	 	
	 	
	 	

	Year to 30 September 2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Expected return on pension scheme assets
	 	 	87.4	 	 	 	36.2	 	 	 	—	 	 	 	7.2	 	 	 	8.3	 	 	 	139.1	 
	Interest 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	 	 	 	33.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Year to 30 September 2001
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Expected return on pension scheme assets
	 	 	99.3	 	 	 	46.7	 	 	 	—	 	 	 	11.9	 	 	 	9.0	 	 	 	166.9	 
	Interest 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	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Year to 30 September 2000
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Expected return on pension scheme assets
	 	 	88.7	 	 	 	38.4	 	 	 	—	 	 	 	13.0	 	 	 	9.4	 	 	 	149.5	 
	Interest on pension scheme liabilities
	 	 	(69.4	)	 	 	(13.7	)	 	 	—	 	 	 	(10.3	)	 	 	(7.3	)	 	 	(100.7	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net interest on FRS17 pension schemes
	 	 	19.3	 	 	 	24.7	 	 	 	—	 	 	 	2.7	 	 	 	2.1	 	 	 	48.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Americas	 	Americas	 	 	 	 	 	 	 	 	 	 	 	 
	Analysis of the amount recognised in the statement	 	Europe	 	pensions	 	health care	 	Africa	 	Asia/Pacific	 	Total
	of total recognised gains and losses	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	
	 	
	 	
	 	
	 	
	 	
	 	

	Year to 30 September 2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Actual 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 losses3
	 	 	(347.8	)	 	 	(67.1	)	 	 	(0.1	)	 	 	(12.5	)	 	 	(9.4	)	 	 	(436.9	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Year to 30 September 2001
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Actual 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	)	 	 	—	 	 	 	61.1	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Actuarial (loss) recognised in the statement
of total recognised gains and losses3
	 	 	(289.8	)	 	 	(157.3	)	 	 	(6.9	)	 	 	(15.1	)	 	 	(2.6	)	 	 	(471.7	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Year to 30 September 2000
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Actual return less expected return on pension scheme assets
	 	 	109.0	 	 	 	57.2	 	 	 	—	 	 	 	8.5	 	 	 	9.0	 	 	 	183.7	 
	Experience gains and losses arising on the scheme liabilities
	 	 	22.2	 	 	 	(30.9	)	 	 	(17.8	)	 	 	3.9	 	 	 	(11.8	)	 	 	(34.4	)
	Changes in assumptions underlying the present value of the
scheme liabilities
	 	 	(32.4	)	 	 	—	 	 	 	3.0	 	 	 	—	 	 	 	—	 	 	 	(29.4	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Actuarial gain/(loss) recognised in the statement
of total recognised gains and losses3
	 	 	98.8	 	 	 	26.3	 	 	 	(14.8	)	 	 	12.4	 	 	 	(2.8	)	 	 	119.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	3.	 	Included in the actuarial gain/(loss) for the year is £(5.7) million in
respect of minority interests (2001: £(6.8) million, 2000: £5.7 million).

92  The BOC Group plc  Report and accounts 2002

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6. Employees continued

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Americas	 	Americas	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Europe	 	pensions	 	health care	 	Africa	 	Asia/Pacific	 	Total
	Movement in (deficit)/surplus during the year	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	
	 	
	 	
	 	
	 	
	 	
	 	

	Year to 30 September 2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Deficit)/surplus in scheme at 1 October
	 	 	(28.8	)	 	 	157.5	 	 	 	(52.0	)	 	 	12.8	 	 	 	(3.2	)	 	 	86.3	 
	Movement 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	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	0.1	 
	Contributions
	 	 	2.8	 	 	 	—	 	 	 	3.9	 	 	 	1.8	 	 	 	6.3	 	 	 	14.8	 
	Other finance income
	 	 	16.3	 	 	 	17.6	 	 	 	(3.7	)	 	 	1.6	 	 	 	1.2	 	 	 	33.0	 
	Actuarial (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	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Year to 30 September 2001
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Surplus/(deficit) in scheme at 1 October
	 	 	267.4	 	 	 	306.3	 	 	 	(43.7	)	 	 	32.1	 	 	 	2.4	 	 	 	564.5	 
	Movement in the year:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current service cost
	 	 	(35.8	)	 	 	(8.6	)	 	 	(1.3	)	 	 	(2.2	)	 	 	(4.7	)	 	 	(52.6	)
	Past service cost
	 	 	(0.4	)	 	 	(16.7	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(17.1	)
	Contributions
	 	 	2.4	 	 	 	—	 	 	 	3.7	 	 	 	—	 	 	 	—	 	 	 	6.1	 
	Other finance income
	 	 	27.4	 	 	 	28.6	 	 	 	—	 	 	 	2.2	 	 	 	1.5	 	 	 	59.7	 
	Actuarial (loss)
	 	 	(289.8	)	 	 	(157.3	)	 	 	(6.9	)	 	 	(15.1	)	 	 	(2.6	)	 	 	(471.7	)
	Exchange adjustment
	 	 	—	 	 	 	5.2	 	 	 	(3.8	)	 	 	(4.2	)	 	 	0.2	 	 	 	(2.6	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	(Deficit)/surplus in scheme at 30 September
	 	 	(28.8	)	 	 	157.5	 	 	 	(52.0	)	 	 	12.8	 	 	 	(3.2	)	 	 	86.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Americas	 	Americas	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Europe	 	pensions	 	health care	 	Africa	 	Asia/Pacific	 	Total
	History of experience gains and losses	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	
	 	
	 	
	 	
	 	
	 	
	 	

	Year to 30 September 2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Difference between the expected and actual return on scheme assets
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Amount (£ 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 liabilities
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Amount (£ 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 losses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Amount (£ 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 2001
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Difference between the expected and actual return on scheme assets
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Amount (£ 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 liabilities
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Amount (£ 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 losses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Amount (£ 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 2000
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Difference between the expected and actual return on scheme assets
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Amount (£ million)
	 	 	109.0	 	 	 	57.2	 	 	 	—	 	 	 	8.5	 	 	 	9.0	 	 	 	183.7	 
	Percentage of scheme assets
	 	 	7.6	%	 	 	10.6	%	 	 	—	 	 	 	8.3	%	 	 	6.0	%	 	 	8.3	%
	Experience gains and losses on scheme liabilities
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Amount (£ 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 losses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Amount (£ million)
	 	 	98.8	 	 	 	26.3	 	 	 	(14.8	)	 	 	12.4	 	 	 	(2.8	)	 	 	119.9	 
	Percentage of the present value of scheme liabilities
	 	 	8.5	%	 	 	11.3	%	 	 	(33.9	%)	 	 	17.5	%	 	 	(1.9	%)	 	 	7.2	%
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

93  The BOC Group plc  Report and accounts 2002

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Notes to the financial statements

6. Employees continued

ii) UK GAAP FRS17 Retirement benefits — parent company

The pension rights of UK BOC Group employees are dealt with through a
self-administered scheme, the assets of which are held independently of the
Group’s finances. The scheme is a defined benefit scheme that is funded partly
by contributions from members and partly by contributions from Group
undertakings at rates advised by independent professionally qualified
actuaries. Acting on the advice of the actuaries, company contributions to the
principal UK scheme will resume from 1 October 2002.

     The company accounts for pension costs in accordance with UK Financial
Reporting Standard 17 (FRS17) on retirement benefits. In accordance with the
standard, the company treats contributions to the pension scheme as if it were
a defined contribution scheme. This is because the underlying assets and
liabilities of the scheme cover a number of UK BOC Group undertakings and
cannot readily be split between each Group undertaking on a consistent and
reliable basis.

iii) Pensions — 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
SFAS132. 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. The difference between the UK and US GAAP information, disclosed in
note 6 e) i) and ii) is included in note 16.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Pension benefits	 	Other benefits1
	 	 	
	 	

	 	 	2002	 	2001	 	2002	 	2001
	 	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	

	Change in benefit obligation
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Projected benefit obligation at 1 October
	 	 	1,599.5	 	 	 	1,666.0	 	 	 	52.0	 	 	 	47.1	 
	Change due to re-measurement
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(3.4	)
	Exchange adjustment
	 	 	(27.3	)	 	 	(7.6	)	 	 	(3.4	)	 	 	0.3	 
	Service cost
	 	 	54.6	 	 	 	54.0	 	 	 	1.6	 	 	 	1.2	 
	Interest cost
	 	 	102.9	 	 	 	107.5	 	 	 	3.6	 	 	 	3.3	 
	Plan participants’ contributions
	 	 	12.9	 	 	 	14.6	 	 	 	—	 	 	 	—	 
	Actuarial losses/(gains)
	 	 	44.7	 	 	 	(151.1	)	 	 	0.2	 	 	 	7.2	 
	Benefits paid
	 	 	(91.9	)	 	 	(86.6	)	 	 	(3.9	)	 	 	(3.7	)
	Other (income) less expenses
	 	 	0.6	 	 	 	2.3	 	 	 	—	 	 	 	—	 
	Curtailments, settlements, termination benefits
	 	 	0.6	 	 	 	0.4	 	 	 	—	 	 	 	—	 
	Plan amendments2
	 	 	(0.7	)	 	 	—	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Projected benefit obligation at 30 September
	 	 	1,695.9	 	 	 	1,599.5	 	 	 	50.1	 	 	 	52.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Change in fair value of assets
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fair value of assets at 1 October
	 	 	1,995.7	 	 	 	2,203.4	 	 	 	—	 	 	 	—	 
	Exchange adjustment
	 	 	(39.8	)	 	 	(24.9	)	 	 	—	 	 	 	—	 
	Actual return on plan assets
	 	 	(180.4	)	 	 	(115.5	)	 	 	—	 	 	 	—	 
	Employer contributions
	 	 	8.9	 	 	 	2.4	 	 	 	—	 	 	 	—	 
	Plan participants’ contributions
	 	 	12.9	 	 	 	14.6	 	 	 	—	 	 	 	—	 
	Other income less (expenses)
	 	 	0.6	 	 	 	2.3	 	 	 	—	 	 	 	—	 
	Benefits paid
	 	 	(91.9	)	 	 	(86.6	)	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Fair value of assets at 30 September
	 	 	1,706.0	 	 	 	1,995.7	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Funded status and unrecognised (gains)/losses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Funded status
	 	 	10.1	 	 	 	396.2	 	 	 	(50.1	)	 	 	(52.0	)
	Unrecognised net transition asset
	 	 	(26.1	)	 	 	(42.9	)	 	 	—	 	 	 	—	 
	Unrecognised prior service cost/(credit)
	 	 	23.9	 	 	 	28.9	 	 	 	(3.4	)	 	 	(4.1	)
	Unrecognised net loss/(gain)
	 	 	195.5	 	 	 	(191.2	)	 	 	9.3	 	 	 	10.1	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Prepaid/(accrued) pension cost
	 	 	203.4	 	 	 	191.0	 	 	 	(44.2	)	 	 	(46.0	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Amounts recognised in the statement of financial position consist of:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Prepaid benefit cost
	 	 	183.0	 	 	 	191.0	 	 	 	 	 	 	 	 	 
	Accrued benefit liability
	 	 	(1.5	)	 	 	—	 	 	 	 	 	 	 	 	 
	Intangible asset
	 	 	0.7	 	 	 	—	 	 	 	 	 	 	 	 	 
	Accumulated other comprehensive income
	 	 	21.2	 	 	 	—	 	 	 	 	 	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 
	Prepaid pension cost
	 	 	203.4	 	 	 	191.0	 	 	 	 	 	 	 	 	 
	 
	 	 	
	 	 	 	
	 	 	 	 	 	 	 	 	 

	1.	 	Other benefits relate to post retirement medical benefits.
	2.	 	Plan amendments relate to changes made to the US pension plan.

The fair value of plan assets exceeds the accumulated benefit obligation for
all plans except the Australian plan, where the accumulated benefit obligation,
projected benefit obligation and fair value of plan assets were £110.6
million, £110.6 million and £109.1 million respectively (2001: £108.4
million, £108.4 million and £112.5 million).

94  The BOC Group plc  Report and accounts 2002

Table of Contents

6. Employees continued

The main assumptions are as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Europe	 	Americas	 	Africa	 	Asia/Pacific
	 	 	
	 	
	 	
	 	

	At 30 September 2002
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Discount rate
	 	 	5.8	%	 	 	7.0	%	 	 	12.0	%	 	 	7.0	%
	Expected return on plan assets
	 	 	7.7	%	 	 	9.0	%	 	 	12.0	%	 	 	8.0	%
	Rate of compensation increase
	 	 	3.9	%	 	 	3.75	%	 	 	9.5	%	 	 	3.5	%
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	At 30 September 2001
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Discount rate
	 	 	6.2	%	 	 	7.25	%	 	 	10.0	%	 	 	5.75	%
	Expected return on plan assets
	 	 	7.4	%	 	 	9.0	%	 	 	10.0	%	 	 	6.5	%
	Rate of compensation increase
	 	 	4.75	%	 	 	4.75	%	 	 	7.5	%	 	 	3.0	%
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

For the post retirement medical benefits plan at 30
September 2002, the initial
health care cost trend rates for valuing the medical benefits and drug benefits
were 10.0 per cent (2001:9.0 per cent) and 2.4 per cent (2001:2.0 per cent)
respectively. These rates are assumed to reduce gradually to 4.5 per cent in
2009 (2001:4.75 per cent in 2009) for valuing medical benefits but no reduction
is assumed for valuing the drug benefits.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Pensionable benefits	 	Other benefits3
	 	 	
	 	

	 	 	2002	 	2001	 	2000	 	2002	 	2001	 	2000
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	

	Service cost net of employees’ contributions
	 	 	54.6	 	 	 	54.0	 	 	 	51.1	 	 	 	1.6	 	 	 	1.2	 	 	 	1.0	 
	Interest cost on projected benefits obligation
	 	 	102.9	 	 	 	107.5	 	 	 	99.5	 	 	 	3.6	 	 	 	3.3	 	 	 	1.8	 
	Expected return on assets
	 	 	(156.7	)	 	 	(158.8	)	 	 	(141.1	)	 	 	—	 	 	 	—	 	 	 	—	 
	Amortisation of net transition asset
	 	 	(14.7	)	 	 	(15.2	)	 	 	(15.3	)	 	 	—	 	 	 	—	 	 	 	—	 
	Amortisation of prior service cost/(credit)
	 	 	3.5	 	 	 	2.6	 	 	 	5.7	 	 	 	(0.5	)	 	 	(0.5	)	 	 	(0.4	)
	Amortisation of net (gain)/loss
	 	 	(7.2	)	 	 	(2.7	)	 	 	—	 	 	 	0.3	 	 	 	—	 	 	 	(0.7	)
	Cost of special termination benefits
	 	 	0.6	 	 	 	0.4	 	 	 	1.6	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net periodic pension (credit)/cost
	 	 	(17.0	)	 	 	(12.2	)	 	 	1.5	 	 	 	5.0	 	 	 	4.0	 	 	 	1.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	3.	 	Other benefits relate to post retirement medical benefits.

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 2002:

	 	 	 	 	 	 	 	 	 
	 	 	One percentage point
	 	 	

	 	 	increase	 	decrease
	 	 	
	 	

	Accumulated benefit obligation
	 	 	6.0	 	 	 	(5.5	)
	Net periodic pension cost
	 	 	0.9	 	 	 	(0.8	)
	 
	 	 	
	 	 	 	
	 

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Notes to the financial statements

7. Fixed assets — intangible assets

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Negative	 	Other	 	 	 	 
	 	 	Goodwill	 	Goodwill	 	intangibles	 	Total
	 	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	

	Gross book value
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At 1 October 2001
	 	 	73.1	 	 	 	(20.4	)	 	 	6.0	 	 	 	58.7	 
	Exchange adjustment
	 	 	(6.7	)	 	 	(0.8	)	 	 	(0.1	)	 	 	(7.6	)
	Acquired during the year
	 	 	117.3	 	 	 	(5.0	)	 	 	0.6	 	 	 	112.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	At 30 September 2002
	 	 	183.7	 	 	 	(26.2	)	 	 	6.5	 	 	 	164.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Amortisation
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At 1 October 2001
	 	 	8.8	 	 	 	(1.1	)	 	 	2.9	 	 	 	10.6	 
	Exchange adjustment
	 	 	(0.8	)	 	 	—	 	 	 	(0.1	)	 	 	(0.9	)
	Impairment
	 	 	—	 	 	 	(3.8	)	 	 	—	 	 	 	(3.8	)
	Provided during the year
	 	 	8.8	 	 	 	(2.0	)	 	 	0.6	 	 	 	7.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	At 30 September 2002
	 	 	16.8	 	 	 	(6.9	)	 	 	3.4	 	 	 	13.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net book value
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At 1 October 2001
	 	 	64.3	 	 	 	(19.3	)	 	 	3.1	 	 	 	48.1	 
	At 30 September 2002
	 	 	166.9	 	 	 	(19.3	)	 	 	3.1	 	 	 	150.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

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 increase in negative goodwill represents the excess of
the provisional fair value of the net assets of businesses acquired over the
fair value of the purchase price. The most significant amounts are as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Positive	 	Negative	 	Amortisation
	 	 	Goodwill	 	Goodwill	 	period
	Business acquired	 	£ million	 	£ million	 	Years
	
	 	
	 	
	 	

	2002
	 	 	 	 	 	 	 	 	 	 	 	 
	Seiko Instruments Inc — turbomolecular pumps business
	 	 	60.2	 	 	 	—	 	 	 	20	 
	Unique Gas and Petrochemicals Public Company Limited
	 	 	17.5	 	 	 	—	 	 	 	20	 
	Enron Teesside Operations Limited — industrial assets
	 	 	9.6	 	 	 	—	 	 	 	15	 
	Hydromatix Inc
	 	 	5.6	 	 	 	—	 	 	 	15	 
	Semco
	 	 	4.4	 	 	 	—	 	 	 	15	 
	Minorities in Osaka Sanso Kogyo KK
	 	 	—	 	 	 	(5.0	)	 	 	10	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	2001
	 	 	 	 	 	 	 	 	 	 	 	 
	Remaining 50 per cent of joint ventures in Venezuela and Chile
	 	 	7.5	 	 	 	—	 	 	 	12	 
	UK Fluorogas
	 	 	8.2	 	 	 	—	 	 	 	15	 
	Minorities in Osaka Sanso Kogyo KK
	 	 	—	 	 	 	(20.4	)	 	 	10	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	2000
	 	 	 	 	 	 	 	 	 	 	 	 
	Kachina Semiconductor Services
	 	 	7.9	 	 	 	—	 	 	 	15	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	1999
	 	 	 	 	 	 	 	 	 	 	 	 
	Chemical management division of FSI International Inc
	 	 	16.4	 	 	 	—	 	 	 	15	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

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.

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8. Fixed assets — tangible assets

a) Group summary

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Plant,	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Land and	 	machinery	 	 	 	 	 	Construction	 	 	 	 
	 	 	buildings1	 	and vehicles	 	Cylinders	 	in progress	 	Total
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	

	Gross book value
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At 1 October 2001
	 	 	704.8	 	 	 	4,437.3	 	 	 	606.7	 	 	 	308.1	 	 	 	6,056.9	 
	Exchange adjustment
	 	 	(33.5	)	 	 	(222.0	)	 	 	(38.4	)	 	 	(18.5	)	 	 	(312.4	)
	Capital expenditure2
	 	 	17.8	 	 	 	143.1	 	 	 	45.4	 	 	 	148.0	 	 	 	354.3	 
	Disposals
	 	 	(26.8	)	 	 	(106.1	)	 	 	(20.2	)	 	 	(0.1	)	 	 	(153.2	)
	Transfers
	 	 	9.5	 	 	 	218.1	 	 	 	9.3	 	 	 	(236.9	)	 	 	—	 
	Acquisitions/disposals of businesses
	 	 	42.9	 	 	 	19.2	 	 	 	17.3	 	 	 	0.3	 	 	 	79.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	At 30 September 2002
	 	 	714.7	 	 	 	4,489.6	 	 	 	620.1	 	 	 	200.9	 	 	 	6,025.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Depreciation
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	At 1 October 2001
	 	 	222.8	 	 	 	2,390.1	 	 	 	275.4	 	 	 	—	 	 	 	2,888.3	 
	Exchange adjustment
	 	 	(5.5	)	 	 	(112.5	)	 	 	(16.6	)	 	 	—	 	 	 	(134.6	)
	Provided during the year
	 	 	35.3	 	 	 	242.6	 	 	 	45.6	 	 	 	—	 	 	 	323.5	 
	Impairment
	 	 	37.4	 	 	 	7.2	 	 	 	—	 	 	 	—	 	 	 	44.6	 
	Disposals
	 	 	(13.4	)	 	 	(89.8	)	 	 	(16.0	)	 	 	—	 	 	 	(119.2	)
	Disposals of businesses
	 	 	(0.4	)	 	 	(4.3	)	 	 	—	 	 	 	—	 	 	 	(4.7	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	At 30 September 2002
	 	 	276.2	 	 	 	2,433.3	 	 	 	288.4	 	 	 	—	 	 	 	2,997.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net book value at 1 October 2001
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Owned assets
	 	 	448.4	 	 	 	2,038.1	 	 	 	295.5	 	 	 	308.1	 	 	 	3,090.1	 
	Leased assets
	 	 	33.6	 	 	 	9.1	 	 	 	35.8	 	 	 	—	 	 	 	78.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	482.0	 	 	 	2,047.2	 	 	 	331.3	 	 	 	308.1	 	 	 	3,168.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net book value at 30
September 20023
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Owned assets
	 	 	407.4	 	 	 	2,047.8	 	 	 	299.8	 	 	 	200.9	 	 	 	2,955.9	 
	Leased assets4
	 	 	31.1	 	 	 	8.5	 	 	 	31.9	 	 	 	—	 	 	 	71.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	438.5	 	 	 	2,056.3	 	 	 	331.7	 	 	 	200.9	 	 	 	3,027.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	1.	 	Net book value of land and buildings at cost was £405.4 million
(2001: £407.6 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 £63.8 million
(2001: £67.7 million). The tax effect of this is included in the deferred
tax provision.
	4.	 	Leased assets are shown net of accumulated depreciation of £111.0 million
(2001: £105.6 million).

b) Depreciation and operating lease rentals

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2000
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	Depreciation on leased assets included above
	 	 	8.5	 	 	 	6.8	 	 	 	6.7	 
	Amortisation of capitalised interest included above
	 	 	4.2	 	 	 	3.0	 	 	 	4.0	 
	Operating lease rentals
	 	 	 	 	 	 	 	 	 	 	 	 
	— hire of plant and machinery
	 	 	7.7	 	 	 	15.0	 	 	 	8.1	 
	— property rent
	 	 	23.1	 	 	 	25.0	 	 	 	26.4	 
	— other
	 	 	14.0	 	 	 	11.9	 	 	 	10.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

c) Regional analysis

The Group has numerous manufacturing, distribution and office facilities which
are located in some 50 countries. At 30 September 2002, the Group’s property,
plant and equipment, comprising land and buildings, plant, machinery, vehicles
and cylinders was located regionally as follows:

	 	 	 	 	 	 	 	 	 
	 	 	£ million	 	%
	 	 	
	 	

	Europe (mainly the UK)
	 	 	1,024.7	 	 	 	34	 
	Americas (mainly the US)
	 	 	978.4	 	 	 	32	 
	Africa
	 	 	178.3	 	 	 	6	 
	Asia/Pacific
	 	 	846.0	 	 	 	28	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	3,027.4	 	 	 	100	 
	 
	 	 	
	 	 	 	
	 

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

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Notes to the financial statements

8. 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
72). The net
book value of properties revalued in earlier years was £136.4 million.
Properties not revalued were £302.1 million.

e)  Parent summary

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Plant,	 	 
	 	 	Land and	 	machinery	 	 
	 	 	buildings	 	and vehicles	 	Total
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	Gross book value
	 	 	 	 	 	 	 	 	 	 	 	 
	At 1 October 2001
	 	 	14.3	 	 	 	18.9	 	 	 	33.2	 
	Capital expenditure
	 	 	—	 	 	 	0.1	 	 	 	0.1	 
	Disposals
	 	 	—	 	 	 	(3.3	)	 	 	(3.3	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	At 30 September 2002
	 	 	14.3	 	 	 	15.7	 	 	 	30.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Depreciation
	 	 	 	 	 	 	 	 	 	 	 	 
	At 1 October 2001
	 	 	3.3	 	 	 	11.1	 	 	 	14.4	 
	Provided during the year
	 	 	0.4	 	 	 	1.3	 	 	 	1.7	 
	Disposals
	 	 	—	 	 	 	(0.1	)	 	 	(0.1	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	At 30 September 2002
	 	 	3.7	 	 	 	12.3	 	 	 	16.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Net book value
	 	 	 	 	 	 	 	 	 	 	 	 
	At 1 October 2001
	 	 	11.0	 	 	 	7.8	 	 	 	18.8	 
	At 30 September 2002
	 	 	10.6	 	 	 	3.4	 	 	 	14.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

f)  Net book value of land and buildings at 30 September 2002

	 	 	 	 	 	 	 	 	 
	 	 	Group	 	Parent
	 	 	£ million	 	£ million
	 	 	
	 	

	Freehold property
	 	 	407.4	 	 	 	10.6	 
	Leasehold property — long-term
	 	 	27.4	 	 	 	–	 
	                               — short-term
	 	 	3.7	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	438.5	 	 	 	10.6	 
	 
	 	 	
	 	 	 	
	 

g)  Capital commitments

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Group	 	Parent
	 	 	
	 	

	 	 	2002	 	2001	 	2002	 	2001
	 	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	

	Against which orders had been placed
	 	 	33.3	 	 	 	96.0	 	 	 	—	 	 	 	2.5	 
	Authorised but not committed
	 	 	66.7	 	 	 	80.4	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	100.0	 	 	 	176.4	 	 	 	—	 	 	 	2.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

The Group’s share of its joint ventures’ and associates’ capital commitments
was:

	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001
	 	 	£ million	 	£ million
	 	 	
	 	

	Against which orders had been placed
	 	 	3.1	 	 	 	2.4	 
	Authorised but not committed
	 	 	8.6	 	 	 	4.0	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	11.7	 	 	 	6.4	 
	 
	 	 	
	 	 	 	
	 

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9. Fixed assets — investments

a)  Group

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Group	 	Group	 	Group	 	 	 	 	 	Provisions	 	 
	 	 	 	 	share of	 	share of	 	loans to	 	Other	 	Own	 	against	 	 
	 	 	Goodwill	 	net assets of	 	net assets of	 	joint ventures	 	investments	 	shares	 	other	 	 
	 	 	of associates	 	joint ventures	 	associates	 	and associates	 	at cost	 	at cost	 	investments	 	Total
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	At 1 October 2001
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	— previously reported
	 	 	—	 	 	 	212.2	 	 	 	47.1	 	 	 	106.7	 	 	 	33.5	 	 	 	59.5	 	 	 	(1.8	)	 	 	457.2	 
	Prior year adjustment
	 	 	—	 	 	 	(7.4	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(7.4	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	At 1 October 2001 — restated
	 	 	—	 	 	 	204.8	 	 	 	47.1	 	 	 	106.7	 	 	 	33.5	 	 	 	59.5	 	 	 	(1.8	)	 	 	449.8	 
	Exchange adjustment
	 	 	(0.6	)	 	 	(12.7	)	 	 	(4.1	)	 	 	(7.8	)	 	 	(2.8	)	 	 	0.1	 	 	 	0.4	 	 	 	(27.5	)
	Acquisitions/additions
	 	 	8.7	 	 	 	10.1	 	 	 	6.0	 	 	 	20.9	 	 	 	21.6	 	 	 	—	 	 	 	—	 	 	 	67.3	 
	Associates becoming subsidiaries
	 	 	—	 	 	 	—	 	 	 	(3.2	)	 	 	(1.1	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(4.3	)
	Disposals/repayments
	 	 	—	 	 	 	—	 	 	 	(0.3	)	 	 	(0.7	)	 	 	(6.9	)	 	 	(17.1	)	 	 	(0.2	)	 	 	(25.2	)
	Increase in net assets
	 	 	—	 	 	 	3.3	 	 	 	3.8	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	7.1	 
	Other
	 	 	—	 	 	 	—	 	 	 	0.1	 	 	 	—	 	 	 	1.8	 	 	 	—	 	 	 	(0.5	)	 	 	1.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	At 30 September 2002
	 	 	8.1	 	 	 	205.5	 	 	 	49.4	 	 	 	118.0	 	 	 	47.2	 	 	 	42.5	 	 	 	(2.1	)	 	 	468.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

i) Joint ventures

The cost of investment in joint ventures was £116.9 million
(2001: £107.6
million) and the attributable profit before tax was
£40.1 million (2001: £34.2
million, 2000: £40.2 million). There were no significant fair value adjustments on
acquisitions.

ii) Associates

The cost of investment in associates was £15.1 million
(2001: £8.3 million) and
the attributable profit before tax was £9.4 million (2001: £10.5
million, 2000: £5.6 million).
     Goodwill
of associates arose on the combination of the BOC Process Plants
business with Linde Engineering. This represents the difference between the
fair value of the consideration paid and the provisional fair value of the net
assets acquired. This goodwill will be amortised over a period of 15
years. There were no significant fair value adjustments on acquisitions.

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 2002, options over 5.4 million shares were outstanding under these
schemes, for which 4.6 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 2002 of
867.0p, the
market value of own shares held in trust was £39.5 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 UITF Abstract 13. Information on share option schemes
appears in the report on remuneration and in notes 6 and 12.
     Dividends
waived on the shares held in trust amounted to £1.8 million
(2001: £1.2 million, 2000: £1.5 million).

iv) Related parties

During the year, interest income of £8.3 million (2001:
£6.9 million, 2000: £6.5
million) was received from the Cantarell joint venture, a related party.

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Notes to the financial statements

9.  Fixed assets — investments continued

b) Valuation

	 	 	 	 	 	 	 	 	 	 
	 	 	 	2002	 	2001
	 	 	 	£ million	 	£ million
	 	 	 	
	 	

	Listed on stock exchanges in the UK and overseas
	 	 	91.1	 	 	 	112.5	 
	Unlisted
	— equity at directors’ valuation	 	 	244.9	 	 	 	237.1	 
	 	— other at directors’ valuation
	 	 	132.6	 	 	 	107.6	 
	 
	 	 	
	 	 	 	
	 
	Total book value
	 	 	468.6	 	 	 	457.2	 
	 
	 	 	
	 	 	 	
	 
	Market value of listed investments
	 	 	123.1	 	 	 	152.7	 
	 
	 	 	
	 	 	 	
	 

c) Income

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	2002	 	2001	 	2000
	 	 	 	£ million	 	£ million	 	£ million
	 	 	 	
	 	
	 	

	Listed securities
	 	 	7.5	 	 	 	6.0	 	 	 	2.2	 
	Unlisted securities
	 	 	30.6	 	 	 	19.5	 	 	 	20.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	38.1	 	 	 	25.5	 	 	 	22.7	 
	Less:
	Dividends receivable from joint ventures	 	 	30.5	 	 	 	19.4	 	 	 	20.0	 
	 	Dividends receivable from associates
	 	 	3.4	 	 	 	4.1	 	 	 	2.1	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Income from other fixed asset investments
	 	 	4.2	 	 	 	2.0	 	 	 	0.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

d) Parent

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Amounts	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Investments	 	Investments	 	due from	 	Own	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	in subsidiary	 	in related	 	subsidiary	 	shares	 	Other	 	 	 	 	 	 	 	 
	 	 	undertakings	 	undertakings	 	undertakings	 	at cost	 	investments	 	Provisions	 	Total
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	At 1 October 2001
	 	 	1,142.8	 	 	 	250.1	 	 	 	1,278.8	 	 	 	44.9	 	 	 	—	 	 	 	(14.6	)	 	 	2,702.0	 
	Additions
	 	 	345.3	 	 	 	8.7	 	 	 	396.3	 	 	 	—	 	 	 	13.9	 	 	 	(1.9	)	 	 	762.3	 
	Disposals/repayments
	 	 	(18.0	)	 	 	(250.1	)	 	 	(343.2	)	 	 	(8.6	)	 	 	—	 	 	 	—	 	 	 	(619.9	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	At 30 September 2002
	 	 	1,470.1	 	 	 	8.7	 	 	 	1,331.9	 	 	 	36.3	 	 	 	13.9	 	 	 	(16.5	)	 	 	2,844.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

10.  Net current assets/(liabilities)

a) Stocks

	 	 	 	 	 	 	 	 	 
	 	 	Group
	 	 	

	 	 	2002	 	2001
	 	 	£ million	 	£ million
	 	 	
	 	

	Raw materials
	 	 	67.8	 	 	 	81.2	 
	Work in progress
	 	 	47.8	 	 	 	59.5	 
	Gases and other finished goods
	 	 	159.0	 	 	 	164.7	 
	Payments on account
	 	 	(14.6	)	 	 	(30.2	)
	 
	 	 	
	 	 	 	
	 
	 
	 	 	260.0	 	 	 	275.2	 
	 
	 	 	
	 	 	 	
	 

Amounts relating to long-term contracts included in work in progress were £0.2
million (2001: £1.3 million). There were no stocks held on the balance sheet of
The BOC Group plc at either 30 September 2002 or 30 September 2001.

100  The BOC Group plc Report and accounts 2002

 

Table of Contents

10. Net current assets/(liabilities) continued

b) Debtors falling due within one year

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Group	 	Parent
	 	 	
	 	

	 	 	 	 	 	 	2001	 	 	 	 	 	2001
	 	 	2002	 	(restated)	 	2002	 	(restated)
	 	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	

	Trade debtors
	 	 	601.2	 	 	 	589.5	 	 	 	—	 	 	 	—	 
	Amounts due from subsidiary undertakings
	 	 	—	 	 	 	—	 	 	 	485.8	 	 	 	382.1	 
	Amounts due from joint ventures and associates
	 	 	1.4	 	 	 	4.3	 	 	 	1.4	 	 	 	3.2	 
	Other debtors
	 	 	100.0	 	 	 	92.1	 	 	 	21.7	 	 	 	13.5	 
	Prepayments and accrued income
	 	 	31.2	 	 	 	27.4	 	 	 	6.7	 	 	 	9.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	733.8	 	 	 	713.3	 	 	 	515.6	 	 	 	408.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

At 30 September 2002, trade debtors of
£23.8 million (2001: £25.7 million) in
subsidiary undertakings had been factored to third parties with limited
recourse.

c) Debtors falling due after more than one year

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	Group	 	Parent
	 	 	 	
	 	

	 	 	 	 	 	 	 	2001	 	 	 	 	 	2001
	 	 	 	2002	 	(restated)	 	2002	 	(restated)
	 	 	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	 	
	 	
	 	
	 	

	Deposits
	 	 	—	 	 	 	0.7	 	 	 	—	 	 	 	—	 
	Deferred tax
	 	 	7.9	 	 	 	8.4	 	 	 	—	 	 	 	—	 
	Other debtors
	 	 	20.4	 	 	 	12.2	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	28.3	 	 	 	21.3	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	d) Cash at bank and in hand
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Deposits
	 	 	20.5	 	 	 	70.6	 	 	 	—	 	 	 	51.7	 
	Cash at bank and in hand
	 	 	165.0	 	 	 	162.9	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	185.5	 	 	 	233.5	 	 	 	—	 	 	 	51.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	e) Borrowings and finance leases1
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Bank loans and overdrafts
	 	 	196.7	 	 	 	187.9	 	 	 	178.9	 	 	 	119.1	 
	Loans other than from banks
	 	 	182.3	 	 	 	288.1	 	 	 	—	 	 	 	196.5	 
	Finance leases
	 	 	11.1	 	 	 	10.4	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	390.1	 	 	 	486.4	 	 	 	178.9	 	 	 	315.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	

	1.          Details of borrowings and finance
leases are given in note 3.	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	f) Other creditors
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Deposits and advance payments by customers
	 	 	41.5	 	 	 	46.0	 	 	 	—	 	 	 	—	 
	Trade creditors
	 	 	367.3	 	 	 	318.4	 	 	 	—	 	 	 	—	 
	Amounts due to subsidiary undertakings
	 	 	—	 	 	 	—	 	 	 	906.6	 	 	 	639.9	 
	Taxation — UK
	 	 	69.0	 	 	 	63.9	 	 	 	—	 	 	 	—	 
	— Overseas
	 	 	78.5	 	 	 	75.0	 	 	 	—	 	 	 	—	 
	Other taxes and social security payable
	 	 	27.3	 	 	 	25.5	 	 	 	—	 	 	 	—	 
	Other creditors
	 	 	130.0	 	 	 	128.4	 	 	 	2.0	 	 	 	38.6	 
	Accruals and deferred income
	 	 	144.2	 	 	 	138.1	 	 	 	45.2	 	 	 	38.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	857.8	 	 	 	795.3	 	 	 	953.8	 	 	 	717.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

101  The BOC Group plc Report and accounts 2002

 

Table of Contents

Notes to the financial statements

11. Long-term liabilities

a) Borrowings and finance leases1

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Group	 	Parent
	 	 	
	 	

	 	 	2002	 	2001	 	2002	 	2001
	 	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	

	Loans other than from banks
	 	 	1,008.1	 	 	 	879.2	 	 	 	801.0	 	 	 	570.4	 
	Bank loans
	 	 	90.2	 	 	 	105.5	 	 	 	—	 	 	 	—	 
	Finance leases
	 	 	22.7	 	 	 	35.2	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	1,121.0	 	 	 	1,019.9	 	 	 	801.0	 	 	 	570.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	1.	 	Details of borrowings and finance
leases are given in note 3.

b) Provisions for liabilities and charges

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Incentive	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	and other	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Deferred	 	employee	 	Uninsured	 	Restructuring	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	tax	 	provisions	 	losses	 	provisions	 	Environmental	 	Other	 	Total
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	At 1 October 2001 – previously reported
	 	 	37.0	 	 	 	84.2	 	 	 	23.9	 	 	 	11.6	 	 	 	26.9	 	 	 	21.7	 	 	 	205.3	 
	Prior year adjustment
	 	 	257.3	 	 	 	(43.4	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	213.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	At 1 October 2001 – restated
	 	 	294.3	 	 	 	40.8	 	 	 	23.9	 	 	 	11.6	 	 	 	26.9	 	 	 	21.7	 	 	 	419.2	 
	Exchange adjustment
	 	 	(8.6	)	 	 	(2.7	)	 	 	(0.1	)	 	 	(0.2	)	 	 	(1.7	)	 	 	(0.5	)	 	 	(13.8	)
	Provided in the year
	 	 	9.5	 	 	 	4.6	 	 	 	—	 	 	 	5.0	 	 	 	0.9	 	 	 	12.6	 	 	 	32.6	 
	Released in the year
	 	 	—	 	 	 	(1.1	)	 	 	(3.9	)	 	 	—	 	 	 	—	 	 	 	(2.4	)	 	 	(7.4	)
	Utilised in the year
	 	 	—	 	 	 	(4.8	)	 	 	(0.5	)	 	 	(7.9	)	 	 	(3.3	)	 	 	(2.8	)	 	 	(19.3	)
	Other movements
	 	 	(3.4	)	 	 	0.3	 	 	 	—	 	 	 	(0.8	)	 	 	—	 	 	 	0.1	 	 	 	(3.8	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	At 30 September 2002
	 	 	291.8	 	 	 	37.1	 	 	 	19.4	 	 	 	7.7	 	 	 	22.8	 	 	 	28.7	 	 	 	407.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

     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 provision represents expenditure to be incurred on major
reorganisations. This year £48.0 million was spent of which £4.2 million was
provided for at 30 September 2001 and £3.7 million was provided for at 30
September 2000. The provisions remaining at 30 September 2002 consist mainly of
redundancy costs and will be spent during 2003.
     Incentive
and other employee provisions include long-term share incentive
units and deferred compensation plans. Note 6 d) contains further details of
the long-term share incentive units.
     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 2002 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 £6.7 million.
     Other
provisions are principally for warranty
and legal costs.
     Further
information on
deferred tax is disclosed in note 4.

12. Dividends and equity

a) Dividends

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Per share	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2000	 	2002	 	2001	 	2000
	 	 	pence	 	pence	 	pence	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	

	Ordinary
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	First interim
	 	 	15.5	 	 	 	15.5	 	 	 	15.5	 	 	 	75.8	 	 	 	75.5	 	 	 	75.6	 
	Second interim
	 	 	22.5	 	 	 	21.5	 	 	 	19.5	 	 	 	110.8	 	 	 	104.8	 	 	 	94.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	38.0	 	 	 	37.0	 	 	 	35.0	 	 	 	186.6	 	 	 	180.3	 	 	 	170.2	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

102  The BOC Group plc Report and accounts 2002

 

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12.  Dividends and equity continued

b) Share capital

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Number of shares	 	 	 	 	 	 	 	 
	 	 	
	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2002	 	2001
	i) Analysis at 30 September	 	million	 	million	 	£ million	 	£ million
	
	 	
	 	
	 	
	 	

	Equity capital:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Issued capital — Ordinary shares of 25p each, called up and fully paid
	 	 	497.3	 	 	 	494.4	 	 	 	124.3	 	 	 	123.6	 
	Unissued capital — unclassified shares of 25p each
	 	 	92.7	 	 	 	95.6	 	 	 	23.2	 	 	 	23.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Authorised
	 	 	 	 	 	 	 	 	 	 	147.5	 	 	 	147.5	 
	 
	 	 	 	 	 	 	 	 	 	 	
	 	 	 	
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Number
	ii) Share issues	 	 	 	 	 	 	 	 	 	 	 	 	 	million
	
	 	 	 	 	 	 	 	 	 	 	 	 	 	

	Issues of Ordinary shares of 25p each during the year were:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Under the savings related share option scheme
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1.0	 
	Under the senior executives share option scheme
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1.9	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	 

c) Group reserves

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Share	 	 	 	 	 	 	 	 	 	 	 	 	 	Joint	 	 	 	 	 	 	 	 
	 	 	premium	 	Revaluation	 	Profit and	 	Pensions'	 	ventures'	 	Associates'	 	 	 	 
	 	 	account	 	reserves	 	loss account	 	reserves	 	reserves	 	reserves	 	Total
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	At 1 October 2001 — previously reported
	 	 	335.8	 	 	 	47.9	 	 	 	1,660.1	 	 	 	—	 	 	 	105.5	 	 	 	33.4	 	 	 	2,182.7	 
	Prior year adjustment
	 	 	—	 	 	 	—	 	 	 	(259.8	)	 	 	47.1	 	 	 	(7.4	)	 	 	—	 	 	 	(220.1	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	At
1 October 2001 — restated
	 	 	335.8	 	 	 	47.9	 	 	 	1,400.3	 	 	 	47.1	 	 	 	98.1	 	 	 	33.4	 	 	 	1,962.6	 
	Total recognised gains and losses for the year
	 	 	–	 	 	 	(20.1	)	 	 	91.5	 	 	 	(303.6	)	 	 	(10.0	)	 	 	0.1	 	 	 	(242.1	)
	Share options
	 	 	—	 	 	 	—	 	 	 	2.0	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	2.0	 
	Dividends
	 	 	—	 	 	 	—	 	 	 	(186.6	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(186.6	)
	Premium on share issues (net)
	 	 	26.3	 	 	 	—	 	 	 	(2.4	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	23.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	At 30 September 2002
	 	 	362.1	 	 	 	27.8	 	 	 	1,304.8	 	 	 	(256.5	)	 	 	88.1	 	 	 	33.5	 	 	 	1,559.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

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 £166.2 million (2001:£173.6
million). The movement in the year reflects exchange.
     At
30 September 2002, in accordance with the Group’s accounting policy,
unrealised exchange gains (net of losses) on net borrowings at 30 September
2002 included in reserves amounted to £10.2 million (2001:£18.0 million).
     There
are no non-equity shareholders’ interests in the share
capital and reserves of the Group.

d) Parent reserves

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Share	 	 	 	 	 	Profit	 	 	 	 
	 	 	premium	 	Other	 	and loss	 	 	 	 
	 	 	account	 	reserves	 	account	 	Total
	 	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	

	At 1 October 2001 — previously reported
	 	 	335.8	 	 	 	111.7	 	 	 	1,042.2	 	 	 	1,489.7	 
	Prior year adjustment
	 	 	—	 	 	 	—	 	 	 	(52.0	)	 	 	(52.0	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	At 1 October 2001 — restated
	 	 	335.8	 	 	 	111.7	 	 	 	990.2	 	 	 	1,437.7	 
	Profit for the financial year
	 	 	—	 	 	 	—	 	 	 	26.2	 	 	 	26.2	 
	Share options
	 	 	—	 	 	 	2.0	 	 	 	—	 	 	 	2.0	 
	Dividends
	 	 	—	 	 	 	—	 	 	 	(186.8	)	 	 	(186.8	)
	Premium on share issues (net)
	 	 	26.3	 	 	 	—	 	 	 	(2.4	)	 	 	23.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	At 30 September 2002
	 	 	362.1	 	 	 	113.7	 	 	 	827.2	 	 	 	1,303.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

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
£23.9 million. The Group paid the balance of £2.4 million to a qualifying
employee share ownership trust (Quest).

103  The BOC Group plc Report and accounts 2002

 

Table of Contents

Notes to the financial statements

13.  Commitments and contingent liabilities

a) Annual operating lease commitments

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001
	 	 	
	 	

	 	 	 	 	 	 	Other	 	 	 	 	 	Other
	 	 	Property	 	operating	 	Property	 	operating
	 	 	leases	 	leases	 	leases	 	leases
	 	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	

	On leases expiring:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Within one year
	 	 	2.9	 	 	 	1.3	 	 	 	2.4	 	 	 	1.3	 
	Between one and two years
	 	 	1.8	 	 	 	6.5	 	 	 	3.9	 	 	 	1.5	 
	Between two and five years
	 	 	5.7	 	 	 	8.5	 	 	 	7.8	 	 	 	13.2	 
	Over five years
	 	 	7.0	 	 	 	1.9	 	 	 	7.1	 	 	 	3.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	17.4	 	 	 	18.2	 	 	 	21.2	 	 	 	19.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 	 	 
	 	 	Operating
	 	 	leases
	 	 	£ million
	 	 	

	Rentals are due under operating leases from
1 October 2002 to completion as follows:
	 	 	 	 
	Year to 30 September 2003
	 	 	35.6	 
	Year to 30 September 2004
	 	 	29.8	 
	Year to 30 September 2005
	 	 	23.7	 
	Year to 30 September 2006
	 	 	19.4	 
	Year to 30 September 2007
	 	 	16.5	 
	Thereafter
	 	 	96.1	 
	 
	 	 	
	 
	 
	 	 	221.1	 
	 
	 	 	
	 

b) Contingent liabilities, legal proceedings and bank guarantees

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Group	 	Parent
	 	 	
	 	

	 	 	2002	 	2001	 	2002	 	2001
	 	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	

	Guarantees of joint ventures’ borrowings
	 	 	119.3	 	 	 	152.1	 	 	 	119.3	 	 	 	152.1	 
	Guarantees of subsidiaries’ borrowings
	 	 	—	 	 	 	—	 	 	 	558.1	 	 	 	607.3	 
	Other guarantees and contingent liabilities
	 	 	38.7	 	 	 	37.9	 	 	 	22.3	 	 	 	20.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	158.0	 	 	 	190.0	 	 	 	699.7	 	 	 	779.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

The guarantees of joint ventures’ borrowings predominately represents
guarantees of the borrowings of BOC’s joint venture company which supplies
nitrogen to the Mexican oil company, Pemex. These borrowings are scheduled to
be repaid over the next eight years.
     Various
Group undertakings are parties to legal actions and claims, some
of which are for substantial amounts. While the outcome of some of these
matters cannot readily be foreseen, the directors believe that they will be
disposed of without material effect on the net asset position as shown in these
financial statements.
     The
Group is committed to make future purchases under take-or-pay
contracts. Obligations under such contracts in effect at 30 September 2002 are
as follows:

	 	 	 	 	 
	Year ending 30 September	 	£ million
	
	 	

	2003
	 	 	67.8	 
	2004
	 	 	66.6	 
	2005
	 	 	64.9	 
	2006
	 	 	62.9	 
	2007
	 	 	63.9	 
	Thereafter
	 	 	195.4	 
	 
	 	 	
	 
	 
	 	 	521.5	 
	 
	 	 	
	 

For the years ended 30 September 2002,2001 and 2000 total purchases made
relating to these contracts amounted to £58.2 million,£53.5 million and £51.5
million respectively.

104  The BOC Group plc Report and accounts 2002

 

Table of Contents

14.  Cash flow

a) Net cash inflow from operating activities

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	2001	 	2000
	 	 	 	 	 	 	2002	 	(restated)	 	(restated)
	 	 	Notes	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	

	Total operating profit before exceptional items
	 	 	 	 	 	 	500.1	 	 	 	530.6	 	 	 	496.4	 
	Depreciation and amortisation
	 	 	 	 	 	 	330.9	 	 	 	329.5	 	 	 	313.3	 
	FRS17 retirement benefits charge
	 	 	 	 	 	 	49.9	 	 	 	53.0	 	 	 	48.9	 
	Operating profit before exceptional items of joint ventures
	 	 	 	 	 	 	(63.8	)	 	 	(59.0	)	 	 	(48.1	)
	Operating profit before exceptional items of associates
	 	 	 	 	 	 	(10.7	)	 	 	(13.2	)	 	 	(8.5	)
	Change in stocks
	 	 	 	 	 	 	13.7	 	 	 	8.8	 	 	 	(40.9	)
	Change in debtors
	 	 	 	 	 	 	(38.4	)	 	 	39.5	 	 	 	(24.5	)
	Change in creditors
	 	 	 	 	 	 	57.3	 	 	 	(20.9	)	 	 	(10.3	)
	Exceptional cash flows
	 	 	 	 	 	 	(67.3	)	 	 	(51.8	)	 	 	0.5	 
	Other
	 	 	 	 	 	 	(12.4	)	 	 	(28.7	)	 	 	(21.8	)
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net cash inflow from operating activities
	 	 	 	 	 	 	759.3	 	 	 	787.8	 	 	 	705.0	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	b) Reconciliation of net cash flow to movement in net debt
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Increase in cash
	 	 	 	 	 	 	(21.4	)	 	 	(66.1	)	 	 	(3.2	)
	Increase/(decrease) in debt
	 	 	14	(d)	 	 	64.1	 	 	 	(51.3	)	 	 	64.9	 
	Decrease in liquid resources
	 	 	 	 	 	 	52.6	 	 	 	102.8	 	 	 	9.6	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Change in net debt resulting from cash flows
	 	 	 	 	 	 	95.3	 	 	 	(14.6	)	 	 	71.3	 
	Net borrowings assumed at acquisition
	 	 	 	 	 	 	0.5	 	 	 	—	 	 	 	21.8	 
	Inception of finance leases
	 	 	 	 	 	 	0.4	 	 	 	0.5	 	 	 	0.1	 
	Exchange adjustment
	 	 	 	 	 	 	(42.7	)	 	 	(22.2	)	 	 	76.7	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Movement in net debt in the year
	 	 	 	 	 	 	53.5	 	 	 	(36.3	)	 	 	169.9	 
	Net debt at 1 October
	 	 	 	 	 	 	1,272.1	 	 	 	1,308.4	 	 	 	1,138.5	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net debt at 30 September
	 	 	 	 	 	 	1,325.6	 	 	 	1,272.1	 	 	 	1,308.4	 
	 
	 	 	 	 	 	 	
	 	 	 	
	 	 	 	
	 

c) Analysis of net debt

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Acquisitions/	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	disposals	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	At	 	 	 	 	 	(excluding	 	Other	 	 	 	 	 	At
	 	 	1 October	 	 	 	 	 	cash and	 	non-cash	 	Exchange	 	30
September
	 	 	2001	 	Cash flow	 	overdrafts)	 	changes	 	adjustment	 	2002
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	

	Deposits and cash due within one year
	 	 	233.5	 	 	 	(43.5	)	 	 	—	 	 	 	14.3	 	 	 	(18.8	)	 	 	185.5	 
	Deposits due beyond one year
	 	 	0.7	 	 	 	0.5	 	 	 	13.1	 	 	 	(14.3	)	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	234.2	 	 	 	(43.0	)	 	 	13.1	 	 	 	—	 	 	 	(18.8	)	 	 	185.5	 
	Borrowings and finance leases due within one year
	 	 	(486.4	)	 	 	208.8	 	 	 	(0.1	)	 	 	(141.4	)	 	 	29.0	 	 	 	(390.1	)
	Borrowings and finance leases due beyond one year
	 	 	(1,019.9	)	 	 	(261.1	)	 	 	(13.5	)	 	 	141.0	 	 	 	32.5	 	 	 	(1,121.0	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net borrowings and finance leases
	 	 	(1,272.1	)	 	 	(95.3	)	 	 	(0.5	)	 	 	(0.4	)	 	 	42.7	 	 	 	(1,325.6	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

d) Increase/(decrease) in debt

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2000
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	5 7/8% Bonds 2009
	 	 	200.0	 	 	 	—	 	 	 	—	 
	7 1/4% Notes 2002
	 	 	(150.0	)	 	 	—	 	 	 	—	 
	Medium term notes
	 	 	59.7	 	 	 	—	 	 	 	—	 
	6.50% Bonds 2016
	 	 	—	 	 	 	200.0	 	 	 	—	 
	1.00% Euroyen Bond 2006
	 	 	—	 	 	 	147.0	 	 	 	—	 
	5 7/8% Notes 2001
	 	 	—	 	 	 	(138.9	)	 	 	—	 
	European Investment Bank loans
	 	 	(5.0	)	 	 	10.3	 	 	 	(5.7	)
	Pollution Control and Industrial Bonds
	 	 	(18.5	)	 	 	(2.4	)	 	 	(5.3	)
	Net issues/(repayment) of commercial paper
	 	 	59.5	 	 	 	(212.5	)	 	 	68.6	 
	Other (net)
	 	 	(81.6	)	 	 	(54.8	)	 	 	7.3	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Increase/(decrease) in debt
	 	 	64.1	 	 	 	(51.3	)	 	 	64.9	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

105  The BOC Group plc Report and accounts 2002

 

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Notes to the financial statements

14.  Cash flow continued

e) Consolidated cash flow statement:US format

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2000
	 	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	Net cash provided by operating activities
	 	 	620.2	 	 	 	631.2	 	 	 	565.2	 
	Net cash used by investing activities
	 	 	(540.0	)	 	 	(445.5	)	 	 	(470.3	)
	Net cash used by financing activities
	 	 	(122.7	)	 	 	(225.6	)	 	 	(71.9	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Net (decrease)/increase in cash and cash equivalents
	 	 	(42.5	)	 	 	(39.9	)	 	 	23.0	 
	Cash and cash equivalents at 1 October
	 	 	259.0	 	 	 	305.6	 	 	 	277.4	 
	Exchange and other movements
	 	 	(34.6	)	 	 	(6.7	)	 	 	5.2	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Cash and cash equivalents at 30 September
	 	 	181.9	 	 	 	259.0	 	 	 	305.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

The Group cash flow statement on page 68 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 above, for illustrative purposes, is a summary consolidated statement
of cash flows under SFAS95.

15.  Acquisitions and disposals

a) Cash flow

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2000
	 	 	
	 	
	 	

	 	 	Acquisitions	 	Disposals	 	Acquisitions	 	Disposals	 	Acquisitions	 	Disposals
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	

	Cash flow arising on the acquisition and disposal of businesses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Intangible fixed assets
	 	 	(0.5	)	 	 	0.2	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	Tangible fixed assets
	 	 	(85.7	)	 	 	1.3	 	 	 	(34.8	)	 	 	1.1	 	 	 	(37.9	)	 	 	—	 
	Joint ventures, associates and other fixed asset investments
	 	 	(12.4	)	 	 	0.2	 	 	 	20.7	 	 	 	0.4	 	 	 	7.3	 	 	 	—	 
	Stocks
	 	 	(20.9	)	 	 	2.4	 	 	 	(2.4	)	 	 	0.5	 	 	 	(3.7	)	 	 	0.6	 
	Debtors
	 	 	(37.5	)	 	 	0.7	 	 	 	(16.7	)	 	 	1.1	 	 	 	(14.4	)	 	 	0.9	 
	Cash at bank and in hand
	 	 	(13.5	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(2.2	)	 	 	—	 
	Creditors including taxation
	 	 	55.7	 	 	 	(1.2	)	 	 	4.7	 	 	 	(0.4	)	 	 	13.6	 	 	 	(1.1	)
	Borrowings
	 	 	21.4	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	24.0	 	 	 	—	 
	Minorities
	 	 	(8.6	)	 	 	7.8	 	 	 	(117.5	)	 	 	—	 	 	 	(6.5	)	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net assets (acquired)/disposed of
	 	 	(102.0	)	 	 	11.4	 	 	 	(146.0	)	 	 	2.7	 	 	 	(19.8	)	 	 	0.4	 
	Goodwill on acquisitions
	 	 	(112.3	)	 	 	—	 	 	 	(3.3	)	 	 	—	 	 	 	(14.0	)	 	 	—	 
	Surplus over book value on disposals
	 	 	—	 	 	 	2.5	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	(Acquisition)/disposal price
	 	 	(214.3	)	 	 	13.9	 	 	 	(149.3	)	 	 	2.7	 	 	 	(33.8	)	 	 	0.4	 
	Deferred payments
	 	 	7.0	 	 	 	(3.3	)	 	 	3.4	 	 	 	—	 	 	 	1.7	 	 	 	—	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	(207.3	)	 	 	10.6	 	 	 	(145.9	)	 	 	2.7	 	 	 	(32.1	)	 	 	0.4	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

The Group purchased the vacuum and pressure business of the Smiths Group in
December 2001. It also purchased Hydromatix Inc in January 2002 and the Semco
business in April 2002. In March 2002 the Group acquired the turbomolecular
pumps business of Seiko Instruments Inc. Purchases of products from Seiko
Instruments Inc in the period from 1 October 2001 to the date of acquisition
were approximately £3.0 million.
     In
May 2002 the Group purchased 79 per cent of Unique Gas and
Petrochemicals Public Company Limited and acquired a further 20 per cent before
the end of the year. In July 2002 the Group purchased the industrial assets of
Enron Teesside Operations Limited.
     During
2002 the Group acquired an additional three per cent of the minority
interests in Osaka Sanso Kogyo KK.
     The
acquisitions in the BOC Edwards line of business contributed £55.5
million to turnover and £(0.8) million to operating profit before exceptional
items. Acquisitions in the other lines of business did not have a material
impact on turnover or operating profit before exceptional items.
     Of
the total acquisition expenditure, £48.1 million was in the Process Gas
Solutions business, £57.3 million was in the Industrial and Special Products
business, £86.2 million was in the BOC Edwards business and £15.7 million was in
the Afrox hospitals business.
     Businesses
disposed of are detailed in note 2 b).

106  The BOC Group plc Report and accounts 2002

 

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15.  Acquisitions and disposals continued

b) Fair value of acquisitions

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Unique	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Gas and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Petrochemicals	 	Seiko	 	 	 	 	 	Total book	 	 	 	 	 	Total fair
	 	 	Smiths	 	Public	 	Instruments	 	 	 	 	 	value of	 	 	 	 	 	value of
	 	 	Group	 	Company Ltd	 	Inc	 	Other	 	businesses	 	Total	 	businesses
	 	 	book value	 	book value	 	book value	 	book value	 	acquired	 	adjustments	 	acquired
	 	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	

	Intangible 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	)	 	 	55.7	 
	Borrowings
	 	 	7.7	 	 	 	0.3	 	 	 	0.1	 	 	 	13.3	 	 	 	21.4	 	 	 	—	 	 	 	21.4	 
	Minorities
	 	 	—	 	 	 	0.2	 	 	 	—	 	 	 	(8.8	)	 	 	(8.6	)	 	 	—	 	 	 	(8.6	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Net (assets)/liabilities acquired
	 	 	(13.0	)	 	 	(12.5	)	 	 	(14.7	)	 	 	(58.9	)	 	 	(99.1	)	 	 	(2.9	)	 	 	(102.0	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	Consideration
	 	 	6.6	 	 	 	39.7	 	 	 	72.1	 	 	 	88.9	 	 	 	207.3	 	 	 	—	 	 	 	207.3	 
	Deferred consideration
	 	 	—	 	 	 	—	 	 	 	2.4	 	 	 	4.6	 	 	 	7.0	 	 	 	—	 	 	 	7.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	6.6	 	 	 	39.7	 	 	 	74.5	 	 	 	93.5	 	 	 	214.3	 	 	 	—	 	 	 	214.3	 
	Goodwill on acquisitions
	 	 	—	 	 	 	(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:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Unique	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Gas and	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Petrochemicals	 	Seiko	 	 	 	 
	 	 	Smiths	 	Public	 	Instruments	 	Total
	 	 	Group	 	Company Ltd	 	Inc	 	adjustments
	 	 	£ million	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	
	 	

	Valuations
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Tangible fixed assets
	 	 	—	 	 	 	(0.6	)	 	 	—	 	 	 	(0.6	)
	Joint ventures, associates and other investments
	 	 	—	 	 	 	0.6	 	 	 	—	 	 	 	0.6	 
	Alignment of accounting policies
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Tangible fixed assets
	 	 	1.5	 	 	 	(4.5	)	 	 	—	 	 	 	(3.0	)
	Stocks
	 	 	4.8	 	 	 	—	 	 	 	0.3	 	 	 	5.1	 
	Debtors
	 	 	0.1	 	 	 	0.4	 	 	 	—	 	 	 	0.5	 
	Taxation
	 	 	—	 	 	 	2.2	 	 	 	—	 	 	 	2.2	 
	Other
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Creditors
	 	 	—	 	 	 	(7.8	)	 	 	0.1	 	 	 	(7.7	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 
	 
	 	 	6.4	 	 	 	(9.7	)	 	 	0.4	 	 	 	(2.9	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

Fair value adjustments include some amounts which are provisional. No
significant fair value adjustments were required in 2001 or 2000.

107  The BOC Group plc Report and accounts 2002

 

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Notes to the financial statements

16.  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 the reconciliation of
profit before tax and shareholders’ funds from UK GAAP to US GAAP, presentation
of net income, earnings per share and comprehensive income on a US GAAP basis,
and a statement of movement in shareholders’ funds under US GAAP.

Goodwill

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, goodwill arising on acquisitions prior to 30 June 2001 was
capitalised and then amortised over the expected useful life, not exceeding 40
years, as a charge against income. Goodwill arising on acquisitions since 1
July 2001 is capitalised but no amortisation is charged, in accordance with the
transitional provisions of SFAS142. Specific provision is made if there is a
permanent impairment to the carrying value of capitalised goodwill.

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. As a result, the 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 generally not permitted and, as a
result, the reconciliation restates fixed assets to historical cost and the
depreciation charge and any write downs of previously revalued assets are
adjusted accordingly.

Restructuring costs

Under UK GAAP, when a decision has been taken to restructure, the necessary
provisions are made for impairment of asset values together with severance and
other costs. Under US GAAP, 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. Accordingly, the charge for restructuring costs has been adjusted
to meet US GAAP requirements.

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.
     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.
     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.
     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 under SFAS87.

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)

Under UK GAAP, shares held by the ESOPs are recorded as fixed asset investments
at cost. Realised and unrealised gains or losses on subsequent issues of shares
are charged or credited to the profit and loss account in the year to which
they relate. Under US GAAP, these shares and other shares held in trust are
recorded at cost in the balance sheet as a deduction from shareholders’ funds.
Gains or losses on subsequent issues of shares are recorded as adjustments to
the share premium account.

108  The BOC Group plc Report and accounts 2002

 

Table of Contents

16. US accounting information continued

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.

Other

Other adjustments principally comprise sale and leaseback transactions,
depreciation and certain executive incentive schemes.
     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.
     Prior
to 2001, under UK GAAP, it was acceptable for depreciation to be
charged on an annuity basis. The Group no longer charges depreciation on an
annuity basis. Under US GAAP, annuity depreciation is not allowed.
Under US GAAP, executive incentive schemes are accounted for under APB Opinion
25.

Comprehensive income

In June 1997, the US Financial Accounting Standards Board issued
SFAS130. This
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 69.

b) Reconciliation of profit before tax

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	2001	 	2000
	 	 	 	2002	 	(restated)	 	(restated)
	Years ended 30 September	 	£ million	 	£ million	 	£ million
	 	 	
	 	
	 	

	Profit before tax in the Group profit and loss account under UK GAAP
	 	 	335.3	 	 	 	362.2	 	 	 	441.8	 
	Pensions
	 	 	35.4	 	 	 	24.9	 	 	 	(0.7	)
	Post retirement medical costs
	 	 	0.3	 	 	 	(2.7	)	 	 	(0.7	)
	Revaluations realised on asset disposals
	 	 	6.0	 	 	 	1.1	 	 	 	—	 
	Write-down of previously revalued assets
	 	 	21.2	 	 	 	—	 	 	 	—	 
	Depreciation of revalued fixed assets
	 	 	1.2	 	 	 	4.1	 	 	 	0.2	 
	Amortisation of goodwill — previously charged to reserves
	 	 	(7.2	)	 	 	(7.9	)	 	 	(7.9	)
	 	— non-amortisation on acquisitions since 30 June 2001
	 	 	3.5	 	 	 	—	 	 	 	—	 
	Share of results of joint ventures and associates
	 	 	—	 	 	 	(4.8	)	 	 	—	 
	Interest rate swaps
	 	 	1.9	 	 	 	1.9	 	 	 	1.8	 
	Financial instruments
	 	 	19.5	 	 	 	8.5	 	 	 	(10.7	)
	Restructuring costs
	 	 	—	 	 	 	(6.5	)	 	 	(7.9	)
	ESOPs and other shares held in trust
	 	 	0.2	 	 	 	(3.8	)	 	 	0.1	 
	Other
	 	 	(3.4	)	 	 	0.1	 	 	 	1.7	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Profit before tax under US GAAP
	 	 	413.9	 	 	 	377.1	 	 	 	417.7	 
	UK tax charge
	 	 	(106.2	)	 	 	(104.6	)	 	 	(135.2	)
	Deferred income tax
	 	 	(25.6	)	 	 	(11.3	)	 	 	16.8	 
	Share of taxation in joint ventures and associates
	 	 	—	 	 	 	0.6	 	 	 	(4.6	)
	Minority interests
	 	 	(26.7	)	 	 	(27.6	)	 	 	(25.9	)
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Profit for the financial year under US GAAP
	 	 	255.4	 	 	 	234.2	 	 	 	268.8	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Represented by:
	 	 	 	 	 	 	 	 	 	 	 	 
	Profit from continuing operations
	 	 	255.4	 	 	 	234.2	 	 	 	256.3	 
	Profit from discontinued operations
	 	 	—	 	 	 	—	 	 	 	12.5	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

109  The BOC Group plc Report and accounts 2002

 

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Notes to the financial statements

16.  US accounting information continued

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2000
	Average number of 25p Ordinary shares	 	million	 	million	 	million
	 	 	
	 	
	 	

	Basic
	 	 	490.4	 	 	 	486.9	 	 	 	487.1	 
	Diluted
	 	 	492.2	 	 	 	488.6	 	 	 	489.6	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2000
	 	 	pence	 	pence	 	pence
	 	 	
	 	
	 	

	Earnings per share
	 	 	 	 	 	 	 	 	 	 	 	 
	Basic
	 	 	 	 	 	 	 	 	 	 	 	 
	Profit from continuing operations
	 	 	52.08	 	 	 	48.10	 	 	 	52.62	 
	Profit for the financial year
	 	 	52.08	 	 	 	48.10	 	 	 	55.18	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 
	Diluted
	 	 	 	 	 	 	 	 	 	 	 	 
	Profit from continuing operations
	 	 	51.89	 	 	 	47.93	 	 	 	52.35	 
	Profit for the financial year
	 	 	51.89	 	 	 	47.93	 	 	 	54.90	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 

c) Reconciliation of shareholders’ funds

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	2001
	 	 	2002	 	(restated)
	At 30 September	 	£ million	 	£ million
	 	 	
	 	

	Shareholders’ funds reported in the Group balance sheet under UK GAAP
	 	 	1,684.1	 	 	 	2,086.2	 
	UK minority interests
	 	 	117.9	 	 	 	137.6	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	1,802.0	 	 	 	2,223.8	 
	Pensions
	 	 	408.6	 	 	 	112.5	 
	Post retirement medical costs
	 	 	(13.9	)	 	 	(14.5	)
	Revaluations of fixed assets
	 	 	(33.1	)	 	 	(72.6	)
	Goodwill — previously charged to reserves
	 	 	80.4	 	 	 	90.6	 
	                — non-amortisation on acquisitions since 30 June 2001
	 	 	3.5	 	 	 	—	 
	Write-down of previously revalued assets
	 	 	21.2	 	 	 	—	 
	Interest rate swaps
	 	 	(6.6	)	 	 	(9.0	)
	Share of net assets of joint ventures and associates
	 	 	(14.4	)	 	 	(4.1	)
	Securities investments — gross unrealised gains
	 	 	36.7	 	 	 	39.8	 
	Securities investments — gross unrealised losses
	 	 	(1.7	)	 	 	—	 
	Financial instruments
	 	 	16.5	 	 	 	(3.0	)
	ESOPs and other shares held in trust
	 	 	(42.5	)	 	 	(59.5	)
	Other
	 	 	(6.1	)	 	 	(2.8	)
	Deferred tax
	 	 	(72.7	)	 	 	(47.9	)
	Minority interests
	 	 	(116.9	)	 	 	(114.4	)
	 
	 	 	
	 	 	 	
	 
	Shareholders’ funds under US GAAP
	 	 	2,061.0	 	 	 	2,138.9	 
	 
	 	 	
	 	 	 	
	 
	 
	 	 	 	 	 	 	 	 
	d) Movements in shareholders’ funds on a US GAAP basis
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Shareholders’ funds at 1 October
	 	 	2,138.9	 	 	 	2,139.9	 
	Net income for the year
	 	 	255.4	 	 	 	234.2	 
	Dividends
	 	 	(186.6	)	 	 	(180.3	)
	Shares issued
	 	 	24.6	 	 	 	16.9	 
	Other recognised gains and losses
	 	 	(171.3	)	 	 	(71.8	)
	 
	 	 	
	 	 	 	
	 
	Shareholders’ funds at 30 September
	 	 	2,061.0	 	 	 	2,138.9	 
	 
	 	 	
	 	 	 	
	 

110  The BOC Group plc Report and accounts 2002

 

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16.  US accounting information continued

e) Recently issued accounting pronouncements (US
GAAP)

The effects on the Group of recently issued accounting pronouncements are
summarised below.

SFAS141 — Business combinations

In June 2001, the US Financial Accounting Standards Board issued
SFAS141. The
standard prohibits the use of pooling-of-interest accounting for all
acquisitions made subsequent to 30 June 2001. The Group did not previously use
the pooling-of-interest method of accounting and as a result management do not
believe there will be any impact on Group results in this respect. The standard
also addresses the initial recognition and measurement of goodwill and
intangible assets in business combinations, accounted for using the purchase
method, that are completed after 30 June 2001.

SFAS142 — Goodwill and other intangible assets

In June 2001, the US Financial Accounting Standards Board issued
SFAS142. The
standard removes the requirement to amortise goodwill, and certain other
intangible fixed assets, on all acquisitions subsequent to 30 June
2001. Annual
impairment reviews will need to be carried out to assess the recoverability of
such assets. For fiscal years commencing after 15 December 2001, all existing
goodwill, and certain intangible assets, will no longer be amortised. This will
require a thorough initial impairment review, followed by annual impairment
reviews thereafter. At this time, management is still assessing the impact of
adopting the standard.

SFAS143 — Accounting for asset retirement obligations

In June 2001, the US Financial Accounting Standards Board issued
SFAS143. This
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 fair value can be made. The associated asset retirement costs are
capitalised as part of the carrying amount of the long-lived asset. This
statement is effective for fiscal years beginning after 15 June 2002. At this
time, management is still assessing the impact of adopting the standard.

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

In June 2001, the US Financial Accounting Standards Board issued
SFAS144. This
statement addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. The statement establishes a single accounting
model for long-lived assets to be disposed of and addresses implementation
issues related to SFAS121. This statement is effective for fiscal years
beginning after 15 December 2001. At this time, management is still assessing
the impact of adopting the standard.

SFAS145 — Recession of FAS8
Statements No.4, 44 and 64, Amendment of FAS8
Statement No.13 and Technical Corrections

In April 2002, the US Financial Accounting Standards Board issued
SFAS145. This
statement amends several existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability under
changed conditions. The statement is applicable for fiscal years beginning
after 15 May 2002, although certain sections are effective for transactions
occurring after 15 May 2002.

SFAS146 — Accounting for costs associated with exit or disposal activities

In June 2002, the US Financial Accounting Standards Board issued
SFAS146. This
statement addresses financial reporting and accounting for costs associated
with exit or disposal activities. The statement requires that a liability for a
cost associated with an exit or disposal activity be recognised when the
liability is incurred, at the fair value of the liability. This statement is
effective for exit or disposal activities that are initiated after 31 December
2002. At this time, management is assessing the likely impact of adopting the
standard.

f) Other information

Use 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.

17.  Comparative information

The adoption of FRS17 (Retirement benefits) has resulted in

a)     an increase
in the pension charge, within employee costs, of £73.1 million in 2001
(2000: £64.2 million) 

b)     an increase in exceptional employee costs of £16.7
million in 2001 (2000: £nil) 

c)     a decrease in the net interest charge of
£59.7 million in 2001 (2000: £48.8 million) 

d)     a decrease in the tax charge
of £2.4 million in 2001 (2000: increase of £1.4 million) 

e)     a decrease in the profit for the year
of £29.2 million in 2001 (2000: £18.0 million) 
f)     a
decrease in the recognised gains and losses of £312.3 million in 2001
(2000: increase of £95.8 million)

The adoption of FRS19 (Deferred tax) has resulted in a decrease in the tax
charge of £2.6 million in 2001 (2000: increase of £30.1 million) and an increase
in the profit for the year of £1.0 million in 2001 (2000: decrease of £29.8
million).
     The
impact of adopting FRS17 and FRS19 on the balance sheet of the Group
has been to reduce capital employed at 30 September 2001 by £12.2 million.
     The
impact of adopting FRS17 and FRS19 on the parent company has been to
reduce profit after tax for the year ended 30 September 2001 by £4.1 million
(2000: £9.5 million).
     As
FRS17 and FRS19 use different measurement bases than the previously
adopted standards, the impact on the current year has not been quantified as it
is impractical to do so.

111  The BOC Group plc Report and accounts 2002

 

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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 holding
	 	 	activity	 	%
	 	 	
	 	

	Aruba
	 	 	 	 	 	 	 	 
	BOC Gases Aruba NV
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Australia
	 	 	 	 	 	 	 	 
	BOC Ltd3
	 		 	 	100	 
	Elgas Ltd5
	 		 	 	50	 
	 
	 	 	
	 	 	 	
	 
	Bangladesh
	 	 	 	 	 	 	 	 
	BOC Bangladesh Ltd
	 		 	 	60*	 
	 
	 	 	
	 	 	 	
	 
	Belgium
	 	 	 	 	 	 	 	 
	BOC Technologies NV
	 		 	 	100	 
	Hibon International NV5
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Bermuda
	 	 	 	 	 	 	 	 
	Priestley Insurance Company Ltd
	 		 	 	100	 
	The Hydrogen Company of
Paraguana Ltd
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Brazil
	 	 	 	 	 	 	 	 
	BOC Edwards Brasil Ltda
	 		 	 	100	 
	BOC Gases do Brasil Ltda5
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Brunei
	 	 	 	 	 	 	 	 
	Brunei Oxygen Sdn Bhd(a),5
	 		 	 	25	 
	 
	 	 	
	 	 	 	
	 
	Canada
	 	 	 	 	 	 	 	 
	BOC Canada Ltd3
	 		 	 	100	 
	Hibon Inc
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Chile
	 	 	 	 	 	 	 	 
	Compania de Hidrogeno de
Talcahuano Ltda5
	 		 	 	100	 
	Indura S.A., Industria y Comercio5
	 		 	 	41	 
	 
	 	 	
	 	 	 	
	 
	 
	Colombia
	 	 	 	 	 	 	 	 
	Gases Industriales de Colombia SA5
	 		 	 	74	 
	 
	Czech Republic
	 	 	 	 	 	 	 	 
	3H Czech s.r.o.
	 		 	 	100	 
	Gist Czech Republic s.r.o.5
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	England
	 	 	 	 	 	 	 	 
	BOC Edwards Chemical
Management Europe Ltd
	 		 	 	100	*
	BOC Holdings1, 3
	 		 	 	100	*
	BOC Ltd3
	 		 	 	100	 
	BOC Netherlands Holdings Ltd3
	 		 	 	100	*
	BOC Overseas Finance Ltd
	 		 	 	100	*
	Edwards High Vacuum International Ltd
	 		 	 	100	 
	Fluorogas Ltd
	 		 	 	100	*
	Gist Ltd
	 		 	 	100	*
	Leengate Welding Group Ltd
	 		 	 	100	 
	Welding Products Holdings Ltd
	 		 	 	100	*
	 
	 	 	
	 	 	 	
	 
	Fiji
	 	 	 	 	 	 	 	 
	BOC Gases Fiji Ltd
	 		 	 	90	 

	 	 	 	 	 	 	 	 	 
	 	 	Principal	 	Group holding
	 	 	activity	 	%
	 	 	
	 	

	France
	 	 	 	 	 	 	 	 
	Cryostar-France SA
	 		 	 	100	 
	Edwards SA
	 		 	 	100	 
	Hibon International SA5
	 		 	 	100	 
	Hibon
SAS5
	 		 	 	100	 
	Société de Mécanique Magnétique
	 		 	 	87	 
	 
	 	 	
	 	 	 	
	 
	Germany
	 	 	 	 	 	 	 	 
	BOC Edwards GmbH
	 		 	 	100	 
	Wilhelm Klein GmbH
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Hong Kong
	 	 	 	 	 	 	 	 
	Hong Kong Oxygen & Acetylene Co Ltd
	 		 	 	50	 
	The BOC Group Ltd
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	India
	 	 	 	 	 	 	 	 
	BOC India Ltd5
	 		 	 	55	*
	 
	 	 	
	 	 	 	
	 
	Indonesia
	 	 	 	 	 	 	 	 
	PT BOC Gases Indonesia
	 		 	 	100	 
	PT Gresik Gases Indonesia
	 		 	 	90	 
	PT Gresik Power Indonesia
	 		 	 	90	 
	 
	 	 	
	 	 	 	
	 
	Ireland
	 	 	 	 	 	 	 	 
	BOC Gases Ireland Ltd3
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Italy
	 	 	 	 	 	 	 	 
	BOC Edwards SpA
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Japan
	 	 	 	 	 	 	 	 
	BOC Edwards Technologies KK
	 		 	 	100	 
	BOC Japan Ltd
	 		 	 	97	 
	Edwards Japan Ltd
	 		 	 	100	 
	Osaka Sanso Kogyo KK
	 		 	 	97	 
	 
	 	 	
	 	 	 	
	 
	Kenya
	 	 	 	 	 	 	 	 
	BOC Kenya Ltd
	 		 	 	65	 
	 
	 	 	
	 	 	 	
	 
	Korea
	 	 	 	 	 	 	 	 
	BOC Gases Korea Co Ltd
	 		 	 	100	 
	Songwon Edwards Ltd
	 		 	 	97	 
	 
	 	 	
	 	 	 	
	 
	Luxembourg
	 	 	 	 	 	 	 	 
	BOC
Luxembourg No. 1 Sarl
	 		 	 	100	 
	BOC
Luxembourg No. 2 Sarl
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Malawi
	 	 	 	 	 	 	 	 
	BOC Malawi Ltd(c)
	 		 	 	42	 
	 
	 	 	
	 	 	 	
	 
	Malaysia
	 	 	 	 	 	 	 	 
	Malaysian Oxygen Bhd(a),3,4
	 		 	 	23	 
	MOX
Gases Bhd5 (formerly NIOI)
	 		 	 	23	 
	 
	 	 	
	 	 	 	
	 
	Mauritius
	 	 	 	 	 	 	 	 
	Les
Gaz Industriels Ltée(b)
	 		 	 	21	 
	 
	 	 	
	 	 	 	
	 
	Mexico
	 	 	 	 	 	 	 	 
	Compania de Nitrogeno de Cantarell,
SA de CV5
	 		 	 	35	 

112  The BOC Group plc Report and accounts 2002

 

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	 	 	Principal	 	Group holding
	 	 	activity	 	%
	 	 	
	 	

	Namibia
	 	 	 	 	 	 	 	 
	IGL Properties (Pty) Ltd
	 		 	 	55	 
	 
	 	 	
	 	 	 	
	 
	Netherlands
	 	 	 	 	 	 	 	 
	BOC Edwards Pharmaceutical Systems BV
	 		 	 	100	 
	Gist BV
	 		 	 	100	 
	The BOC Group BV3
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Netherlands Antilles
	 	 	 	 	 	 	 	 
	BOC Gases Curaçao NV
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	New Zealand
	 	 	 	 	 	 	 	 
	BOC Ltd
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Nigeria
	 	 	 	 	 	 	 	 
	BOC Gases Nigeria plc
	 		 	 	60	 
	 
	 	 	
	 	 	 	
	 
	Pakistan
	 	 	 	 	 	 	 	 
	BOC Pakistan Ltd
	 		 	 	60	*
	 
	 	 	
	 	 	 	
	 
	Papua New Guinea
	 	 	 	 	 	 	 	 
	BOC Gases Papua New Guinea Pty Ltd
	 		 	 	74	 
	 
	 	 	
	 	 	 	
	 
	Peoples’Republic of China
	 	 	 	 	 	 	 	 
	BOC (China) Holdings Co Ltd3,5
	 		 	 	100	 
	BOC Gases (North) Co Ltd5
	 		 	 	100	 
	BOC Gases (Shanghai) Corporation Ltd5
	 		 	 	100	 
	BOC Gases (Suzhou) Co Ltd5
	 		 	 	100	 
	BOC Gases (Tianjin) Co Ltd5
	 		 	 	100	*
	BOC Gases (Wuhan) Co Ltd5
	 		 	 	100	 
	BOC TISCO Gases Co Ltd5
	 		 	 	50	*
	BOC Trading (Shanghai) Co Ltd5
	 		 	 	100	 
	Nanjing BOC-YPC Gases Co Ltd5
	 		 	 	50	 
	Shanghai BOC Industrial Gases Co Ltd5
	 		 	 	50	*
	 
	 	 	
	 	 	 	
	 
	Philippines
	 	 	 	 	 	 	 	 
	Consolidated Industrial Gases Inc
	 		 	 	100	 
	Southern Industrial Gases Philippines Inc
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Poland
	 	 	 	 	 	 	 	 
	BOC Gazy Sp.z o.o.3
	 		 	 	98	 
	 
	 	 	
	 	 	 	
	 
	Russia
	 	 	 	 	 	 	 	 
	JSC Volgograd Oxygen Factory5
	 		 	 	87	 
	 
	 	 	
	 	 	 	
	 
	Samoa
	 	 	 	 	 	 	 	 
	BOC Gases (Samoa) Ltd
	 		 	 	96	 
	 
	 	 	
	 	 	 	
	 
	Singapore
	 	 	 	 	 	 	 	 
	BOC Gases Pte Ltd
	 		 	 	100	*
	Singapore Oxygen Air Liquide Pte Ltd
	 		 	 	50	 
	 
	 	 	
	 	 	 	
	 
	Slovakia
	 	 	 	 	 	 	 	 
	BOC Plyny s.r.o.
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Solomon Islands
	 	 	 	 	 	 	 	 
	BOC Gases Solomon Islands Ltd
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	South Africa
	 	 	 	 	 	 	 	 
	African Oxygen Ltd3
	 		 	 	55	 
	Afrox Healthcare Ltd(c),3
	 		 	 	39	 
	Afrox Ltd
	 		 	 	55	 
	 
	 	 	
	 	 	 	
	 
	Switzerland
	 	 	 	 	 	 	 	 
	BOC AG
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Taiwan
	 	 	 	 	 	 	 	 
	BOC Lienhwa Industrial Gases Co Ltd
	 		 	 	50	 
	 
	 	 	
	 	 	 	
	 
	Thailand
	 	 	 	 	 	 	 	 
	Thai Industrial Gases Public Co Ltd3
	 		 	 	99	 
	TIG HyCO Ltd
	 		 	 	99	 
	Unique Gas and Petrochemical Public Co Ltd
	 		 	 	99	 
	 
	 	 	
	 	 	 	
	 
	Turkey
	 	 	 	 	 	 	 	 
	Birlesik Oksijen Sanayi AS
	 		 	 	50	*
	 
	 	 	
	 	 	 	
	 
	US
	 	 	 	 	 	 	 	 
	BOC, Inc
	 		 	 	100	 
	The BOC Group, Inc3
	 		 	 	100	 
	Linde BOC Process Plants LLC(a)
	 		 	 	30	 
	 
	 	 	
	 	 	 	
	 
	US Virgin Islands
	 	 	 	 	 	 	 	 
	BOC Gases Virgin Islands Inc5
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Venezuela
	 	 	 	 	 	 	 	 
	BOC Gases de Venezuela, C.A.
	 		 	 	100	 
	 
	 	 	
	 	 	 	
	 
	Vietnam
	 	 	 	 	 	 	 	 
	North Vietnam Industrial Gases Ltd5
	 		 	 	40	 
	 
	 	 	
	 	 	 	
	 
	Zambia
	 	 	 	 	 	 	 	 
	BOC Gases Zambia plc(c)
	 		 	 	39	 
	 
	 	 	
	 	 	 	
	 
	Zimbabwe
	 	 	 	 	 	 	 	 
	BOC Zimbabwe (Pvt) Ltd
	 		 	 	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 71 to 73.
	 
	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:

	 		 	Process Gas Solutions
	 		 	Industrial and Special Products
	 		 	BOC Edwards
	 		 	Afrox hospitals
	 		 	Gist
	 		 	Corporate/holding company

	7.	 	* Indicates where investment is held directly by The BOC Group plc.

113  The BOC Group plc Report and accounts 2002

 

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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 2002. A first interim dividend of 15.5p (net)
per share was paid in February and a second interim dividend of 22.5p (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 3 February 2003.
     The
table below sets out, in UK pence, the total of the cash amounts of the
dividends per share.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Pence per Ordinary share	 	 	 	 
	 	 	
	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Total	 	Total	 	$ per
	 	 	First	 	Second	 	including	 	excluding	 	Ordinary
	 	 	interim paid	 	interim paid	 	UK ACT	 	UK ACT	 	share
total1
	 	 	
	 	
	 	
	 	
	 	

	1998
	 	 	15.50	 	 	 	19.25	 	 	 	34.75	 	 	 	30.90	 	 	 	0.56	 
	1999
	 	 	15.70	 	 	 	17.00	 	 	 	32.70	 	 	 	32.70	 	 	 	0.58	 
	2000
	 	 	15.50	 	 	 	19.50	 	 	 	35.00	 	 	 	35.00	 	 	 	0.60	 
	2001
	 	 	15.50	 	 	 	21.50	 	 	 	37.00	 	 	 	37.00	 	 	 	0.59	 
	2002
	 	 	15.50	 	 	 	22.50	 	 	 	38.00	 	 	 	38.00	 	 	 	0.63	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

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

12 1/4% 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
12 1/4 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:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2000	 	1999	 	1998
	 	 	$	 	$	 	$	 	$	 	$
	 	 	
	 	
	 	
	 	
	 	

	First interim
	 	 	0.48	 	 	 	0.50	 	 	 	0.55	 	 	 	0.55	 	 	 	0.50	 
	Second interim
	 	 	0.77	 	 	 	0.68	 	 	 	0.65	 	 	 	0.60	 	 	 	0.62	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

Nature of trading market

The company’s Ordinary shares and 12 1/4% 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
12 November 2002, there were 240 US registered holders who held 215,136
of the company’s Ordinary shares and 53 registered ADS holders representing
37,550 ADSs. In addition, 3,480,906 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.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2000	 	1999	 	1998
	 	 	
	 	
	 	
	 	
	 	

	 	 	High	 	Low	 	High	 	Low	 	High	 	Low	 	High	 	Low	 	High	 	Low
	Financial year quarter	 	pence	 	pence	 	pence	 	pence	 	pence	 	pence	 	pence	 	pence	 	pence	 	pence
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	First quarter
	 	 	1108.0	 	 	 	907.0	 	 	 	1050.0	 	 	 	850.5	 	 	 	1336.0	 	 	 	1242.0	 	 	 	927.0	 	 	 	698.0	 	 	 	1137.5	 	 	 	935.0	 
	Second quarter
	 	 	1100.0	 	 	 	988.0	 	 	 	1076.0	 	 	 	909.0	 	 	 	1376.0	 	 	 	1132.0	 	 	 	917.5	 	 	 	801.0	 	 	 	1029.0	 	 	 	859.0	 
	Third quarter
	 	 	1088.0	 	 	 	999.0	 	 	 	1114.0	 	 	 	928.0	 	 	 	1245.0	 	 	 	901.0	 	 	 	1262.0	 	 	 	870.0	 	 	 	1035.0	 	 	 	804.5	 
	Fourth quarter
	 	 	1035.0	 	 	 	836.0	 	 	 	1060.0	 	 	 	780.0	 	 	 	1020.0	 	 	 	871.0	 	 	 	1387.0	 	 	 	1228.0	 	 	 	874.5	 	 	 	724.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2002	 	May	 	June	 	July	 	August	 	September	 	October
	 	 	
	 	
	 	
	 	
	 	
	 	

	High pence
	 	 	1088.0	 	 	 	1061.0	 	 	 	1035.0	 	 	 	1000.0	 	 	 	931.0	 	 	 	947.0	 
	Low pence
	 	 	1036.0	 	 	 	999.0	 	 	 	836.0	 	 	 	838.0	 	 	 	844.5	 	 	 	825.0	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

114  The BOC Group plc Report and accounts 2002

 

Table of Contents

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.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2002	 	2001	 	2000	 	1999	 	1998
	 	 	
	 	
	 	
	 	
	 	

	Financial year quarter	 	High $	 	Low $	 	High $	 	Low $	 	High $	 	Low $	 	High $	 	Low $	 	High $	 	Low $
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	First quarter
	 	 	31.76	 	 	 	26.60	 	 	 	31.25	 	 	 	24.31	 	 	 	43.81	 	 	 	41.00	 	 	 	30.56	 	 	 	22.75	 	 	 	37.25	 	 	 	31.00	 
	Second quarter
	 	 	31.60	 	 	 	27.83	 	 	 	32.75	 	 	 	26.70	 	 	 	44.75	 	 	 	35.87	 	 	 	29.12	 	 	 	26.56	 	 	 	34.94	 	 	 	28.25	 
	Third quarter
	 	 	31.74	 	 	 	29.75	 	 	 	31.50	 	 	 	26.05	 	 	 	40.18	 	 	 	26.81	 	 	 	40.31	 	 	 	27.25	 	 	 	35.75	 	 	 	26.44	 
	Fourth quarter
	 	 	31.80	 	 	 	26.02	 	 	 	30.24	 	 	 	22.50	 	 	 	30.00	 	 	 	25.06	 	 	 	43.56	 	 	 	39.37	 	 	 	29.94	 	 	 	24.25	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2002	 	May	 	June	 	July	 	August	 	September	 	October
	 	 	
	 	
	 	
	 	
	 	
	 	

	High
$
	 		31.68	 	 	 	31.74	 	 	 	31.80	 	 	 	31.20	 	 	 	29.30	 	 	 	29.11	 
	Low
$
	 		30.50	 	 	 	29.96	 	 	 	26.38	 	 	 	26.02	 	 	 	26.73	 	 	 	25.69	 
	 
	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 	 	 	
	 

Analysis of shareholdings

a) Substantial holdings — at 12 November 2002

	 	 	 	 	 	 	 	 	 
	 	 	Number	 	 	 	 
	 	 	of shares	 	% of issued
	 	 	million	 	capital
	 	 	
	 	

	Ordinary shares of 25p each
	 	 	 	 	 	 	 	 
	The
Capital Group Companies, Inc
	 	 	27.1	 	 	 	5.4	 
	Janus Capital Management LLC
	 	 	20.6	 	 	 	4.1	 
	Aviva plc
	 	 	19.8	 	 	 	4.0	 
	Legal & General Investment Management Limited
	 	 	15.0	 	 	 	3.0	 
	 
	 	 	
	 	 	 	
	 

At 12 November 2002 no person or company other than The Capital Group
Companies, Inc, as shown above, 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 2002

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	% of	 	 	 	 	 	Number of	 	%
	Number of	 	total number	 	 	 	 	 	25p shares	 	of ordinary
	accounts	 	of accounts	 	Size of holding 25p shares	 	million	 	capital
	
	 	
	 	
	 	
	 	

	20,471
	 	 	46	 	 	 	1 — 500	 	 	 	5.3	 	 	 	1	 
	11,217
	 	 	26	 	 	 	501 — 1,000	 	 	 	8.4	 	 	 	2	 
	10,368
	 	 	24	 	 	 	1,001 — 5,000	 	 	 	20.4	 	 	 	4	 
	  1,435
	 	 	3	 	 	 	5,001 — 50,000	 	 	 	21.1	 	 	 	4	 
	     586
	 	 	1	 	 	 	50,001 — 1,000,000	 	 	 	136.5	 	 	 	27	 
	       88
	 	 	–	 	 	 	Over 1,000,000	 	 	 	305.6	 	 	 	62	 
	

	 	 	
	 	 	 	 	 	 	 	
	 	 	 	
	 
	44,165
	 	 	100	 	 	 	 	 	 	 	497.3	 	 	 	100	 
	

	 	 	
	 	 	 	 	 	 	 	
	 	 	 	
	 

c) By investor type — at 30 September 2002

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	% of	 	 	 	 	 	Number of	 	%
	Number of	 	total number	 	 	 	 	 	25p shares	 	of ordinary
	accounts	 	of accounts	 	Type of investor	 	million	 	capital
	
	 	
	 	
	 	
	 	

	31,693
	 	 	72	 	 	 	Individuals	 	 	 	28.6	 	 	 	6	 
	10,422
	 	 	23	 	 	 	Institutional investors	 	 	 	454.8	 	 	 	91	 
	  2,050
	 	 	5	 	 	 	Other corporate investors	 	 	 	13.9	 	 	 	3	 
	

	 	 	
	 	 	 	 	 	 	 	
	 	 	 	
	 
	44,165
	 	 	100	 	 	 	 	 	 	 	497.3	 	 	 	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 2002.

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 56 to
63.

115  The BOC Group plc Report and accounts 2002

Table of Contents

Shareholder
information

Taxation

A summary of the principal tax consequences for individual 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 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. Holders should be aware that this summary does not reflect
any changes which will take effect when and if the proposed new UK-US income
tax convention enters into force.
     Holders
of ADSs are treated as owners of underlying Ordinary shares for
the purposes of the current UK-US double tax conventions relating to income tax
(the Income Tax Convention), estate and gift tax (the Estate Tax Convention) and
for the purposes of the US Internal Revenue Code of 1986, as amended (the Code).

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 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.

Taxation of dividends

Under current UK tax legislation, no tax will be withheld from dividend
payments made by BOC. 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
1/9 th of
the dividend the withholding tax is equal to the tax credit.

116  The BOC Group plc Report and accounts 2002

 

Table of Contents

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 Income Tax 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,
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.

Taxation of capital gains

Generally, a US holder who is not resident or ordinarily resident in the UK for
tax purposes will 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 30 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.

Financial calendar

	 	 	 	 	 	 	 	 	 
	 	 	Ordinary Shares/	 	12 1/4% Unsecured Loan Stock
	 	 	American Depositary Shares	 	2012/2017
	 	 	
	 	

	 	 	First	 	Second	 	 	 	 
	 	 	interim	 	interim1	 	Half year	 	Half year
	 	 	
	 	
	 	
	 	

	Ex-dividend	 	
27 Dec 2002
	 	2 Jul 2003
	 	5 Mar 2003
	 	3 Sep 2003
	Record date — UK	 	
31 Dec 2002
	 	4 Jul 2003
	 	7 Mar 2003
	 	5 Sep 2003
	                    — US	 	
31 Dec 2002
	 	3 Jul 2003
	 	—
	 	—
	DRIP notice date	 	
13 Jan 2003
	 	11 Jul 2003
	 	—
	 	—
	Payment date — UK	 	
3 Feb 2003
	 	1 Aug 2003
	 	2 Apr 2003
	 	2 Oct 2003
	                       — US	 	
10 Feb 2003
	 	8 Aug 2003
	 	—
	 	—

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Report and
	 	 	3 months	 	Half year	 	9 months	 	Preliminary	 	accounts
	 	 	
	 	
	 	
	 	
	 	

	Group results	 	4 Feb 2003
	 	15 May 2003
	 	5 Aug 2003
	 	13 Nov 2003
	 	Dec 2003
	 	 	

	 	

	 	

	 	

	 	

1.     Proposed dates.

Key contacts information

Shareholder enquiries

Shareholders who have questions relating to the Group’s business or wish to
receive copies of the interim statements should write to: Group Manager —
Investor Relations

The BOC Group plc, Chertsey Road, Windlesham, Surrey GU20
6HJ, England

Telephone: 01276 477222
E-mail:ir@group.boc.com

Registrar

Administrative enquiries concerning shareholdings in the company such as the
loss of share certificates, change of address, dividend payment arrangements,
amalgamation of multiple accounts, or requests for the full report and accounts
should be sent directly to:

Lloyds TSB Registrars

The Causeway, Worthing, West
Sussex BN99 6DA, England

Teltex for shareholders with hearing difficulties: 0870
600 3950

Telephone: 0870 600 3958 Fax: 0870 600 3980

Website:www.lloydstsb-registrars.co.uk
     Correspondence
should refer to The BOC
Group plc, stating clearly the registered name and address and, if available,
the full account number which starts with 0385.

117  The BOC Group plc Report and accounts 2002

 

Table of Contents

Shareholder
information

Shareholding information

To view up-to-date information about your shareholding visit the Lloyds TSB
Registrars shareview website at www.shareview.co.uk
     The
portfolio service
provides access to more information on your investments including balance
movements, indicative share prices and details of recent dividend payments. To
register with Lloyds TSB Registrars as a user of the portfolio service and for
more information visit the website at www.shareview.co.uk

Electronic shareholder communications

Shareholders can now elect to receive shareholder documents, such as annual and
interim reports and notices of general meetings, electronically from the
company’s website rather than in hard copy through the mail. This has the
advantage of improving the speed of communications and reducing administrative
costs of printing and postage. The terms on which this electronic facility is
provided can be found on the company’s website (www.boc.com) or on request from
the registered office. Any shareholder wishing to take advantage of this free
service may do so by registering their details on the Lloyds TSB Registrars
shareview website at www.shareview.co.uk

Dividend reinvestment plan

A dividend reinvestment plan (DRIP), through which Ordinary shareholders may
invest the whole of their cash dividends in additional shares in the company,
is available. Ordinary shareholders on the register at the record date may
participate in the plan provided their application forms are received by the
DRIP notice date shown in the financial calendar on page 117. Copies of the
explanatory brochure and application form are available from Lloyds TSB
Registrars whose details appear on page 117.

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
117. The tax
voucher relating to any dividend or interest payment made via BACS will be
mailed directly to the registered address of the share or loan stock holder.

Share dealing service

Details of a postal share dealing service can
be obtained from:
The BOC Group plc Share
Dealing Service

Cazenove & Co. Ltd

12 Tokenhouse Yard, London EC2R 7AN, England

Telephone: 020 7606 1768

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.

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 117. Further information about ShareGift is available at
www.sharegift.org or by writing to: ShareGift, The Orr Mackintosh
Foundation, 24
Grosvenor Gardens, London SW1W 0DH. 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 22, London W1E 7EZ. 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.

118  The BOC Group plc Report and accounts 2002

 

Table of Contents

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	Page
	
	 	 	 	

	1
	 	Identity of directors, senior management and advisors	 	n/a
	2
	 	Offer statistics and expected timetable	 	n/a
	3
	 	Key information	 	 
	 
	 	Selected financial data	 	12-13, 49-50
	 
	 	Capitalization and indebtedness	 	n/a
	 
	 	Reasons for the offer and use of proceeds	 	n/a
	 
	 	Risk factors	 	29-30, 45-46
	4
	 	Information on the company	 	 
	 
	 	History and development of the company	 	inside front cover
	 
	 	 	 	14-22, 31-45, outside back cover
	 
	 	Business overview	 	2-3, 14-22, 25-28
	 
	 	Organizational structure	 	112-113
	 
	 	Property plants and equipment	 	19-22, 97-98
	5
	 	Operating and financial review and prospects	 	 
	 
	 	Operating results	 	2-3, 31-50
	 
	 	Critical accounting policies	 	48
	 
	 	Off-balance sheet commitments and contingencies	 	47, 104
	 
	 	Liquidity and capital resources	 	44-47, 79-84, 104-107
	 
	 	Research and development, patents
and licenses, etc	 	28
	 
	 	Trend information	 	n/a
	6
	 	Directors, senior management and employees	 	 
	 
	 	Directors and senior management	 	8-11
	 
	 	Compensation	 	56-63
	 
	 	Board practices	 	9, 51-55, 64
	 
	 	Employees	 	23-24, 88
	 
	 	Share ownership	 	61-63
	7
	 	Major shareholders and related party transactions	 	 
	 
	 	Major shareholders	 	115
	 
	 	Related party transactions	 	99, 106
	 
	 	Interests of experts and counsel	 	n/a
	8
	 	Financial information	 	 
	 
	 	Consolidated statements and other financial information	 	47, 49, 65-111, 114
	 
	 	Significant changes	 	n/a
	9
	 	The offer and listing	 	 
	 
	 	Offer and listing details	 	114-115
	 
	 	Plan of distribution	 	n/a
	 
	 	Markets	 	114
	 
	 	Selling shareholders	 	n/a
	 
	 	Dilution	 	n/a
	 
	 	Expense of the issue	 	n/a
	10
	 	Additional information	 	 
	 
	 	Share capital	 	n/a
	 
	 	Memorandum and articles of association	 	n/a
	 
	 	Material contracts	 	n/a
	 
	 	Exchange controls	 	116-117
	 
	 	Taxation	 	116-117
	 
	 	Dividends and paying agents	 	n/a
	 
	 	Statement by experts	 	n/a
	 
	 	Documents on display	 	118
	 
	 	Subsidiary information	 	112-113
	11
	 	Quantitative and qualitative disclosures about market risk	 	45-50,79-84
	12
	 	Description of securities other than equity securities	 	n/a
	13
	 	Defaults, dividend arrearages and delinquencies	 	n/a
	14
	 	Material modifications to the rights of security holders and use of proceeds	 	n/a
	15
	 	Disclosure controls and procedures	 	53
	16
	 	Reserved	 	 
	17
	 	Financial statements	 	n/a
	18
	 	Financial statements	 	65-111
	19
	 	Exhibits	 	n/a	 

 

 

119  The BOC Group plc Report and accounts 2002

 

Table of Contents

Glossary of terms

	 	 	 
	
	

	Terms used in the report and accounts
	 	US equivalent or brief description
	
	

	Acquisition accounting
	 	Purchase accounting
	Associate
	 	Equity investment
	Capital allowances
	 	Tax term equivalent to US tax depreciation allowances
	Cash at bank
	 	Cash
	Creditors
	 	Payables
	Debtors
	 	Receivables
	Finance lease
	 	Capital lease
	Financial year
	 	Fiscal year
	Freehold
	 	Ownership with absolute rights in perpetuity
	Interest receivable
	 	Interest income
	Interest payable
	 	Interest expense
	Joint venture
	 	Equity investment
	Net asset value
	 	Book value
	Own shares
	 	Treasury stock
	Profit
	 	Income
	Profit and loss account
	 	Income statement
	Profit and loss account reserves
	 	Retained earnings
	Profit for the financial year
	 	Net income
	Provisions
	 	Reserves
	Called up share capital
	 	Ordinary shares, capital stock or common stock issued and fully paid
	Scrip dividend
	 	Stock dividend
	Secured loan
	 	Collateralised loan
	Shareholders’ funds
	 	Shareholders' equity
	Share premium account
	 	Additional paid-up capital or paid-in capital (not distributable)
	Share issues
	 	Stock outstanding
	Stocks
	 	Inventories
	Tangible fixed assets
	 	Property, plant and equipment
	Turnover
	 	Revenue

 

 

120  The BOC Group plc Report and accounts 2002

 

Table of Contents

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