to faster growth markets growth Annual Report and Accounts 2017 Accounts and Report Annual Connecting

Annual Report and Accounts 2017 We are the name behind the high performance ingredients and technologies in some of the biggest, most successful brands in the world; creating, making and selling speciality chemicals that are relied on by industries and consumers everywhere. Strategic Report In this year’s report Where we operate Global market sectors Our Profit Growth 2017 37 4,309 4 +11.1% Countries across the world Employees Personal Care Life Sciences Adjusted profit before tax up 11.1% to £320.3m Personal Care focuses on Life Sciences comprises three ingredients for skin, hair, sun complementary businesses, Strategic Report Every day our global team works together, inspiring and influencing each other protection and colour Health Care, Crop Protection Sales and our customers Strategy and Operations cosmetic products and Seed Enhancement Chairman’s Statement ...... 02 p14 p16 £1,373.1m Market Drivers ...... 04 Western Business Model ...... 06 Europe 2016: £1,243.6m +10.4% North Adjusted operating profit Adjusted operating profit Key Relationships ...... 08 America 22 Our Investment Case ...... 09 8 Operations Adjusted operating profit Chief Executive’s Review ...... 10 Operations 2,274 £155.5m £97.0m Sector Review ...... 14 597 Employees £332.2m Sustainability: Product, Planet Employees and People ...... 21 2016: £298.2m +11.4% Asia Performance Technologies Industrial Chemicals Pacific Performance Technologies targets Industrial Chemicals is a small, diverse Performance and Financials 22 faster growth technologies in Smart sector based on selling co-streams, Adjusted earnings per share Operations Key Performance Indicators ...... 24 Materials and Energy Technologies and developing novel niche applications EEMEA Finance Review...... 26 Latin continues to develop its presence in and undertaking toll processing America 1,057 179.0p Our Risks ...... 30 7 Employees Home Care and Water Treatment 9 Operations 2016: 155.8p +14.9% Operations 93 p18 p20 Directors’ Report 288 Employees Proposed dividend per share Employees Our Board ...... 36 Adjusted operating profit Adjusted operating profit Corporate Governance ...... 38 81.0p Remuneration Report ...... 61 £75.4m £4.3m 2016: 74.0p Other Disclosures ...... 78 +9.5%

Underlying sales growth in constant currency Financial Statements Our strategy Sales by region Sales by sector Sustainability Group Independent Auditors’ Report ...... 82 4.6% Group Consolidated Statements ...... 88 p12 Embedded in our strategic thinking, 2016: 3.1% Group Accounting Policies ...... 93 Delivering sustainability adds value to our Business Notes to the Group Accounts ...... 100 Growth Delivering consistent top Company Independent Auditors’ Report ..127 NPP sales as % of Group sales and bottom line growth Sustainable p21 Company Financial Statements ...... 131 Product Innovation Notes to the Company Financial 27.6 % Statements ...... 133 Driving p12 increase in sales of 2016: 27.4% £1,373.1m £1,373.1m 60% products made with RSPO Innovation Total sales Total sales Increasing the proportion certified palm oil derivatives Other Information of protected innovation compared to 2016 Energy from non-fossil fuel sources Related Undertakings ...... 138 Shareholder Information...... 141 Sustainable p13 Planet and Process p22 24.1% Five Year Record ...... 143 Solutions reduction in scope 1 and 2 Rebased 2016: 21.3% Glossary of Terms ...... 144 Accelerating the capture 14.9% greenhouse gas emissions of new sustainable intensity since 2015 Lost time injury rate per 200,000 hours worked technologies Europe, Middle East & Africa £555.2m Personal Care £466.6m North America £385.5m Life Sciences £322.6m People and p23 0.42 Adjusted profit is stated before exceptional items, Asia Pacific £297.6m Performance Technologies £456.9m Community acquisition costs and amortisation of intangible 2016: 0.34 Latin America £134.8m Industrial Chemicals £127.0m assets arising on acquisition and the tax thereon Read more in the Chief Executive’s of employees where applicable. Non-statutory terms are defined 82.7% received training in alternative performance measures on p29 Review on page 12

Croda International Plc Annual Report and Accounts 2017 01 Strategic Report

Chairman’s Statement A year of significant progress

Overview mix and successful Incotec integration Croda has a long held commitment to as Croda continues to grow and acquire. Dividend Strategic Report I am pleased to report another year delivered a stronger operating margin sustainability and we are accelerating the We were pleased with the overall positive We have a clear capital allocation policy of significant progress for Croda, strong in Life Sciences, whilst Performance capture of new sustainable technologies. results, with the majority of employees with profits reinvested for growth; a sales growth and a record profit, good Technologies increased profit and These technologies are increasingly understanding the main goals of the regular dividend paid to shareholders; cash generation and excellent returns moved towards more technology-driven important to our customers, who are Company. In 2018, we will implement organic growth supplemented by to shareholders. markets and applications. excited by our new ECO range of bio- the resultant Culture Plan in each global selected acquisitions; and an appropriate based ingredients from our new bio- sector and region. This performance was driven by balance sheet maintained, with excess Our strategy is delivering surfactant plant in North America, which investment in faster growth markets, We believe that diversity across Croda capital returned to shareholders. We have a clear strategy that is focused will replace petrochemical products new technologies, enhanced Research drives better performance and a stronger Following the strong performance in on providing unique performing ingredients without loss of performance. As well as & Development (R&D) capabilities and company. Our leadership development 2017, the Board is recommending an satisfying the unmet needs of our helping customers meet their consumers’ a significant capital spend programme. programmes comprise employees from 9.5% increase in the full year dividend to customers, driving increased value for needs, Croda is also committed to We continued to focus on delivering the different cultures, backgrounds and 81.0p, covered 2.2 times (2016: 2.1x) by our shareholders. Alongside sales growth reducing its own environmental impact. highest standards of health and safety, nationalities. We have adopted a Diversity adjusted earnings per share. Following across all types of customer, large and Our Sustainability Report has exciting and in driving sustainability. and Inclusion programme across our the payment of an interim dividend of small, we delivered a total shareholder news on our progress. workforce and are taking action to 35p in October 2017, shareholders will Our people contributed significantly return of over 40% in 2017 through share encourage more women into leadership receive a final dividend of 46p, subject to Croda’s success in 2017 with their Governance, culture and values Another year of significant price growth and an increased dividend. roles. As a Board we have 25% female to approval at the AGM. dedication and creativity. I had the privilege Our model is to generate strong profit With the Board, I lead our programme to representation, with a policy to achieve progress for Croda, with of meeting many of them during site visits The Board has reviewed the leverage of margins through innovation and focused ensure the highest standards of corporate 33% in the medium term. I made in the last twelve months. I am the business, which is at the lower end strong sales growth and capital investment, which drives a superior governance and integrity right across Croda, impressed by Croda’s very special culture, We completed our latest externally of its target range. It will consider further return on capital and generates cash. which is critical to our continued success a record profit.” where great emphasis is placed on ‘doing facilitated Board evaluation. The overall returns to shareholders in the event that We reinvest this cash to develop new and viability. Our work in 2017 included the right thing’ at all times. On behalf of the result was very positive, in particular on leverage falls below this range. Anita Frew technologies, create greater R&D, increase ensuring that we maintain strong risk Chairman Board, I would like to take this opportunity how we encourage a culture and our manufacturing capability and develop management, health and safety, and ethical Outlook to thank all our employees for their hard environment that enables candid debate. our people. In 2017, we invested over supply chain compliance programmes. work and commitment. Effectively managed succession is critical to We have entered 2018 with good £30m in acquiring new capabilities in faster We also continue to recognise the delivering successful leadership and, after momentum and a strong platform on Strong sales and a record profit growth niches, adding three new exciting importance and value of Croda’s unique serving nine years on Croda’s Board, Nigel which to deliver long term growth. In the technologies in skin care, novel surfactants culture to its continued success. In 2017 Sales for the year increased by 10.4% to Turner will retire at this year’s AGM. I would year ahead, we will continue to invest in and static electricity protective polymers. the Board spent time visiting our overseas £1,373.1m (2016: £1,243.6m), with growth like to thank Nigel for his dedication and fast growth technologies, R&D, improved We invested nearly £40m in R&D, operations and meeting our employees, in all of our sectors. Adjusted profit before outstanding contribution. Alan Ferguson will operating capabilities and our people. increasing the proportion of sales that engendering a common understanding tax grew by 11.1% to £320.3m (2016: take over from Nigel as Senior Independent We are confident of delivering continued come from patented and protected of the business goals and identifying £288.3m). On a statutory basis, profit Non-Executive Director. Alan has been on progress in 2018. products, and expanding our Open opportunities for future growth and before tax rose to £314.1m, up 13.9%. the Board since 2011 and acts as Chairman Innovation programme to almost 400 development. We conducted a Global The Board was particularly pleased by of the Audit Committee, bringing a wealth partners in universities and technology Employee Culture Survey, to examine our the performance in Personal Care, where of relevant experience, having served as enterprises across Europe and Asia. We culture, ensure that it is aligned with our sales are now growing in addition to profit, Senior Independent Director with other invested over £150m in new capacity, core values and understand how we can Anita Frew reflecting a successful improvement listed companies. notably our first to market bio-surfactant protect this critical competitive advantage Chairman programme implemented under the new plant in North America, which we expect sector management team. A richer product to commission early in 2018.

Case study

Global Employee Culture Survey internally to test the elements of our culture across departments. Employees Action plans are being developed including Summary of results by survey section Since it was introduced, the ‘Croda Vision’ that are important to us and that we believe also shared that they have a good to improve knowledge sharing around the has become an important part of set us apart from our peers. Three sections understanding of the purpose and Group and flexible working practices. directly related to our culture; ‘Who we are’, goals of the organisation. These are regularly shared with the Who we are describing our company, our people and the values, behaviours and attitudes ‘How we work together’ and ‘How we A great deal of work is now being Executive Committee and Board, who have manage our work’. appointed Keith Layden as the Board How we work we expect of ourselves. These values, undertaken to review the results of the together member with primary responsibility for behaviours and attitudes are often referred The survey was translated into 15 survey at every location and business unit. ensuring that the survey results are to as our culture. languages and we were delighted with considered and followed through. How we manage an overall response rate of 80%. The our work To understand if the Croda Vision was experienced across our global results of the survey have been pleasing; employees rated their relationship with 80% General organisation, we launched a Global engagement Employee Culture Survey, the first for their immediate supervisor positively and response rate to the employee survey To read our full Global Employee Culture Survey feature go to our 2017 over ten years. The survey was designed presented a good picture of team work Sustainability Report Positive Neutral & negative

Croda International Plc Croda International Plc 02 Annual Report and Accounts 2017 Annual Report and Accounts 2017 03 Strategic Report

Market Drivers Maximising opportunities for growth and innovation Strategic Report To maximise opportunities for growth, we use the global mega trends to shape our strategy and business model, which ensures we can deliver innovations that satisfy the unmet needs of our customers.

Global mega trend Global mega trend

Changing demographics Fragile world Demand for transparency and trust Digitalisation and interconnectedness

Consequences Consequences Consequences Consequences

There is unprecedented change in world demographics. People in The continuing accumulation of greenhouse gases in the Consumers, empowered by digitalisation, have changing Technology advances are reshaping the world we live in, with developed economies are living longer and have more income and atmosphere is the main cause of global warming, the consequences expectations. They want greater choice and control, demanding digitalisation transforming consumer behaviour. Digital technologies better access to buy a wider range of products. of which are rising sea levels and an increase in the frequency of more transparency in the products and services they use and make it easier for their voices to be heard and increase the speed extreme weather. Both impair the productivity of the land to supply anywhere, anytime access to information. at which new trends are adopted. In the developing world, a population increase of two to three billion food and water for the growing global population and bring an is forecast between now and 2050, driven by lower mortality rates. They increasingly expect businesses to operate in a transparent The evolution of the internet has also enabled a significant advance increased focus from international organisations on restricting global In addition, an expanding middle class is expected to attain Western and accountable way, and take greater responsibility for their supply in our ability to gather, analyse and distribute data and turn it into warming and climate change. levels of consumerism, generating new markets for products that chains and the impact of their products, with increasing calls for information and knowledge. make a difference to living standards. improved performance, purity and cost-effective solutions.

What this means for our industry What this means for our industry What this means for our industry What this means for our industry

→ Growing need for consumer products that use our ingredients → A demand for increased product performance from lower levels → Clear demonstration of transparent ethical and social → Consumer demand for niche products of active ingredients accountability globally → Increasing demand for anti-ageing, beauty and health products → Increase in small independent (‘indie’) customers and virtual as incomes rise and consumers’ expectations change → Need to minimise environmental and social impact along the → Need for collaboration through the whole supply chain to trace communities demanding a different level of service entire customer supply chain material provenance. → Demand for increased crop yields to support the growing → Need for agile operations population → Emergence of taxes and incentives for businesses to reduce → Increased use of data science and robotics to shorten product the net environmental burden → Demand for energy saving materials and increased bio-based development life cycles. content to mitigate against carbon emissions in supply chains. → A move away from petrochemicals towards renewables and industrial biotechnology.

Our opportunities Our opportunities Our opportunities Our opportunities More growth in developing regions, and demand for new products From our unique position in the use of renewable raw materials, that contain our innovative ingredients. we can reduce the net impact of our Business by facilitating our Our extensive product claims substantiation capabilities are Opportunity to connect more dynamically with both our current customers’ transition to more sustainable ingredients, and through supported by a wealth of technical information that assists our and future customers, and to use data and robotics to improve our applications science, create ingredients that have a positive customers in making the right choices for their consumers. efficiency and effectiveness from new ingredient development benefit in use. to site operations.

Our response Our response Our response Our response

→ Close working partnership with our customers, smart partners → In house regulatory experts sitting on industry wide committees → Maintain and enhance our reputation as a high quality ingredient → Local sales and research and development teams work closely and suppliers to develop innovative ingredients with intrinsic and to inform and shape future policy supplier by meeting and surpassing regulatory requirements with small start-ups on niche ingredient development extrinsic sustainability benefits across all our market sectors → New product developments assessed against the globally → A corporate Ethics Committee which ensures that supply chain → Flexible operating assets and supply chains enable the → Local market teams who are close to our customers, with the recognised 12 Principles of Green Chemistry framework, risks are identified, prioritised and controlled production and delivery of small batch sizes to meet changing right global market sector insight and expertise to meet rapidly to ensure that they are as sustainable as they can be (p21) customer demands → Work with specialists to characterise the physical palm oil changing market demands → Investment in our North American bio-surfactant plant to derivative supply chains, leading to transparency of provenance → Our acquisition of Cutitronics, which enables us to utilise the → Investment in local research and development laboratories in produce the bio-based ECO range of ingredients, both latest digital technology in premium skincare (p14) → Actively manage all risks that could affect the reliability of our growing regions (p13) reducing reliance on fossil fuels and eliminating the need service to customers: ethics, human rights, process safety, → Appointment of a Chief Digital Officer to grow our digital for rail transportation of ethylene oxide (p10) → Capital investment in manufacturing assets in Asia and Latin product safety, quality assurance and business continuity strategy (p13) America to reduce supply chain length and bring supply closer → Cradle-to-gate life cycle assessment to assess the impact of our → Ensure that all manufacturing sites are certified against → Creation of a process informatics group to analyse and optimise to our customers (p13). ingredients and identify where we can make further reductions appropriate Safety, Environment, Quality and GMP standards. plant performance in our carbon footprint (p21) → Investment in our Centre of Innovation for Formulation Science → Report to CDP climate change, forest and water disclosures. at the Materials Innovation Factory at the University of Liverpool, to build a data centric approach to innovation (p13).

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Business Model Creating value Strategic Report We create, make and sell innovative speciality chemical ingredients, generating long term value through collaborative relationships and our commitment to sustainable innovation.

Input Croda Output Consumer need Customer product Influenced by global mega trends, Using our innovative and sustainable consumers dictate their needs ingredients, our customers increase the Delivering value across our market sectors benefits of the products they manufacture

Customer need We serve our customers across four global market sectors: Sector sales Consumer benefit Our customers seek innovative and Consumers all over the world benefit Personal Care p14 Total sustainable ingredients that address Life Sciences p16 from the performance of our ingredients consumer needs m m m m that address their unmet needs Performance Technologies p18 £1,373.1m Industrial Chemicals p20

Our relationships The value we add and assets

Relationships High performance, high quality innovative products with the sustainable benefits and claims Customers validation our customers want Our people Read more about sustainable Open innovation partnerships product innovation on page 21 Smart partnerships Minimising our impacts within our Supply chain partnerships customers’ supply chains Investor base Read more about planet and process on page 22

Read more about our relationships on page 08 Ensuring the success and safety Engage Create Make Sell of our people and supporting the Working closely with our We create innovative and Our manufacturing sites We generate revenue through communities in which we operate customers and supply chain sustainable ingredients run flexible operations to our direct selling model, with Read more about people and we identify unmet consumer and technologies that consistently high standards sales, technical and warehousing Assets community on page 23 needs around the world meet consumer needs across the world support local to our customers Our culture Superior financial performance Protected intellectual property Read more on page 09 Local innovation centres Sustainability connects every aspect of our Business Supported by our culture Valuable green chemistries Strong returns to shareholders Agile regional manufacturing base Sustainability is an increasing requirement and a differentiating factor Our ‘One Croda’ culture exemplifies the values, behaviours and for our customers and their consumers. Our sustainability programme attitudes we expect of ourselves. We want our people to feel Read more on page 09 Strong cash generation for reinvestment is enhancing our reputation for producing the best sustainable empowered and recognised for their commitment, creativity ingredients whilst reducing our environmental burden on the planet and innovation. Each individual should be treated fairly and and our local communities, helping our customers to manage their risk equally, with openness and transparency. and achieve their own sustainability objectives.

See page 24 for our Key Performance Indicators

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Key Relationships Our Investment Case Collaboration and partnership Strength and delivery Strategic Report Our success is driven by a focus on collaboration, which we achieve by encouraging We are a speciality chemical company that creates high performance ingredients our people to think differently as they build intimate relationships throughout our Business, and technologies relied upon by industries and consumers globally. and work with our customers and peers.

Customers Smart partnerships Our investment case Our business model, directly delivering Through collaborative partnerships Our collaboration thousands of products to thousands of with university start-ups and technology in 2017 included: customers without third party distribution, specialists, we identify opportunities requires an unrivalled level of customer to create next generation solutions. By Global product → Differentiated market leading technologies NPP sales as % of Group sales engagement and intimacy on a global combining and investing in technologies 33,986 → Innovation embedded in the business scale. Each of our market sectors has from external sources, together with our meetings with our customers innovation in → Technical teams focused on bigger and a dedicated research, sales and in-house expertise, they identify solutions collaboration better innovation marketing team who are constantly which match our customers’ future needs 27.6 % with customers… → Investment in research and development in close collaboration with a number across all our market sectors. In 2017 we 2016: 27.4% of departments within customers’ acquired Enza Biotech in Sweden and 39 delivering fast growth organisations. These touch points include: IonPhaseE in Finland, and we invested in managers completing our annual 2020 → Local innovation centres driving increased research and development, marketing, Cutitronics, based in the UK, all of which Network development programme customer collaboration production, purchasing, quality, regulatory have novel patented technology. → Products increasingly delivering and sustainability. This level of engagement Read more on pages 14 to 20 sustainable solutions. and intimacy creates true partnerships based on trust and reliability. Supply chain partnerships 100+ …with local sales → Operating in fast growing sectors Core Business sales growth % Read more on pages 10 to 20 in constant currency Managing our global customer product projects working with 393 partners and technical → Customer intimacy and collaboration matrix requires strong partnerships → Committed to sustainable local Our people with suppliers and a high degree of delivery… manufacturing globally Our extensive product portfolio is transparency, operating on a global, → Global marketing expertise and sales 5.6% supplied to many diverse markets, regional and local level. Raw material reach delivered locally creating a high degree of complexity, but quality and supply, together with assured 3 smart partnership investments 2016: 4.6% also competitive advantage and great supply chain integrity, are pre-requisites → Operating in fragmented markets. opportunities. Our people’s intuitive ability to operating responsibly. Connections in to manage this complexity comes from a supply chains are now stronger than ever culture that promotes continuous internal before, and product integrity relies on communication and sharing of information upstream transparency in supply chains 2,000+ and best practice across all disciplines. to ensure that we source from suppliers face-to-face meetings with → Excellent profit margin Adjusted earnings per share This internal communication is both with shared values and standards equal raw material suppliers …that drives structured and informal, which creates to our own. superior financial → Capital light model opportunities for cross fertilisation of ideas → Continued focus on top line growth Read more on page 22 performance… and innovation. whilst protecting margin 179.0p 38 → Strong cost control Read more on page 23 Investor base 2016: 155.8p investor conferences and We communicate regularly with our existing → Strong free cash flow. roadshows attended Open innovation partnerships and potential shareholders to ensure that Innovation plays a critical role in the delivery our strategy and trading trends are clearly of our strategy. Our global research and and consistently understood. Recognising development teams across all our market the importance of direct communication, sectors build collaborative partnerships in 2017 we attended numerous investor with world leading academics and conferences and roadshows in the UK, → Excellent return on capital Return on Invested Capital universities to innovate and develop USA, Europe and Asia and regularly …and generates → Supporting investment to grow unique ingredients that add value to our co-ordinated investor site visits, capturing strong returns to customers’ products and address their and discussing shareholders’ opinions shareholders → Consistent regular dividend payments consumers’ unmet needs. and key issues. → Disciplined approach to acquisitions that 19.2% are technology driven Read more on page 13 Read more on page 49 → Excess capital returned to shareholders. 2016: 19.3%

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Chief Executive’s Review We are continuing to deliver

Record profit and strong and by acquisition; in manufacturing, in Personal Care growth was a particular business saw improving demand for of manufacture. Sector sales grew by Strategic Report sales growth our operating capabilities; and in building highlight, with constant currency sales up solar protection, hair and colour cosmetics 4.6% in constant currency and adjusted 2017 was a year of significant progress further knowledge in our people. over 5%, successfully reversing a decline in ingredients. The Beauty Formulations operating profit increased to £97.0m with for Croda; a year of record profits and At the heart of our business is a creative the more mature Specialities market whilst business increased differentiation and return on sales of 30.1% (2016: 28.1%). strong organic sales growth; and a year and customer focused innovation continuing to deliver faster growth in the competitiveness in our heritage ingredients Performance Technologies: when all core sectors and major regions programme. This is harnessed within premium Actives market. Life Sciences portfolio and returned to healthy sales transitioning to more focused contributed to growth. Our strategy a powerful culture; a culture where the achieved a strong second half year, with growth. Sales to multinational customers innovation continues to deliver. We are achieving ‘can do’ attitude, free thinking and deep high purity drug excipients and crop also returned to growth, after several difficult Performance Technologies continued consistent top and bottom line growth. understanding of our customers’ needs delivery systems performing well. Following years, alongside continued fast growth with its journey to ‘value over volume’. We It is pleasing to see this growth balanced set us apart from our competition, which exceptionally strong demand at the start of regional and local customers through our focused on developing faster growth across each of our core sectors, reinforcing delivers great value for all our stakeholders. the year, Performance Technologies distributed model which puts us closer to technologies in the premium Smart that Croda has three strong legs of growth. Our culture is the raw material that drives streamlined sales to target value over customers. This was enhanced by new Materials and Energy Technologies We have continued our relentless focus our innovation spirit. In 2017, this helped volume growth and drive significant margin digital capabilities to support the growing markets. 2017 saw strong structural on innovation, growing strongly in premium New and Protected Product (NPP) sales improvement in the second half year. demand from newer ‘Indie’ customers. growth in the first half of the year, niches, across all customers – big grow for the fifth consecutive year to a Continued profit growth – adjusted Sales grew 5.3% in constant currency and particularly in lubricants and oil and gas and small. record 27.6% of total sales. We have more EPS up 10.5% in constant currency adjusted operating profit increased 3.3% markets, with growth in the second half on the same basis to £155.5m, reflecting a It is pleasing to see growth In constant currency, adjusted profit before intellectual property (IP) in the business Adjusted profit before tax increased by year moderating as the sector focused modest decline in return on sales due to the balanced across each of tax increased 6.5% on sales 4.6% higher. today than five years ago. 11.1% to £320.3m. Profit before tax on an on increasing value and more selectively IFRS basis rose strongly to £314.1m. The broader product mix. targeting volume. Sales grew by 6.6% our sectors, with three With around 95% of our sales outside the Over the last 12 months, we have UK, the weakness of Sterling in the first acquired or invested in four fast growth increase in top line sales was supported Life Sciences: innovation and in constant currency, whilst adjusted strong legs of growth.” half year benefited our reported currency disruptive technology companies, including by an improved margin, reflecting higher Incotec integration delivering faster operating profit increased to £75.4m, the results, with sales increasing by 10.4% to Nautilus, a source of new marine biotech NPP sales and an improved product mix. profit growth second year of double digit percentage Steve Foots Return on sales increased by 20 basis Life Sciences delivered its target of faster constant currency profit growth. After Group Chief Executive £1,373.1m and adjusted profit before tax active ingredients. We invested over up 11.1% to a record £320.3m. £150 million in capacity, three times points to 24.2%. Adjusted EPS rose 10.5% profit growth through new innovative some margin compression in the first half in constant currency and 14.9% in reported technologies and Incotec margin year from raw material price increases, With our strategy broadly unchanged over depreciation, including in Beauty Actives, currency to 179.0p. The proposed final improvement, in line with our strategic return on sales increased by 120 basis Sales growth many years, we take a long term view of a bio-surfactant plant in North America to dividend has been increased by 11.5% objective of creating a business to match points in the second half year, and is investing and developing our business supply sustainable ingredients to consumer to 46.0p. Personal Care. Sales of IP-rich delivery progressing towards our 20% medium and our people. We keep things simple. and industrial markets, and in high purity +10.4% systems were supported by a resurgence term target. 2016: +15.0% Our job is to provide unique performing Health Care and Smart Materials Personal Care: strong sales in Crop Protection demand in the second ingredients, satisfying the unmet needs of technologies. We created a new digital improvement with stable margin Continued growth in Asia and Europe; NPP sales as % of Group sales half year, reflecting investment in faster our customers whilst delivering significant team to unlock new ways to better reach The return to robust growth in Personal return to growth in North America innovation through collaboration with our value for both them and Croda. Through and serve our customers. Care reflected ‘self-help’ measures to Sales grew organically in our three largest agrochemical customers. The integration of 27.6 % 2017 we have continued to invest: in improve sales performance whilst regions. Asia and Europe continued to Accelerating top line growth – our Seed Enhancement business, Incotec, 2016: 27.4% Research & Development (R&D), through protecting margin. This saw the creation drive growth, with Core Business sales constant currency sales up 4.6% continued to progress successfully, with our local laboratory expansion programme; of three businesses to reflect the differing in constant currency in Asia up 6%, Return on sales Sales increased by 10.4% to £1,373.1m. rationalisation of the geographic footprint in Open Innovation, collaborating with many characteristics of each end market, where leveraging recent investment to increase This included a 5.8% benefit from currency completed and new R&D investments universities; and in Smart Partnering, with a our investment in R&D is bearing fruit. proximity to local customers. In Europe, translation due to weaker Sterling in the bearing fruit. In Health Care we exited 24.2% number of new commercial partnerships Strong innovation-led growth in Beauty improved market confidence saw sales 2016: 24.0% first half of the year. Sales in constant our North American generic Active established. We have continued to invest in Actives helped sector NPP exceed 40% on the same basis increase by 5%, with currency increased by 4.6% and there was Pharmaceutical Ingredients (API) contract faster growth technologies, both organically of sales, a record. Our Beauty Effects excellent progress in new geographies in no material impact from acquisitions. following a successful four year period

Case studies

Making ethylene oxide sustainable Our new range of ECO surfactants is 100% has registered millions of hours of incident-free Renewable energy at Atlas Point Carbon footprint of ECO range Carbon footprint of ECO products We have been manufacturing ethoxylates at our renewable with performance matching that operating time. In 2012, we invested US$8m in a renewable We have modelled the Life Cycle Analysis of our compared with traditional ethoxylates Atlas Point facility since the 1940s and produce of petrochemical based options. energy project, using gas from a local landfill site ECO products, focusing on the climate change The detailed process design was subjected to many globally recognised surfactants and to generate electricity and steam. In 2013, we impact category, in alignment with ISO 14067. Community benefit rigorous hazard studies to identify and eliminate emulsifiers. invested an additional US$2.3m in solar panels 4 Our facility has always been a supportive and problems. Our contractors worked a combined If a typical ECO product family was made using to further reduce annual CO2 emissions. Our ingredients have provided solutions to our active member of the local community. During 800,000 hours without injury, something of 100% renewable energy, we would see a further customers’ application problems that had construction, this project has created over 250 which we are very proud. Avoidance of greenhouse gas emissions reduction in the carbon footprint. 3 previously been very difficult to solve. local construction jobs and we have recruited Our use of landfill gas, combined with lower Traditional

30 new, local, full-time employees to operate consumption of natural gas, has led to a /kg ethoxylate There is growing demand to increase the 2 the ECO plant. reduction in greenhouse gas emissions of close 2 ECO range proportion of bio-based, renewable ingredients to 1 million tonnes. with current site in consumer products. Our new bio-based Safety at ECO 100% kgCO energy mix ethylene oxide is now a recognised replacement Process safety principles have been applied at renewable surfactants 1 ECO range, for petrochemical based ethylene oxide. all stages of construction. We partnered with a specialist EO process design company which 100% renewable 0 energy

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Eastern Europe, Middle East and Africa. 1. Deliver consistent top and bottom Investing in new technologies electricity protection, operating in faster We have expanded this European Investing in our people Strategic Report Actions taken in North America restored line growth We continue to identify new technologies growth segments of the electronics and programme to Asia. Our people and the culture that they growth to 8% on the same basis, 2. Increase the proportion of protected for Croda to deliver to its customers. automotive markets; and invested in Smart Partnering has seen Croda co- embody are at the centre of our success. supported by strong market conditions. innovation We seek to acquire new technologies Cutitronics, a UK innovator of personalised, invest with industry technology leaders. We continue to invest in our people, with a Whilst full year constant currency sales in both organically, by creating our own adaptive skin care. We opened a state-of-the-art Centre of focus on sales and technical skills to serve Latin America were slightly below 2016, 3. Accelerate the capture of new capability where none exists in the market, our increasing number of customers. We sustainable technologies. This focus on new technology also saw Innovation for Formulation Science at growth turned positive in the second and inorganically, by acquisition. Alongside Croda invest in digital. We continued to the Materials Innovation Factory at the have added biotech scientists through our half year, helped by macroeconomic Alongside the strong growth and increased our new bio-surfactant plant, organic digitalise Croda’s enterprise, introducing University of Liverpool. We are partnering acquisition of Enza; digital capability, stabilisation and our investment in capacity. NPP, we continued to build our platform investment included continued development high throughput robotic analytical testing with a leader in innovative special effect including the appointment of a Chief Digital ® Robust financial platform funding of sustainable technologies. Sustainability of our global market-leading Matrixyl to accelerate R&D. We are introducing pigments, in the fast growing colour Officer; and agronomy specialists through investment connects every aspect of Croda’s business Personal Care brand, with the launch new digitally enabled customer offerings, cosmetics market. We have expanded Incotec. Following a Global Employee Croda continues to deliver good cash and is an increasing requirement and of the next generation in skin rejuvenation, building on our new web platform, in-house innovation capability, increasing Culture Survey in 2017, a programme is ® generation and maintain a strong balance differentiating factor for our customers Matrixyl Morphomics™, and new solar increasing the services we provide smaller R&D capacity at Sederma, our flagship developing and reinforcing the values and sheet with flexibility for organic investment, and their consumers. We have adopted protection products, such as Solaveil and Indie customers. We are collaborating Beauty Actives business, where 80% of behaviours which make Croda’s culture acquisition and returns to shareholders. ISO 26000, the international sustainability CTP7, for use in silicone-based sun in new digital ecosystems, for example sales come from NPP. The global market special. We are driving delivery of our This cash is used to invest in R&D, faster standard. Our bio-surfactant plant will see care, especially popular in Asia. New through our investment in Cutitronics, leader, Sederma remains at the forefront of diversity plans. growth technologies and manufacturing the launch in 2018 of our ECO range of technologies developed for Life Sciences where digital skin devices will unlock disruptive technology, through the addition Outlook capacity. In 2017, Croda’s capital products, enabling customers to build included new high purity drug delivery powerful consumer data for skin health. of plant stem cell technology from IRB and, sustainably focused consumer brands systems and advanced crop protection We have entered 2018 with momentum investment peaked, with over £150m of Investing in greater R&D in 2018, marine biotech actives from capital expenditure to support future without sacrificing performance. Our and seed enhancement systems, including Nautilus. We also expanded R&D facilities and a platform on which to deliver long environmental programme is enhancing seed encrustment, which enables Our lifeblood is innovation. We have term growth. In the year ahead, we will growth. This included completion of the expanded and accelerated our innovation in Brazil, Japan, Korea, South Africa and in installation phase of our industry leading our reputation for producing the best customers to add more active and Seed Enhancement in the Netherlands, the continue to invest in: sustainable ingredients whilst reducing our complex formulations, increasing crop programmes through internal and external bio-surfactant plant in North America, with latter part of our investment to establish → Fast growth technologies, both yields and reducing environmental impact. projects. NPP sales in 2017 were below our commissioning expected around the end of environmental burden on the planet and new innovation-driven sales in Incotec. organically and by acquisition, to our local communities, with a focus on We continued to build the technology target to grow at twice the rate of non-NPP the first quarter 2018. We made three sales, reflecting the return to growth in the Investing in new operational capability support future profitable growth; technology acquisitions and investments carbon neutrality and in helping our pipeline in Performance Technologies, customers manage risk through the commercialising MyCroFenceTM, a underlying business. However, NPP sales 2017 has seen the biggest organic → R&D, through successful Open during 2017. ROIC remained a multiple of were 75% higher than in 2012, with the capacity investment in Croda’s recent Innovation and Smart Partnering our cost of capital at 19.2% (2016: 19.3%), assurance provided by our responsible novel surface active antimicrobial sourcing programme. Highlights across our coatings technology. proportion of NPP rising from 20.5% of total history. In addition to our bio-surfactant programmes; ahead of realising the benefits of recent sales to 27.6% over the same period. plant, we have created a global centre of investments and acquisitions. Despite the manufacturing sites in 2017 included a Inorganic investment includes both → Manufacturing, through improved 16% reduction in waste to landfill and 5% We supported our experienced R&D team excellence in solar protection, invested in operating capabilities; and significant level of investment, leverage ‘bolt-on’ acquisitions of established emerging geographies by expanding local reduced to the lower end of our target reduction in water withdrawal since 2015. businesses, such as our 2015 purchase through enhanced Open Innovation and → Our people, building creativity, Smart Partnering programmes. With almost manufacture in Latin America and India, range at 1.0x net debt to EBITDA. To deliver our strategy we are investing in: of Incotec, and technology acquisitions of and increased biotech production in the innovation and expertise. novel chemistries. We particularly target 400 partners and comprising over 100 → new technologies UK. We have major investments underway We are confident of delivering continued Delivering a sustainable strategy opportunities where Croda’s existing R&D completed and 75 ongoing projects, Open → greater R&D Innovation gives Croda access to chemists, to expand capacity in high purity excipients progress in 2018. Croda delivers shareholder value by and global sales and marketing network in Health Care and in our UK polymer creating innovative ingredients for → new operational capability and allow for profitable scale up. We acquired biologists and agronomists in universities and specialist research laboratories and additives business, where we are a global niche markets, satisfying the unmet needs → our people. Enza Biotech, developing the next leader in slip, anti-static and anti-scratch of our customers, globally and locally. generation of renewable surfactants; enterprises, adding over £12m of external funding since the programme commenced. solutions to customers in the premium Our strategy to achieve this comprises IonPhasE, an innovative supplier of static packaging and automotive industries. Steve Foots three components: Group Chief Executive

Our Strategic Approach

Delivering Growth KPIs: Driving Innovation KPIs: Sustainable Solutions KPIs: → Return on sales p24 → NPP sales % p24 → Non-fossil fuel energy % p25 Through our direct selling business model, → Core Business sales growth p24 Innovation plays a critical role across our → Relative NPP sales growth p24 We continue to build on our renewable raw → Lost time injury rate p25 our people build intimate relationships with our Business, with dedicated business sector material heritage to create, make and sell customers large and small, working closely Key risks: research and development teams creating new Key risks: sustainable solutions today, to positively Key risks: with them to target niche, rapidly growing ingredients in collaboration with our customers. influence tomorrow. By investing in innovative markets where our innovative and sustainable → Revenue generation in established and Working with our open innovation partners → Product and technology innovation p32 product design and flexible operations, we are → Product liability claims p32 emerging markets approach is valued. Our flexible and agile p32 and through smart partnering, we identify → Protect new intellectual property p32 working with our supply chain to develop → Major safety or environmental incident p33 structure enables our people to stay close to → Talent development and retention p32 unique opportunities that add value to our ingredients that deliver more benefit, with less our customers around the world, whilst working customers’ products and satisfy the needs → Talent development and retention p32 impact. This, coupled with our participation → Security of raw material supply p33 together as one global team to respond of their consumers. It is a combination of in regulatory debates, ensures that we are → Major capital project management p33 quickly to demands identified by changing the ingredients we create and the way we providing solutions to the opportunities demographics in a fragile world (p04). operate that enables our customers to build presented by our global mega trends (p04). → Chemical regulatory compliance p33 on our innovations.

Croda International Plc Croda International Plc 12 Annual Report and Accounts 2017 Annual Report and Accounts 2017 13 Strategic Report

Sector Review Personal Care Meeting the unmet needs of African

Formulations, which have given greater Alongside an improving trend with Strategic Report focus and dynamism. Our flagship Beauty multinationals, the fastest growth continues Consumers Actives business, where Croda is the to be with regional and local customers. global market leader, had another excellent Our investment in locally based sales, There is a growing consumer trend year, delivering double digit percentage marketing and technical resource towards a natural look within the sales growth in constant currency. continues to be a key differentiator in Innovation is the key to its continued accessing smaller customers and enabling African hair care market success and we launched the next us to identify and leverage exciting new generation of the award winning Matrixyl® trends. Enhanced digital capabilities and range, Matrixyl® Morphomics™, combining targeted marketing are delivering a growing the latest scientific technologies with pipeline of opportunities by connecting Sederma’s expertise in anti-ageing faster with new ‘Indie’ customers as they peptides and claim substantiation to offer bring new products rapidly to market. Sandra Breene the best solutions in skin rejuvenation. The breadth of our customer base drove President, Personal Care In Beauty Effects, the smallest of the three growth in all regions. businesses, our aim is to develop fast Innovation continues to drive the sector, growth niches in hair, solar protection and with NPP sales growing faster than the In Personal Care we are targeting colour cosmetics. We believe that these average and now representing over 40% consistent sales growth, whilst broadly technically demanding markets can drive of sales. The ability to innovate alongside maintaining margin. We delivered this in similar growth and profitability to Beauty customers is being enhanced through 2017, with sales growth in all regions, Actives. With a focus on new product an expansion of research and development driven by stronger sales volume. Sales innovation, Beauty Effects delivered at Sederma, a new centre of excellence for increased 10.9% to £466.6m (2016: sales growth in the second half year. It hair in Japan and a new innovation centre £420.6m) and by 5.3% in constant successfully launched Volarest™, a novel in Brazil. In addition to organic investment, currency, the latter driven by a 5% increase curl retention product, and Kereffect™, we continue to add to our range of market in volume. Adjusted operating profit an exciting semi-permanent hair leading technologies, including the increased by 8.7% to £155.5m (2016: straightening and curl relaxant product acquisition of a novel surfactant technology £143.1m), 3.3% ahead in constant offering a milder alternative to traditional spin-off and co-investment in Cutitronics currency. The sector’s strong margin straightening systems. (see case study). Five years ago we added delivery continued, with return on sales plant stem cell technology to Sederma’s Investing in... only marginally lower at 33.3% (2016: In Beauty Formulations we completed our distributor exit programme, targeted anti-ageing portfolio through the acquisition 34.0%); as expected, this reflected a of IRB, which is now delivering meaningful broadening in mix as sales growth returned resource to innovation driven customers People Technology sales. We have recently added Nautilus, We commissioned and supported a number The Centre of Excellence we have opened in across the product portfolio. and increased differentiation of our heritage ingredients portfolio. As a result, we a technology-rich marine biotechnology of focus groups with African women to South Africa uses bespoke and unique hair During 2017 we successfully reversed a returned this business to growth. company, which will further enhance this understand better their personal care testing methods for the African market. decline in the more mature Specialities We also reversed a declining trend with unmatched range of skin active capabilities. regimes, which included hearing about the Using this technology, we can analyse the challenges they face in trying to maintain performance of our active ingredients to market, whilst continuing to deliver fast multinational customers, increasing the healthy hair. This has given our research and meet consumer demands, knowing that growth in our premium Actives business. intensity of product innovation with We created three businesses: Beauty development team new insight into the due to our high percentage of natural, a targeted group of customers and problems these consumers have, enabling renewable raw materials and the sustainability Actives, Beauty Effects and Beauty delivering modest sales growth. them to learn more about, and invest in, new information we have, we can also minimise analytical and testing equipment to assess any environmental impacts. Through our Sales our ingredients on African hair. ‘Proudly Tested in Africa’ initiative, we will Case study continue to gain direct consumer feedback Niche in order to offer a more comprehensive and The hair of most Africans grows slowly and £466.6m 2016: £420.6m product usage, enabling us to utilise this latest targeted data package to our customers. Investing in technology tends to be difficult to manage due to its digital technology to gain greater insight into In 2017 we became minority shareholders in brittle nature. The products currently available Smart Partnering personal care regimes and the factors that Adjusted operating profit Cutitronics, a technology company that has in this market are generally not meeting To focus on meeting the needs influence these. This information will shape our developed and patented devices for skin African consumer needs because they have of African consumers, we are working future product development and help us provide care product selection and application. been developed for Afro-American hair, extensively with industry experts, local 2016: £143.1m better formulation support and consumer insight £155.5m which has different properties. This is why universities and our customers, both Targeting the premium skin care market, their to our customers. strategy is to white label this technology, called some consumers resort to braiding that multinationals and local manufacturers, Return on sales CutiTron™, which assesses and prepares the damages the hair, which can lead to receding to ensure that we all have a greater skin for optimum delivery of the customised hairlines and baldness in the long term. understanding of the African hair formulation it dispatches, providing an ongoing, Alternatively, they often apply relaxer physiology and current market landscape. 2016: 34.0% 33.3% adaptive personalised regime for the consumer. products to straighten the hair, which can harm the hair and scalp and can also have CutiTron™ analyses skin needs while taking into a negative impact on the environment during consideration other factors that might affect its disposal due to their chemical profile. condition, such as local climate. It also captures many data points on skin and consumer

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Life Sciences Drift Reduction Technology second half of the year saw a return to ground Seed Enhancement in one location. Our unique wind tunnel facility in Strategic Report strong growth. We have invested in faster 2017 saw exciting sales growth for Disco® innovation through closer collaboration AG Clear L-650, representing the first North America enables us to work with our agrochemical customers and are technical development by Croda/Incotec with customers to develop new targeting faster growing geographies. The and which provides a seed film coat pipeline of new projects has continued to formulation that outperforms in seed flow, ‘low drift’ crop protection products develop, particularly leveraging our market drying time and dust control. The new to control the spraying of crops leading drift reduction technology. We product pipeline is continuing to improve. continued to grow with our multinational Health Care achieved modest sales customers but have also seen growth growth in 2017. Whilst growth in amongst regional and smaller accounts. mainstream excipients was slower, we This has been supported by investment delivered a strong performance from our in additional capacity in Latin America, investments in faster growth technologies, Nick Challoner where the medium term outlook for President, Life Sciences particularly high purity excipients which crop production is strong, together with meet increasing demand for complex drug encouraging growth in Asia, a relatively delivery systems. The innovation pipeline new crop opportunity for Croda. Driving strengthened, with a record level of New In Life Sciences we are creating IP rich greater innovation is key and we have and Protected Product sales. We launched delivery systems for complex health and successfully launched the Tween™ L series Crodamol™ IPIS, an excipient with light crop applications, delivering sales and of advanced adjuvants and Atplus™ PFA, and easy spreading characteristics with profit growth in line with our strategic an adjuvant developed to improve the outstanding moisturisation and sensory objective of creating a business to match performance of fungicidal applications. appeal. Innovation is also driving more our Personal Care success. 2017 saw Life The integration of our Seed Enhancement data generation, which supports wider Sciences deliver an excellent performance, business, Incotec, following acquisition uses of existing excipients, whilst new driven by strong sales growth in Crop at the end of 2015, continued to progress applications are helping to de-risk generic Protection and margin improvement in successfully. Reorganisation of the drug formulation. Seed Enhancement. Sales increased by geographic footprint and cost base is As expected, competition in the North 10.4% to £322.6m (2016: £292.2m) and now complete, and the business is on were 4.6% higher in constant currency. American generic Omega-3 Active track to deliver our target to double Pharmaceutical Ingredients (API) market Adjusted operating profit rose 18.3% to pre-acquisition profitability by the end £97.0m (2016: £82.0m), 14.0% higher in has continued, leading to lower prices of 2018. It is focused on faster growth and, at the end of 2017, we exited our constant currency. Volume growth of territories in North America, Europe, 6.0%, together with an improving Incotec exclusive supply contract without cost. Brazil, China and India, getting closer to This completed a profitable four year contribution, increased return on sales by customers by increasing customer-centric 2 percentage points to 30.1% (2016: 28.1%). period of manufacture and we will innovation. We opened a new R&D facility continue to build our range of other Our Crop Protection business continued to in the Netherlands and are creating new Omega-3 API applications in selected Investing in... outperform the wider agrochemical market. centres in North America and China, the niches and countries. After a challenging first half of 2017, which latter combining above the ground Crop saw sales unchanged year on year, the Protection R&D capability with below the Technology Smart Partnering Following three years of intensive We developed the wind tunnel in development, the measurement and collaboration with academic and industry Sales Case study high speed imaging capabilities in our partners around the world including, bespoke wind tunnel allow us to characterise agricultural, mechanical and aerodynamic £322.6m 2016: £292.2m Investing in injectables We work alongside our customers to spray patterns down to the movement of engineers. The facility offers a unique range individual droplets. This provides the tool of support to our customers who engage us As pharmaceutical companies look to demonstrate the outstanding benefits of our Super Refined™ excipients, which contribute to kit with which to conduct in-depth research on projects to improve spray performance. Adjusted operating profit enhance drug effectiveness, nanoparticles are on spray droplet size control and drift the stabilisation of these sensitive, nanoparticle People becoming increasingly investigated as a drug reduction mechanisms. delivery system for injectable medications. based injectable formulations, thereby helping to Through relationships formed in the £ 97.0 m 2016: £82.0m maximise the performance and shelf life of APIs. Niche design and delivery of this facility, our These microscopic particles help to protect Our testing capability enables us to assess people continue to expand their technical and stabilise sensitive active pharmaceutical agricultural spray quality and find control knowledge, links to outside experts, depth Return on sales ingredients (APIs), allowing them to be used in solutions that better meet customer, market of understanding on market needs and formulations effectively. These developments and environmental needs. This improves insight to the challenges in meeting them. improve the treatment that patients receive and 2016: 28.1% spray delivery to the target, which minimises This enables us to help our customers focus 3 0.1% often make it more convenient as fewer doses waste and reduces the impact on animals, on developing technologies that solve the are needed. However, this type of injectable plants, water and land. right problems and better manage risks. product is complex, requiring specialist formulators to ensure that they remain stable over a long shelf life and that the APIs are released at the right time.

Croda International Plc Croda International Plc 16 Annual Report and Accounts 2017 Annual Report and Accounts 2017 17 Strategic Report | Sector Review

Performance Technologies Marine Environment Sustainability

progressively streamlined sales to improve a novel surface active antimicrobial The global marine transport industry Strategic Report the quality of business, growing by 4.3% in coatings technology with strong the second half of the year whilst increasing environmental benefits, was commercially needs lubricants that meet stringent return on sales by 120 basis points. launched. The Smart Materials business legislation requirements, so that vessels Over 2017 as a whole, sales increased by is well positioned to meet increased can enter any waters in the world 12.6% to £456.9m (2016: £405.6m) and by demand for products with high levels 6.6% at constant currency. Overall volume of renewable carbon. grew by 1.0%, with an improved product The Energy Technologies market is driven mix supported by progressive recovery by the search for new technologies that of increased raw material prices. Adjusted can gain or retain energy. Sales in Energy operating profit increased by 13.2% to Technologies in the first half of the year £75.4m (2016: £66.6m), up 10.7% in were particularly strong due to growth in Maarten Heybroek constant currency, the second successive marine, wind turbine and environmentally President, Performance Technologies year of double digit constant currency acceptable lubricants, together with an profit growth for the sector. Return on upsurge in demand for oil and gas products, sales improved by 10 basis points to benefitting our flow assurance business. In Performance Technologies markets are 16.5% (2016: 16.4%). the second half of the year, in line with our witnessing unprecedented technological Smart Materials delivered good growth strategy of driving value ahead of volume, change which is creating attractive in 2017, with robust demand in the we selectively demarketed less differentiated opportunities for Croda’s innovation. In 2017, automotive and premium packaging products to these markets. Our focus is on we sharpened our focus on the premium markets for polymer additives. Our novel creating greater innovation and higher value Smart Materials and Energy Technologies Incroslip™SL slip additive doubled sales for products, including our Priolube™ range of markets, where we are seeing opportunities the third year running and there is growing friction modifiers for the automotive market. for high added value innovation that interest in our anti-scratch technology. In addition, we continue selectively to improves the performance of our However, sales from our China plant were develop our presence in Home Care customers’ products with a reduced adversely impacted by higher prices for and Water, by focusing on bio-based environmental profile, to deliver our domestically sourced rape seed. We surfactants in Home Care and by improving medium term 20% return on sales target. commenced a £27m project to expand the relatively low margin of the Water Performance Technologies delivered a good capacity in the UK and acquired IonPhasE, business by upgrading product mix. result in 2017. Following an exceptionally an innovative technology provider of Sales growth in 2017 was good. strong growth in demand at the start of the static electricity dissipation solutions for year, which saw constant currency sales electronic and automotive applications. increase 9.1% in the first half, we In the coatings market, MyCroFence™, Investing in...

Niche People Sales Case study Regulations demand that the lubricants Our research and development team work used in a marine environment have minimal alongside our global product safety and damage to aquatic life to protect our oceans. regulatory experts to ensure that we offer 2016: £405.6m† £456.9m Investing in electrostatic These regulations are regional, but can have the right solution to our customers. This is protection global implications. For example, the United fundamental in enabling our customers to Adjusted operating profit The ‘internet of things’ is an exciting and States Environment Protection Agency operate without limitation in any waters fast growing trend that is driving innovation. Vessel General Permit (VGP) applies to ships across the world, as they can be called upon entering USA territorial waters, but ship to deliver products anywhere at short notice, † The opportunities within this market are £75.4m 2016: £66.6m owners and operators need the flexibility to making it an absolute requirement that our endless as it becomes the norm for items send any ship into USA waters at any time. such as handheld devices, vehicles and products are designed for global application. Return on sales appliances to be digitally connected through Technology Smart Partnering embedded micro electronic components. We have a long history of producing lubricant It is critical that we work in partnership However, these are sensitive components base oils that are readily biodegradable, 16.5% 2016: 16.4%† across our entire supply chain to make sure that require higher standards of electrostatic do not bio-accumulate in the environment, that the lubricants we offer meet the highest protection to prevent damage. have superior toxicity credentials and are performance and environmental requirements based on renewable raw materials. They are † Restated Note 1 p100 This was a key driver for our recent of our customers’ products. This in turn must acquisition of IonPhasE, the technology designed with performance and the marine satisfy the needs of the equipment they are leader for controlled electrostatic discharge environment in mind, providing optimum used in both above and below the waterline. release. Their unique, patent protected range performance in ship power transmission Through ongoing industry and customer of anti-static additives prevents damage to and positioning systems, whilst meeting collaborations, we gain an early understanding electrical components, as well as dust build the requirements of all major international of these demands, so that together we can up in automotive parts, giving us access to Ecolabelling schemes. respond quickly to new performance and this niche, high value segment of the regulatory requirements to protect our oceans. polymers market.

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Sustainability Industrial Chemicals Sustainable Product Innovation

In 2017 we continued to improve the Strategic Report Sales product mix in Industrial Chemicals, Making high performance, We know that it is only by being close to The extrinsic sustainability impacts of our with a targeted reduction in low value add high quality products our customers that we can understand products include the social, environmental 2016: £125.2m† co-product and tolling business, which £127.0 m with the sustainable benefits and fulfil their needs finding new ways to and financial benefits that our products saw sector volume reduce by 12%. Sales improve sustainable product performance have in use. We are working to quantify increased by 1.4% to £127.0m (2016: our customers want and need, and reduce environmental impacts. these benefits for some of our product Adjusted operating profit £125.2m) but reduced by 4.0% in constant to meet consumer demands application areas, calculating associated currency. Adjusted operating profit was In 2016 we introduced the concept of intrinsic and extrinsic sustainability carbon savings. 2016: £6.5m† £4.3m (2016: £6.5m). £4.3m benefits. Intrinsic refers to attributes such Our rigorous quality assurance processes Industrial Chemicals continued to refine as renewable raw material content, product ensure the satisfaction of our customers its business. The transfer of co-product Return on sales Key Material Areas purity and cradle-to-gate life cycle and the safety of consumers. We are glycerine from external sales to in-house assessment. We assess the compliance leading the way in the transformation to green energy conversion resulted in a Maarten Heybroek 3.4% 2016: 5.2%† of our new products with the 12 Principles Roundtable on Sustainable Palm Oil President, Industrial Chemicals further 10,000mt reduction in sales from Product Design of Green Chemistry and in 2017 our New (RSPO) certified palm oil derivatives, and are our manufacturing facility in the Netherlands Deliver the most innovative and sustainable ingredients and Protected Products (NPP) scored continually striving to increase transparency † Restated Note 1 p100 but with greater value generated from to our customers an average of 10.6 out of 12. The growth in our raw material supply chains. lower energy costs. The sector continues of crops from which many of our raw to innovate selectively to develop niche All of this activity and more differentiates materials are derived, removes CO2 from and futureproofs our Business, NPP for new performance-based the atmosphere, resulting in low carbon applications. We will continue to focus Product whilst offering our customers many Stewardship footprints for many of our products. product advantages. on our strategy of creating a smaller, Ensure that the ingredients innovation orientated Industrial we produce contribute Chemicals business. positively to the environment and society throughout Highlights their life cycle

Environmental 61.1% Top 1% Impact of our raw materials were from renewable is where we are placed amongst all companies Minimise the impact sources in 2017, an industry leading position assessed by the sustainability platform Investing in... of our operations Sustainability EcoVadis, with a score of 83/100 Niche Smart Partnering in the textile Global retailers are now scrutinising water We collaborate with our customers to ensure Quality Assurance 60% 94% and energy usage within their supply chain that the ingredients we develop will meet Contribute to, and and are demanding reductions from their their performance needs, whilst satisfying proactively seek, higher increase in sales of products made with RSPO of our Rising Star products, those expected to supply chain textile processors. consumers’ increasing sustainability quality standards across certified palm oil derivatives compared to 2016 be a top 50 seller in the next five years, offer a demands. Further down the supply chain, product and operational known sustainability benefit in use Technology aspects of our Business this has already seen our inclusion on the The processing of textile Our technology focuses on optimising to ensure consumer safety approved supplier lists for national retailers. enzyme activity, enabling processing Life Cycle Assessment materials requires many Cradle-to-gate temperatures to be reduced by up to People In order to continue developing low carbon, ° different products in 20-25 C, whilst eliminating the need for Such complex products and processing sustainable products to meet our customers’ Intrinsic benefits Extrinsic benefits harsher chemicals to be used in manufacturing techniques require our research and requirements, we need to fully understand conjunction with the and also reducing the number of processing development teams, and also our sales Raw material End of product consumption of significant stages. Combined, these benefits reduce people to have a high degree of technical where the current environmental impacts of source life water and energy usage, and decrease knowledge. We ensure that these teams our products lie. amounts of water discharge into waste water, consequently are continually learning about the latest We have recently invested in extending and energy reducing the environmental impact of advancements in the textile industry through our in-house life cycle assessment (LCA) water treatment. the results of our own internal technical trials capability, using internationally recognised Consumer product and market presentations. use phase software to model the cradle-to-gate LCAs of selected product families, following Upstream raw ISO 14067 and examining the climate material processing change impact category. Customer In 2017, our focus was on our new product manufacture ECO product range of 100% bio-based surfactants, where we have shown that switching to bio-ethylene oxide reduces the carbon footprint of the resulting ECO Croda product Distribution products. We will continue to look at manufacture of Croda and sale product To find out more, read our 2017 additional product families, prioritising Sustainability Report at according to business and customer needs. www.croda.com/sustainability Life cycle of our products

Croda International Plc Croda International Plc 20 Annual Report and Accounts 2017 Annual Report and Accounts 2017 21 Strategic Report | Sustainability

Planet and Process People and Community Strategic Report Minimising our impacts Our manufacturing processes take raw processes we operate. In addition Ensuring the success and People underpin everything we do People remain the focus of five out of 10 within our customers’ supply materials and intermediates from our to maintaining full compliance with safety of our people and and are the focus of our Business. of our Material Areas, which ensures that chains suppliers and we subject them to the law in every country where we supporting the communities Our family culture, can-do attitude, where it is important to do so, we go chemical and physical processes that operate, we have our own Process beyond the human rights, anti-corruption in which we operate entrepreneurial spirit and talented people require resources such as energy, air Safety Framework that we apply to set us apart from our peers. Investing in and anti-bribery matters required by law. and water. We strive to minimise the our sites, and we invest in maintaining our people ensures that everyone can fulfil In 2017, we demonstrated our resources and minimise the waste sufficient internal capability to do this. their potential; whilst creating an inclusive commitment to health and safety by generated with every kilogram of Keeping our plants safe is part of our environment means that everyone can rolling out a behavioural safety training product we make. We then pack our licence to operate. achieve their best. programme recognising that behaviour products in recyclable packaging, and Avoiding the transportation of flammable is at least as important as the process. Key Material Areas where possible aim to manufacture the Key Material Areas The health and safety of our employees raw materials over thousands of miles is paramount and we are increasingly Also in 2017, we completed our Global products as close as possible to our from the southern USA is a major Employee Culture Survey (p02), we Environmental customers to minimise the energy Occupational focusing on the physical and mental benefit of our new ECO process, welfare of our employees. developed a series of actions to increase Impact required for transportation. recently established at our Atlas Point Health & Safety the number of women in senior roles Minimise the impact Empower employees to of our operations We measure the impacts of our manufacturing site, in North America have health and safety at We are proud of our people’s personal and and we also began implementing a new resource consumption and waste (p10). This removes the risks associated the forefront of their thinking professional achievements, both within the global Human Resources (HR) system. generation, and have set targets with transportation of hazardous Croda family and in the wider world, as These significant investments will to reduce these impacts. materials as well as saving energy they represent us in industry and through continue in 2018 where we will focus Quality Assurance Our People volunteering work in our local communities. Contribute to, and The impacts of our operations are not for transportation and its associated Create an environment on the results of the survey and continue proactively seek, higher greenhouse gas (GHG) emissions. where people can thrive to implement our diversity actions. quality standards across just environmental. We are acutely aware product and operational of the hazards presented by some of the aspects of our Business to ensure consumer safety Highlights Highlights Diversity & Process Safety Inclusion Keeping our manufacturing Embrace and empower sites safe and legally all individuals 107,000+ Living Wage compliant 15.9% 4.4% training hours were recorded by employer in the UK, accredited by the Living reduction in total waste sent to landfill since reduction in water usage since 2015 versus 82.7% of employees Wage Foundation 2015 versus our target of 10% by 2020 our target of 10% by 2020 Knowledge Management Safeguard our knowledge and expertise Global 50.0% A– 14.9% Behavioural Safety Training Programme of 1% Club time was spent on educational rating by CDP for our Climate Change report reduction in scope 1 and 21 greenhouse gas implemented initiatives emissions intensity since 2015 versus our target of 10% by 2020 Community Education & Diversity and Inclusion Executive Committee Members Involvement We embrace the differences of a multi-ethnic, GHG Emissions Our chosen measure of GHG emission Support the communities multi-geographic and multi-skillset company Since 2015, our baseline year, total emissions intensity divides our GHG emissions by value in which we operate, 88.9% (8) male added2: a measure of our business activity. with a primary focus on 2016: 90.0% have fallen by 0.6% even as our Business has encouraging young people Across the Group expanded and new capacity has been Since 2015, our GHG emissions intensity has to work within science commissioned. Within this, scope 1 emissions fallen by 14.9%, illustrating how our Business and technology have increased by 3.1%, whilst scope 2 has grown without a negative impact on 67.1% (2,890) male 11.1% (1) female emissions have fallen by 7.4%. GHG emissions intensity. 2016: 67.5% 2016: 10.0%

1 GHG emissions intensity (TeCO2e/£m) GHG emissions (TeCO2e) Board of Directors 32.9% (1,419) female 2017 347 2017 134,562 66,432 2016: 32.5% 2016 128,550 67,350 2016 356 75.0% (6) male 2015 408 2016: 75.0% 2015 130,492 71,727 Regional and Business Board Members and Senior Functional Heads Scope 1 Scope 2 All of our GHG emissions data is verified by (2) female Carbon Smart. Their formal Independent 25.0% 2016: 25.0% Verification Statement is available 83.8% (88) male at www.croda.com/carbonverification 2016: 81.6% We continue to comply with the 1 Scope 1 emissions are calculated using the International Energy Agency’s published conversion factors for the tonne ILO Declaration on Fundamental Principles To find out more, read our 2017 To find out more, read our 2017 and Rights at Work. Key policies can be equivalents of CO2. Scope 2 emissions are location based (17) female Sustainability Report at Sustainability Report at 16.2% 2 Value added is defined as operating profit before depreciation found at www.croda.com/companypolicy www.croda.com/sustainability and employee costs at 2015 constant currency www.croda.com/sustainability 2016: 18.4%

Croda International Plc Croda International Plc 22 Annual Report and Accounts 2017 Annual Report and Accounts 2017 23 Strategic Report Link to Strategy

Key Performance Indicators Delivering Growth How we performed Driving Innovation Sustainable Solutions Strategic Report KPI Comment Target Our performance KPI Comment Target Our performance

On target Personal Care continued to deliver Personal Care (PC) Return on sales % On target The proportion of our energy 27% by 2020. Non-fossil fuel energy % strong margin, although ROS did and Life Sciences requirements supplied from non-fossil Return on sales 40 Non-fossil fuel reduce on a broader mix as sales (LS) maintain sources increased to 24.1% in 2017, 2017 24.1% (ROS)% growth returned across the product 2016 levels. energy % helped by the steady running of our 30 2016 21.3% portfolio. Life Sciences delivered Gouda biogas CHP facility, and KPI definition Performance KPI definition excellent profit growth and an improved 20 increased sourcing of renewable 2015 20.5% Operating profit as a Technologies (PT) The proportion of our energy ROS, driven by innovative technologies electricity. Landfill gas usage at Atlas percentage of sales. grow to 20% in 10 that comes from non-fossil 2014 22.5% and the successful integration of Point was restricted by reduced the medium term. fuel sources. availability of the CHP generators Incotec. Performance Technologies 2013 20.9% 0 which underwent a major overhaul. Industrial Chemicals ROS also improved slightly, reflecting 2013 2014 2015 2016 2017 We continue to track towards our a continued focus on premium markets (IC) maximise target of 27%. and value-add products. Industrial profitability. PC 33.3% LS 30.1% PT 16.5% Chemicals profit declined as we refine IC 3.4% Group Total 24.2% the product mix and develop a smaller, innovation orientated business.

On target This new KPI has been introduced Low-to-mid single Core Business sales growth % Behind target Our combined LTI rate has increased Our aspirational Lost time injury rate Core Business sales in 2017 to align with our strategic digit % growth Lost time injury to 0.42, even as our Total Recordable goal for the LTI (per 200,000 hours worked) approach for delivering revenue growth. (excluding raw 2017 5.6% Injury rate declined by 5% versus 2016. rate is zero. growth % material price (LTI) rate The contractor rate reduced further, 1.2 Strong organic sales growth in 2017 2016 4.6% recovery). maintaining the improvement seen KPI definition was driven by our ongoing focus on KPI definition 2015 4.2% since 2011 but the Croda employee 0.8 Total sales growth in the premium, faster growth niches, and Rate of injuries that result in an rate was disappointing at 0.46. We Core Business measured supported by continued investment in 2014 3.7% absence from work of one day continue to embed and improve our 0.4 at constant currency. innovative technologies. Growth was or more, divided by total number behaviour based safety programme balanced across the Core Business, of hours worked per annum, which is showing early signs of success with each sector on or ahead of target. multiplied by 200,000 hours. in several locations. 0 2013 2014 2015 2016 2017 Croda Contractor Combined

On target We focus technically and commercially NPP sales to be NPP sales % Creating shareholder value NPP sales % on increasing the percentage of sales 30% of Group that we define as NPP. Our innovation sales in the 2017 27.6% Ahead of target We are pleased to report an adjusted 5-11% EPS growth Adjusted basic earnings per share (p) KPI definition pipeline remains healthy with many medium term. 2016 27.4% EPS of 179.0p, representing an per annum. NPP sales as a percentage of new projects coming to market across Adjusted basic increase of 14.9% on last year, partly 2017 179.0p Group sales. NPP products are our entire business. Our relentless 2015 26.1% earnings per share benefitting from currency translation. where sales are protected by focus on innovation includes revisiting 2016 155.8p 2014 23.4% We remain ahead of our target range, virtue of being either newly our existing extensive product portfolio (EPS) growth reflecting the continued effective 2015 135.0p launched, protected by intellectual and discovering novel ways of 2013 21.4% KPI definition delivery of our strategy. 2014 125.2p property or by unique quality creating additional value from it. Adjusted profit after tax divided characteristics. This has enabled us to deliver a by the average number of 2013 132.2p further improvement in the 2017 issued shares. Group margin.

Behind target This new KPI has been introduced 2x non-NPP On target Croda’s model is capital light and Maintaining ROIC Relative NPP sales growth Return on Invested Capital % Relative NPP sales in 2017 to align with our strategic sales growth. Return on Invested delivers superior returns. ROIC at two to three approach for delivering revenue growth. NPP Non-NPP remained stable in 2017, ahead of times Weighted 2017 19.2% growth growth % growth % Ratio Capital (ROIC) % realising the benefits of recent capital Average Cost of 2016 19.3% Our continued technical and investments and acquisitions. Capital (estimated KPI definition 2017 +5.3% +4.4% 1.2x KPI definition commercial focus on creating novel, at 6.6%). 2015 20.1% Underlying NPP sales growth Adjusted operating profit after tax differentiated solutions for our 2016 +1.7% -2.8% >2x as a ratio of non-NPP sales divided by the average invested 2014 21.2% customers delivered growth in the year growth. Shown as greater than 2015 +15.5% +0.0% >2x capital for the year for the Group. but the ratio to non-NPP sales was 2013 23.8% 2x when non-NPP sales growth 2014 +11.9% -0.7% >2x Invested capital represents the net below the target. This was primarily is negative. assets of the Group, adjusted for due to the strong return to growth of earlier goodwill written off to our Beauty Formulations business in reserves, net debt, retirement Personal Care, which specialises in benefit liabilities, provisions and selling the more differentiated products deferred taxes. in our heritage ingredient portfolio.

Croda International Plc Croda International Plc 24 Annual Report and Accounts 2017 Annual Report and Accounts 2017 25 Strategic Report

Finance Review Record profit delivered

Currency Adjusted profit The Group’s adjusted profit for the year The profit after tax for the year on an Strategic Report Currency translation had a beneficial Sales by sector (£m) Adjusted operating profit rose by 11.4% was £234.4m (2016: £207.6m). Adjusted IFRS basis was £236.7m (2016: £197.6m) impact on both sales and profit in to £332.2m (2016: £298.2m) (Figure 3). basic earnings per share (EPS) increased (Figure 6) and basic EPS were 180.8p the first half of 2017, due to the continued On a constant currency basis, adjusted by 14.9% to 179.0p (2016: 155.8p). (2016: 148.2p). weakness of Sterling. However, Sterling operating profit increased by 6.9%. IFRS profit 2018 potential impacts strengthened somewhat during the second The constant currency improvement in Adjusted profit is stated before exceptional A preliminary assessment of the impact half year, reducing this benefit. Across adjusted operating profit was driven by items (including discontinued business of the new US tax law on the Group’s the year as a whole, Sterling averaged the organic growth across the Core costs), acquisition costs and amortisation effective tax rate suggests an expected US$1.290 (2016: US$1.354) and €1.141 £1,373.1m Business, with all sectors seeing profit of intangible assets arising on acquisition, fall of approximately 2.5 percentage points (2016: €1.224). Currency translation Total sales increase (Figure 4). Return on sales and tax thereon. The Board believes in 2018, which will benefit EPS. Currency increased sales compared to 2016 increased by 20 basis points to 24.2% that the adjusted presentation (and translation could have an adverse impact by £71.9m and adjusted profit before (2016: 24.0%). To reflect changes to the columnar format adopted for the on 2018 reported currency profit, compared tax by £13.2m. product portfolios, 2016 sector revenue Group income statement on page 88) to the beneficial impact in 2017, if Sterling and adjusted operating profit have Sales assists shareholders in better understanding maintains its recent strength. been restated by £3.1m and £0.4m the performance of the business and is Sales grew by 10.4% to £1,373.1m (2016: respectively for a net reclassification of adopted on a consistent basis for each After a return to growth £1,243.6m) (Figure 1). At constant currency, Personal Care £466.6m business from Industrial Chemicals to sales rose by 4.6%. There was no material half year and full year results. in the first half of the year, Life Sciences £322.6m Performance Technologies. impact from acquisitions. In the Core The charge before tax for exceptional Performance Technologies £456.9m The net interest charge increased to growth accelerated in the Business, constant currency sales items, acquisition costs and amortisation Industrial Chemicals £127.0m £11.9m (2016: £9.9m), with higher debt second half.” increased by 5.6%, with sales volume 3.0% of intangible assets arising on acquisition from acquisitions and the special dividend higher and sales price/mix benefitting from was £6.2m (2016: £12.6m). Acquisition in the prior year partly offset by capitalised Jez Maiden the impact of innovation and an improved costs were £0.8m (2016: £1.1m), the charge Group Finance Director interest on the construction of the North product mix, together with raw material for amortisation of intangible assets was American bio-surfactant plant. Adjusted price recovery in Performance Technologies. £3.7m (2016: £3.1m) and exceptional Sales value profit before tax increased by £32.0m to After a return to steady growth in the first items were £1.7m (2016: £8.4m), being an £320.3m (2016: £288.3m) (Figure 5). half of the year, with Core Business increase in environmental provisions on £1,373.1m constant currency sales rising by 4.4%, The effective tax rate on this profit discontinued business. The US Tax Cuts 2016: £1,243.6m growth accelerated in the second half of reduced to 26.8% (2016: 28.0%), and Jobs Act led to a revaluation of the the year, up 5.7% in the third quarter and Adjusted profit before tax reflecting the geographic mix of profit Group’s net deferred tax liability, resulting 7.9% in the fourth quarter. This reflected a and the lower UK statutory rate of 19.25% in a £7.7m exceptional tax credit. The net progressive improvement in Personal Care (2016: 20.0%). There were no other credit after tax for exceptional items, +11.1% and Life Sciences (Figure 2). significant adjustments between the acquisition costs and amortisation 2016: +13.2% Group’s expected and reported tax of intangible assets arising on acquisition Free cash flow charge based on its accounting profit. was £2.3m (2016: £10.0m charge). £98.5m 2016: £155.5m

Financial data

Figure 1 Figure 2 Figure 3 Figure 4 Figure 5

First Second Full 2017 Sales (£m) Sales at constant half half year Adjusted operating profit (£m) Adjusted operating profit 2017 Constant 2016 Summary income statement 2017 2016 currency % % % Reported currency Restated £m £m £m £m £m Personal Care 2.3 8.2 5.3 Sales 1,373.1 1,243.6 Personal Care 155.5 147.8 143.1 Life Sciences 0.8 8.2 4.6 Operating costs (1,040.9) (945.4) Life Sciences 97.0 93.5 82.0 Performance Adjusted operating profit 332.2 298.2 Performance Technologies 75.4 73.7 66.6 Technologies 9.1 4.3 6.6 Net interest charge (11.9) (9.9) Core Business 327.9 315.0 291.7 Core Business 4.4 6.8 5.6 Adjusted profit before tax 320.3 288.3 Industrial Chemicals (1.1) (6.8) (4.0) Industrial Chemicals 4.3 3.9 6.5 Group 3.8 5.4 4.6 Group 332.2 318.9 298.2 2017 2017 2016 2017 2017 2016 growth growth reported reported currency currency reported reported currency currency Impact of Impact Impact of Impact Impact of Impact Impact of translation Underlying Underlying translation at constantat at constantat acquisitions acquisitions

Croda International Plc Croda International Plc 26 Annual Report and Accounts 2017 Annual Report and Accounts 2017 27 Strategic Report | Finance Review

Cash management Dividend and capital allocation opportunities for future scale-up or Strategic Report Delivering good cash generation is core Croda seeks to deliver high quality profits, as larger ‘bolt ons’. During 2017 we Alternative performance → Adjusted EPS: this is earnings per to Croda’s strategy. This cash is used to measured through a superior ROIC, completed the acquisitions of Enza measures share using the adjusted profit after Biotech and IonPhasE, together with invest in Research and Development, faster earnings growth and strong cash returns. We use a number of alternative tax and is reconciled in note 7 of the an investment in Cutitronics; and growth technologies, both organically and The Group’s capital allocation policy is to: performance measures to assist in accounts; by acquisition, to expand production 1. Reinvest for growth – we reinvest in 4. Maintain an appropriate balance presenting information in this statement in → Return on sales: this is adjusted capacity and to pay increased dividends. capital projects to grow sales, increase sheet and return excess capital – we an easily analysable and comprehensible operating profit divided by sales; EBITDA increased to £381.8m (2016: product innovation and expand in maintain an appropriate balance sheet form. We use such measures consistently → Return on Invested Capital (ROIC): £344.3m), which funded net capital attractive geographic markets, to meet future investment and trading at the half year and full year and reconcile this is adjusted operating profit after expenditure of £157.2m (2016: £104.5m), delivering a superior ROIC of 19.2% in requirements. We target leverage them as appropriate. The measures used tax divided by the average invested as our capital programme peaked with 2017 (2016: 19.3%). During 2017 capital of 1 to 1.5x (excluding deficits on in this statement include: the completion of installation of our retirement benefit schemes), although capital for the year for the Group. investment was over three times → Constant currency sales and profit: bio-surfactant plant. Working capital we are prepared to move above this Invested capital represents the net depreciation, funding asset these reflect current year results increased by £33.3m, reflecting stronger range if circumstances warrant and will assets of the Group, adjusted for replacement, new investment in key for existing business translated at trading and higher inventories at the end consider further returns to shareholders earlier goodwill written off to reserves, technologies and construction of the the prior year’s average exchange of the year to support sales orders. As a in the event that leverage falls below net debt, retirement benefit liabilities, bio-surfactant plant, all of which should rates, and include the impact of result, free cash flow was £98.5m (2016: the target range. provisions and deferred taxes; support future ROIC. We expect the acquisitions. They are reconciled £155.5m) (Figure 7). → Net debt: comprises cash and cash level of capital expenditure to return to to reported results in Figure 1 and Retirement benefits equivalents (including bank After currency translation, net debt around 1.5x depreciation from 2018, Figure 3. Sales in Latin America are The post-tax deficit on retirement benefit overdrafts), current and non-current increased by £17.4m to £381.5m (2016: depending on organic growth primarily based on US dollars, which plans, measured on an accounting borrowings and obligations under £364.1m). The leverage ratio (the ratio of opportunities; is used as the functional currency for valuation basis under IAS 19, decreased to finance leases; and net debt to EBITDA) reduced to 1.0x 2. Provide regular returns to constant currency sales translation; £21.1m (2016: £112.7m), reflecting strong (2016: 1.1x) and remains substantially shareholders – we pay a regular → Leverage: this is the ratio of net asset returns. Cash funding of the various → Underlying sales: these reflect below the maximum covenant level under dividend to shareholders, representing debt to Earnings Before Interest, Tax, plans within the Group is driven by the constant currency values adjusted the Group’s lending facilities of three times. 40% to 50% of adjusted earnings over Depreciation and Amortisation schemes’ ongoing actuarial valuation to exclude the impact of acquisitions. There were no material changes to the business cycle. The Board has (EBITDA). EBITDA is adjusted reviews. No deficit funding payments are They are reconciled to reported committed debt facilities during the year. proposed an increase of 9.5% in the full operating profit plus depreciation. currently required to the Group’s largest sales in Figure 1; These facilities provide ample liquidity to year dividend to 81.0p (2016: 74.0p), a pension scheme, the UK Croda Pension The Core Business comprises the core meet the Group’s immediate plans at a payout of 45% of adjusted EPS; → Adjusted profit: this is profit before Scheme, and this is not expected to sectors of Personal Care, Life Sciences relatively low interest cost. At 31 December exceptional items, acquisition costs 3. Acquire promising technologies – we change with the latest valuation of the and Performance Technologies. 2017 the Group had £433.7m (2016: and amortisation of intangible assets have identified a number of exciting scheme, as at 30 September 2017, which £461.6m) of cash and undrawn committed arising on acquisition. It is reconciled technologies to supplement organic is currently ongoing. in Figure 6; credit facilities available. growth in existing and adjacent markets. Some of these will be acquired, either as nascent

Financial data Case study

Figure 6 Figure 7 Incotec adding value to crop growth reduction in the amount of plant protection Seed enhancement leads to product required. IFRS profit 2017 2016 Cash flow 2017 2016 £m £m £m £m sustainable crop growth Improving the livelihood of Adjusted profit before tax 320.3 288.3 Adjusted operating profit 332.2 298.2 With the world’s growing population and farmers in Ethiopia Exceptional items, acquisition costs Depreciation and amortisation 49.6 46.1 declining availability of arable land, our Teff is the most valuable seed crop in and amortisation of intangibles (6.2) (12.6) EBITDA 381.8 344.3 innovative seed enhancement business, Ethiopia, and a traditional staple due to Profit before tax 314.1 275.7 Working capital (33.3) 7.2 Incotec, is hugely important due to the its nutritional value. The small size of Teff Tax (77.4) (78.1) Net capital expenditure (157.2) (104.5) extrinsic sustainability benefits of its seeds causes problems during sowing, Profit after tax 236.7 197.6 Non-cash pension expense 3.4 (10.9) products, which are offered to its customers. making it difficult to control distribution, Interest & tax (96.2) (80.6) Seed treatments can be integrated within thus impacting crop yield. Incotec has developed a pellet which doubles the seed Free cash flow 98.5 155.5 our film coatings, allowing for a targeted size, enabling more accurate planting. Dividends (100.0) (230.2) application, stimulating root and plant In recent field trials, this saw an increase Acquisitions (30.4) (1.4) growth and leading to enhanced nutrient in seed yield by 80%, helping to transform Other cash movements 5.6 3.6 uptake. During the early weeks of plant the livelihood of local Teff farmers. Net cash flow (26.3) (72.5) growth, seed coating leads to an 80-90%

Croda International Plc Croda International Plc 28 Annual Report and Accounts 2017 Annual Report and Accounts 2017 29 Strategic Report

Our Risks Protecting value Strategic Report Effective risk management is essential to support the achievement of our strategic and operational objectives as we address the challenges and uncertainties facing businesses today.

How we manage risk Framework. Ultimately, all of our Our Risk Framework illustrates our Our key risks The Board has carried out a robust been amended for four key risks; The Board has overall responsibility for the employees have a responsibility in approach to managing risk which reflects Our risk framework considers more than assessment of these key risks and has an increase in major capital project risk framework and for ensuring that we managing the Company’s risks. a ‘three lines of defence’ model. We employ 50 generic risks across six categories taken them into consideration when management and security of business manage risks appropriately (p48). Through At the request of the Board, the both a top down and bottom up approach in over 20 risk registers; the key risks assessing the long term viability of the information and networks, and a regular review, the Board ensures that our Audit Committee directs internal audit to risk assessment using this common identified in the heat map below and on Company on page 35. decrease in revenue generation in risks are appropriate to our strategy. It is to undertake assurance audits over framework, enabling comparison across pages 32 to 34 in more detail, are those established and emerging markets the role of our Executive Risk Management selected key risk mitigating controls sectors, regions, manufacturing sites and which we consider could threaten the Changes to our gross risk and ineffective management of pension Committee to ensure that our market which are reported back to and reviewed functions using our dashboarding tool. delivery of our long term strategic environment in 2017 fund. See pages 32 to 34 for an sectors, manufacturing sites, regions and by the Committee. However, our risk management programme objectives, business model, future As a result of our risk review throughout explanation of these changes. functions manage their individual risk can only provide reasonable, not absolute, performance, solvency or liquidity. 2017, the assessment of gross risk has registers by applying our common Risk assurance that our risks are managed at an acceptable level.

Risk heat map Risk framework Our principal risks are reported gross High (before mitigating controls) What we monitor How we manage it 1 Revenue generation in established and emerging markets Our risk Current risks Board Audit Committee 3 5 10 landscape Risks that could affect our Business, customers, supply → Responsible for the risk → Reviews the effectiveness 11 6 2 Talent development and retention chain employees and communities and stop us achieving management framework of the Group risk management 1 3 Product and technology innovation our strategic goals and definition of risk appetite process Emerging risks → Reviews key risks with an → Directs internal audit to 9 7 4 Protect new intellectual property 4 Risks with a future impact, identified through our rigorous opportunity for in depth undertake assurance reviews 5 Product liability claims internal risk assessment process, from external or internal discussion of specific key risks over controls for selected key 2 8 threats and opportunities and mitigating controls twice risks and reviews the results 6 Major safety or environmental incident a year (p42) (p52) Likelihood 12 7 Security of raw material supply Risk Management Committee* SHEQ Steering Committee* 8 Major capital project management Our risk → Monitors and reviews non SHEQ → Meets quarterly to review 9 Chemical regulatory compliance categories Strategic People Process risks quarterly Safety, Health, Environmental include over → Identifies and considers and Quality (SHEQ) risks 10 Security of business information 50 risks External environment emerging risks → Considers the results of and networks → Receives an in-depth assurance audits over SHEQ controls 11 Ethics and compliance presentation on one key risk and Low IT systems 12 Ineffective management of pension fund and security Financial its mitigating controls from the → Monitors against stretching Low High Executive owner at each meeting targets and agreed KPIs Impact

Ethics Committee* Gross risk increase Gross risk no change Gross risk decrease What we Risk ownership Mitigating controls → Meets quarterly to review ethics → Monitors against agreed KPIs assess each risk has a named owner subject to internal audit and compliance risks Likelihood and impact review and monitoring a level of uncertainty into how our We have modelled the costs to the Group globally applied 6*6 scoring Net risk Risk management in action: scale after mitigating controls Brexit risk European business will operate in the of future UK-EU trade being conducted Gross risk are applied future, it is experienced in dealing with under the World Trade Organisation tariffs before mitigating controls During 2017, our Brexit project team continued to review the implications of the the challenges associated with trading and duties and consider the impact should result of the UK referendum to leave the EU across borders that do not benefit from not be material. The Board will continue to (‘Brexit’) on our business model, strategy the Single Market. keep emerging Brexit risk under review. Our bottom Identify, own and manage risks involved in day-to-day and operations and this was discussed Potential increased levels of bureaucracy operations up register Executive Risk Register with the Board. While Brexit has introduced may incur additional compliance costs. Market sectors Regions Our Executive Committee review a combined summary of all individual bottom-up registers to identify the key emerging risks Manufacturing sites Functions that may need to be added to their top-down register of key risks

* Executive Committee (p60)

Croda International Plc Croda International Plc 30 Annual Report and Accounts 2017 Annual Report and Accounts 2017 31 Strategic Report | Our Risks Link to Strategy Key Link to our business model

Delivering Growth Risk increase E Engage

C Create Driving Innovation No change M Make

Sustainable Solutions Risk decrease S Sell Strategic Report Key risk Potential impact How we respond What we have Key risk Potential impact How we respond What we have on our Business done in 2017 on our Business done in 2017

Revenue generation Failure to keep pace with our Through our global sector sales, Delivered a year of record profits Major safety or We rely on the continued sustainable Monitored by our SHEQ steering Convened a global Process in established and customers as they follow consumers marketing and technology teams, and sales growth, when all core environmental operation of our manufacturing sites committee (p30), our global network Safety conference to examine into emerging markets, and we identify consumer trends and sectors and major regions around the world. of safety specialists located at each the strengths and weaknesses emerging markets increasing competition from respond swiftly to satisfy customer contributed to growth (p10). The incident site enforce compliance with the of our Process Safety A major event causing loss of mainstream and other chemical needs through key technologies. reduced risk reflects the improved policies and procedures defined in programme, identifying areas production, or violating safety, health companies looking to move into our Our direct selling model enables us macroeconomic and business-led the Group SHE manual. Assurance for improvement and delivering or environmental regulations could established markets, will adversely to get closer to our customers. sales environment in 2017. over mitigating controls is provided targeted training. limit our operations and expose impact delivery of strategic objective by the dedicated Group SHE internal the Group to liability, cost and We rolled out a behavioural to deliver consistent top and bottom audit team, whilst external audits E S reputational damage, especially safety training programme, line growth. assess compliance with OHSAS in light of our commitment to recognising that behaviour is 18001 and ISO 14001 certifications. sustainability and customer service. as important as the process. Product and Innovation plays a critical role across Our outstanding technical resources Continued to expand our We have business continuity plans technology our operations; it differentiates us are fully integrated into our global innovation pipeline supported in place for each site and a Group from the competition, protects sales sector leadership teams to focus by almost 400 open innovation M crisis management plan which is innovation and improves our margins. Failure to innovation on customer requirements. partnerships with universities, tested at least annually. drive New and Protected Products We build partnerships with customers specialist research laboratories and (NPP) through innovation will impact and open innovation partners and SMEs. We acquired Enza Biotech Security of raw An interruption in the supply of key Professional purchasing teams Embedded ownership of the on growth. invest in external acquisitions to (p12), and IonPhaseE (p18) and we material supply raw materials would significantly based in our regions monitor supply key raw material assessment remain at the cutting edge. We have invested in Cutitronics (p14) which affect our operations and financial to identify potential future shortages. framework and policy with regional identified key technology platforms enables us to utilise the very latest position. Such a disruption could We look to develop good relationships management, delivering face C (p12) that will direct future innovation in digital technology. arise from market shortages or from with our suppliers and to agree long to face training and guidance. acquisition and development. restrictive legislation, for example term contracts. To protect supply, we Monitoring of continuous that relating to the transport of aim to source from multiple suppliers. improvement programmes rests Where this is not possible, we build up Failure to protect our Intellectual We have a specialist IP team who Filed patents in several key areas, hazardous goods. with the global operations Protect new our own inventories. leadership group. There were no intellectual Property (IP) in both existing and participate in the technical and concentrating on recently acquired new markets could undermine our business planning and strategy businesses and technologies such M interruptions to raw material supply property competitive advantage. meetings to identify ways to protect as Enza Biotech (p12). in 2017. any new products and technologies. They defend our IP and challenge C Major capital project Current major strategic capital Specialist project management Audited completed capital projects third party IP where appropriate. expenditure programmes require teams are formed for all major against cost, schedule, quality and management closely controlled project capital expenditure programmes, financial expectations to identify management to avoid overspend with steering groups chaired by learnings which were shared with The vision and experience of our Reward programmes, a strong The implementation of a new Talent development and late delivery, both of which a member of the Executive the Board (p42) and other sites. knowledgeable and specialist development culture and excellent global HR Information System was and retention would have an impact on growth. Committee. Our risk has increased due to employees is critical to maintaining learning opportunities support the approved, to provide better people the current scale of our capital the Group’s success. Inability to retention and career development data and improve succession and investment programme, with a recruit and retain appropriately of the high-quality teams we need. development processes. A global focus on successful delivery of skilled people could adversely Global graduate and management employee culture survey was our North American bio-surfactant impact our ability to deliver our development programmes conducted (p02) and action plans plant, high purity excipients plant current and future business include stretching and high profile developed. Progress has been M and UK polymer additives plant. requirements and strategic priorities. assignments and provide a pipeline made in implementing Diversity of internal talent. and Inclusion actions and internal If these individuals were to leave, targets have been set to increase it would take time to replace them if The annual global talent review Chemical regulatory As a global chemical manufacturer, Global regulatory expertise is Rolled out a Globally Harmonised the number of women in leadership no succession plans were in place. process supports review of compliance we operate in highly regulated provided by our in-house team System of Classification (GHS) E positions (p23). markets, which are subject to of specialists, who have in depth to relevant locations, and resources and succession plans for critical roles, with actions regular change. Violation, incomplete knowledge of the regional and implemented controls in SAP C M S monitored by the Executive knowledge or change of the market regulatory frameworks within to ensure REACH volume Committee and the Board. appropriate regulations could which we operate. They work thresholds are not breached. limit the markets into which we proactively to influence regulation Frameworks to demonstrate can sell, or expose the Group to and they are an integral part of our compliance with the Nagoya Product liability claims We sell into a number of highly Our sites are certified to demanding All sites maintained the required fines or penalties. new product development process. protocol were written, communicated regulated markets. Non-compliance external quality standards which level of Good Manufacturing and adopted. Our specialists are We use the SAP EHS module to with our customers’ stringent quality are highly valued by our customers. Practice. In 2017, the relevant members of a UK working party ensure that regulatory changes are requirements could expose us to Compliance with these is audited standards are also being applied C on the implications of Brexit applied to existing products. liability and reputational damage, both internally by our specialist by our new acquisitions, as well on REACH. especially in light of our commitment audit team and externally. as to our larger sales offices, to to sustainability. We work proactively with relevant ensure we have global coverage. M trade associations to shape future regulation.

Croda International Plc Croda International Plc 32 Annual Report and Accounts 2017 Annual Report and Accounts 2017 33 Strategic Report | Our Risks

Long term viability statement Assessment of viability Strategic Report Key risk Potential impact How we respond What we have Assessment of prospects Viability has been assessed by considering the ‘top-down headroom’ available in on our Business done in 2017 In assessing the prospects of the terms of the overall funding capacity to withstand events, together with the ‘bottom-up Company and determining the appropriate headroom’ assessing the potential financial impact of events reflecting the Company’s Ethics and compliance We are subject to UK legislation, Our Group Ethics Committee (set up Rolled out a refreshed compliance viability period, the Board have taken principal risks, both individually and in combination. including the Bribery Act, which at the start of 2017) meets quarterly programme across the Business. account of: is far reaching in terms of to promote the importance of ethics Our ethics network have performed Top-down headroom global scope. and compliance across our targeted due diligence on a number → the financial and strategic planning Funding capacity Business and those third parties we of our supply chain partners as we Our increased presence in emerging cycle, which cover a three year period. choose to work with (p60). seek increased transparency, and economies and the introduction of The strategic planning process is led by Bank The ratio of net debt to EBITDA at the end of 2017 of 1.0x remains substantially Compliance training and education we have refreshed our bribery and regulations such as the Modern the CEO and fully reviewed by the below the maximum covenant level under the Group’s lending facilities of 3 programmes are rolled out globally, corruption risk assessments, leverage Slavery Act gives rise to an elevated Board (p47); times (p28), providing significant headroom. EBITDA would need to fall by more with results monitored by the meeting with many of our suppliers, risk to our Business. covenant than 50% before triggering an event of default. Action could also be taken to Committee and followed up with agents and distributors to reinforce → the investment planning cycle, which conserve cash. E C M refresher training. our expectations of their behaviour covers three years. The Executive when acting on our behalf. Committee considers, and the Board Debt Current committed debt facilities largely mature after the viability assessment period (p28) and have significant undrawn credit available. In normal lending We published our first Modern reviews, likely customer demand and headroom S market circumstances, additional debt funding could also be raised. Slavery statement. manufacturing capacity for each of its key technologies. The three year period Security of business We rely heavily on the availability Our information security specialists Undertook a cyber maturity reflects the typical maximum lead time Bottom-up scenarios involved in developing new capacity; information and of IT networks and systems and monitor our IT services and network, benchmark review which was an extended interruption of these and oversee computer and mobile reported to the Board (p42). Each of the key risks identified on pages 32 to 34 has been assessed for its potential networks → the business model (p06) and its financial impact as part of the viability assessment. Of these, the most severe but services may result in an inability device protection, in line with our Formed a project team to review diversified portfolio of products, to meet customer requirements. established policies and processes. and update personal and data plausible scenarios (or combinations thereof) were identified as follows: operations and customers, which Society and business are subject Regular penetration testing is security controls in the context Scenario modelled Link to Key Risks to more numerous and increasingly undertaken and we run our key of GDPR. Provided regular reduce exposure to specific sophisticated threats to security, applications in distributed computing security awareness training and geographies and markets, as well as Uninsured catastrophic loss of a manufacturing site – the Major safety or environmental including hackers, viruses and environments with regular failover communication to all employees. large customer/product combinations; impact of losing the contribution from the single largest site incident p33 ransomware attacks which could testing. We have externally audited The increased risk reflects → the strong innovation pipeline, which was considered assuming no insurance cover. However, for compromise access. In addition ISO 27001 certification for key the raised threat from cyber supports the Company’s business most loss events, we carry insurance cover. regulatory responsibilities relating systems and locations, whilst internal activity, despite the Company’s through development of new sales Significant compliance breach – the financial impact of Ethics and compliance p34 to data protection are becoming audit specialists review the operation enhanced response in 2017. regulatory fines was considered along with the associated more stringent, including the of all IT controls annually. growth opportunities, protects sales E C M reputational damage. implementation of the General and margins, differentiates the Data Protection Regulation (GDPR) Company from competitors and Disruptive technology – the impact of substitute technologies Product and technology S from 2018. provides barriers to entry; affecting current sales were modelled together with new digital innovation p32 technology impacting our route to market. → the Company’s strong cash generation and its ability to renew and raise debt Ineffective The Group maintains an open The Company maintains close The risk has reduced as the Loss of IT systems (particularly SAP Enterprise Resource Security of business information facilities in most market conditions (p28). management of defined benefit pension scheme in dialogue with the UK Pension Trustee has continued to extend Planning system) for a prolonged period. and networks p34 the UK, which faces similar risks to Trustee, and the move to a career the liability driven investment pension fund A critically important driver of the other defined benefit schemes such average capped salary basis of component of the scheme’s Company’s business model is its as future investment returns, longer calculation in 2016 mitigated some assets to better match assets The results of the bottom up scenario modelling showed that no individual event or innovation pipeline. The Board reviews life expectancy and regulatory of the risks. The pension fund with liability movements arising plausible combination of events would have a financial impact sufficient to endanger changes which could result in investment strategy is delivered with on changes in interest rates and this over a period longer than three years, the viability of the Company in the period assessed. It would therefore be likely that pension schemes becoming more the support of professional advisers, inflation, with approximately 85% in line with longer development cycles the Company would be able to withstand the impact of such scenarios occurring over of a financial burden. and trained pension fund Trustee of liabilities now hedged. The for new products. However, the Board the assessment period. Directors take professional advice scheme’s return seeking assets considers that, in assessing the viability and monitor and review have been further diversified to of the Company, its investment and Viability statement E C M Based on their assessment of prospects and viability, the Directors confirm that they arrangements quarterly. reduce expected future volatility. planning horizon of three years, supported The triennial valuation is ongoing by detailed financial modelling, is the have an expectation that the Company will be able to continue in operation and meet S but no deficit contribution is appropriate period. its liabilities as they fall due over the next three years in line with the Company’s financial expected (p28). and strategic time planning horizons.

Signed on behalf of the Board who approved the Strategic Report on 27 February 2018.

Steve Foots Group Chief Executive

Croda International Plc Croda International Plc 34 Annual Report and Accounts 2017 Annual Report and Accounts 2017 35 Directors’ Report

Our Board Key N | Nomination Committee E | Group Executive Committee A strong leadership team Chairman of the Committee RM | Remuneration Committee ET | Group Ethics Committee Member of the Committee A | Audit Committee F | Group Finance Committee Secretary of the Committee R | Risk Management Committee SHEQ | Group SHEQ Committee

Anita Frew, 60 Steve Foots, 49 Jez Maiden, 56 Alan Ferguson, 60 Keith Layden, 58 Tom Brophy, 44 Chairman N RM Group Chief Executive E F SHEQ Group Finance Director R E F Non-Executive Director A RM N Non-Executive Director N Group General Counsel ET A & Company Secretary RM N R E Appointment: March 2015 and Appointment: July 2010 and Group Chief Appointment: January 2015 as Appointment: July 2011 Appointment: February 2012 and Chairman since September 2015 Executive since the beginning of 2012 Group Finance Director Key strengths and experience: Non-Executive Director since May 2017 Appointment: December 2012 as Key strengths and experience: Key strengths and experience: Key strengths and experience: Extensive international financial Key strengths and experience: Board Secretary Directors’ Report Anita has been on plc boards for 20 Strong business, operational and strategic Extensive experience in financial management and board experience. Alan Deep understanding of chemical innovation Key strengths and experience: years and has extensive leadership and leadership, and wide-ranging sales and management, acquisitions and disposals was Chief Financial Officer and a Director and broad operational and management Tom is a solicitor and has responsibility for international experience, together with a marketing experience. Steve joined Croda and of working in the speciality chemical of Lonmin Plc and, prior to that, Group experience. Keith joined Croda in 1984, legal affairs, corporate governance, human broad knowledge of strategic management as a graduate trainee in 1990 and has held sector. Jez has been Group Finance Finance Director of The BOC Group. Before retiring as an Executive Director in 2017. resources and insurance. Prior to joining across a range of sectors, including a number of senior management positions Director at National Express Group and that he spent 22 years in a variety of roles His roles included responsibility for global Croda, Tom spent seven years at Wolseley speciality chemicals. Her prior board roles in the Group, becoming President of Croda prior to that held the same role at Northern at Inchcape Plc, including Group Finance R&D, the Technology Investment Group Plc in a number of legal and governance include Chairman of Victrex Plc and Senior Europe in July 2010. Prior to this, Steve Foods Plc. He has been Chief Financial Director. Alan is a Chartered Accountant. and President of Life Sciences. roles, including as Deputy General Counsel Independent Director of Aberdeen Asset held a number of Managing Director roles Officer at British Vita Plc and Group External appointments: Alan is Senior External appointments: Keith is an and Company Secretary. Before then he Management PLC. across Croda’s European business. Finance Director at Hickson International Independent Director of Johnson Matthey Honorary Professor of Chemistry and worked as a corporate lawyer at City law External appointments: Anita is Deputy External appointments: Chairman of the Plc. Jez is a fellow of the CIMA. Plc and Marshall Motor Holdings Plc, Non- Industry at the University of Nottingham. firm Hogan Lovells. Chairman of Lloyds Banking Group plc and Chemical Growth Partnership (CGP). External appointments: Non-Executive Executive Director of The Weir Group Plc He represents Croda on the chemistry a Non-Executive Director of BHP Billiton Director and Audit and Risk Committee and chairs the Audit Committee of each of advisory boards at the Universities of Plc and BHP Billiton Limited. Chairman of PZ Cussons plc. these companies. He sits on the Business Nottingham and York and has council and To read the full biographies of Policy Panel of the Institute of Chartered committee roles at the University of our Board members please visit Accountants of Scotland. Sheffield. He is a Fellow of the Royal www.croda.com/ourboard Society of Chemistry.

Gender of the Board Board skills and experience Areas of existing strength

Sector Strategy Male 75% Operational Financial Helena Ganczakowski, 55 Nigel Turner, 68 Steve Williams, 70 experience and risk Non-Executive Director A RM N Non-Executive Director Non-Executive Director RM A N Female 25% (Senior Independent Director) A RM N Appointment: February 2014 Appointment: July 2010 Key strengths and experience: Appointment: June 2009 and Senior Key strengths and experience: Wealth of experience in consumer Independent Director since August 2011 Extensive industry, legal and board Innovation Technical Marketing marketing and innovative product Key strengths and experience: experience. Steve was General Counsel development. Helena worked for Unilever Broad City experience having spent over and Chief Legal Officer of Unilever plc and Tenure as a Non-Executive Director for 23 years and held senior positions in 35 years as a corporate financier. Nigel Unilever NV from 1986 until 2010. He was brand management, consumer marketing was Chairman of Numis Securities Ltd and formerly the Senior Independent Director Areas of opportunity for new Board appointments and strategy development. Helena has Deputy Chairman of Numis Corporation of Arriva Plc, Non-Executive Director of a PhD in Engineering from the University Plc. Earlier, from 2000 to 2005, he had Bunzl Plc and Non-Executive Director of Cambridge. responsibility for the Global Corporate of Whitbread PLC. <1 year 1 External appointments: Helena is a Finance and Global Equities Divisions at External appointments: Steve is a 1-3 years 1 General International/ ABN AMRO and had been Managing 3-6 years 1 Digital management/CEO Non-Executive Director of Greggs Plc. Non-Executive Director of Eversheds LLP emerging markets She runs a consulting business working Director and a member of the Supervisory and a senior adviser to Spencer Stuart >6 years 3 experience with a range of organisations, helping them Board at Lazard. LLP. He is Deputy Chairman of the De La to develop and implement strategies. External appointments: Senior Warr Pavilion Charitable Trust, on the Independent Director and Chairman of the Board of Leverhulme Trust and Deputy Remuneration Committee at Genus Plc. Chairman of Moorfields NHS Trust. Croda International Plc Croda International Plc 36 Annual Report and Accounts 2017 Annual Report and Accounts 2017 37 Directors’ Report

Corporate Governance Chairman’s letter

Dear fellow shareholder Survey, conducted in 2017 and designed identified as having Board potential when improvements to the Board’s operation with Accountability The Board remains committed to the in-house specifically to examine our we considered the Company’s succession a view to creating even further opportunity The Board spent a considerable amount highest standards of corporate governance culture and ensure that it is consistent planning arrangements, thus allowing us to focus on those areas that the Board of time discussing the areas of risk and integrity. Our governance framework, with our values across the Business. to tailor each individual’s plan to further believes will make the greatest difference assessment, risk management and internal which underpins our ability to deliver our More information about the survey can strengthen the bench. to the Company’s continuing success. control systems (including a review of strategy and create long term value for our be found on page 02. The Board and Committee review for 2017 control failings), and assessing the long Effectiveness shareholders, cascades from the Board was conducted by EgonZehnder, an term prospects of the Company. More Leadership across the Group. This framework stresses As Chairman, I am responsible for leading external Board review specialist. The last information can be found on pages 30 to the importance of compliance with rules The Directors continue to provide strong and ensuring that we have an effective and such external evaluation was carried out 35 and 48. and guidance, but equally, it sets the tone leadership, with an exceptional mix of skills functioning Board. Strong and sustained in 2014. I actively encourage a culture for the rest of the organisation. As guardian and experience from across the business progress has been made against the and environment in the boardroom that Relations with shareholders of our culture, the Board has a vital role spectrum. Having served nine years on the actions agreed following the 2016 Board facilitates candid debate and encourages As Chairman, I am responsible for effective to play in defining our behaviours and the Board, Nigel Turner will retire at this year’s effectiveness review and the priorities the our Non-Executive Directors to provide communication with shareholders and for ways in which we do business. The Annual General meeting (AGM). I would Board set for itself for 2017. This progress is constructive challenge to management; ensuring that the Board understands the Company has complied with the UK like to thank Nigel for his dedication and summarised on page 43. The rebalancing I am pleased that this was borne out in views of major shareholders. During the Corporate Governance Code (April 2016)1 outstanding contribution to Croda. Upon of the Board’s agendas and streamlining of the results of the Board review, which year, I have met with several shareholders Directors’ Report As guardian of our culture, the for the period under review. Nigel’s retirement Alan Ferguson will be the Board papers and presentations has was overall very positive once again. (as have other Non-Executive Directors) as appointed as the Senior Independent freed greater time for the Board to spend well as speaking with many shareholders Board has a vital role to play in The Board is accountable to Croda’s The review has also helped us to identify Director. Alan has been on the Board since considering major strategic issues, growth, at our AGM. Our shareholders support our defining our behaviours and the shareholders for good governance and some opportunities for the Board, which 2011 and acts as Chairman of the Audit merger and acquisition opportunities, strategy and are very comfortable with our this report, together with the Directors’ could further improve our decision making ways in which we do business.” Committee. Alan brings a wealth of market dynamics and organisational issues, approach to corporate governance. Remuneration Report set out on pages relevant experience, having served as such as succession planning, Board by focusing on increased diversity for new Anita Frew 61 to 77, describe how the Code’s main Board appointments. Chairman Senior Independent Director within other composition and Company culture. principles of governance have been listed companies. Working with the Chief Executive and More details on the review process and its applied by the Company. I am pleased to report that Helena Company Secretary, I will continue to seek outcomes are set out on pages 46 and 47. Anita Frew Leadership ...... 40 This report includes practical insights into Ganczakowski, Alan Ferguson and Steve Chairman Effectiveness ...... 44 how our governance framework underpins Williams had their respective appointments Board Evaluation...... 46 and supports our Business and the as Non-Executive Directors extended Accountability ...... 48 decisions we make every day. during the period and all Directors were Relations with Shareholders ...... 49 reappointed by our shareholders at last Looking ahead to 2018 Audit Committee ...... 51 Culture and values Case study year’s AGM. This, combined with Professor As well as those focus areas identified Nomination Committee ...... 58 The Board spends a considerable amount Keith Layden’s appointment as a Non- during the latest Board evalution (p47), Other Committees ...... 60 of time meeting with employees and visiting Governance in action Executive Director following his retirement the Board will: Remuneration Report ...... 61 our offices and manufacturing sites around from the Company last year, means we The Board’s agendas have been rebalanced Other Disclosures ...... 78 the world. This ensures that our Non- continue to have effective and insightful to create further opportunity to concentrate → Perform longer term strategic Executive Directors develop and maintain leadership at a Board level. on those areas that the Board believes will reviews make the greatest difference to the greater insight and understanding of the → Oversee the recruitment of a Business, which enhance the quality of We have assessed the skills and Company’s continuing success, following feedback from the 2016 Board effectiveness new Non-Executive Director and decision making and debate. That diversity experiences of the Board to ensure that we review. Board meetings now focus on four consider Non-Executive Director of thought allows the Board to consider the have the right balance and composition; the results are summarised on page 37. specific areas: reporting; approvals; succession broader long term impact of its decisions governance and strategy. Papers for the The assessment has also enabled us to → Focus on international operations on our employees, suppliers and customers Board have been significantly shortened, identify areas of opportunity, to bring fresh and manufacturing strategy and the communities in which we operate. concentrating on performance through the and alternative insights to the Board and On page 43 we set out more details of the use of KPI dashboards, and distinguishing → Refine risk appetite for key enhance diversity in its broadest sense. Board’s programme of activities outside information reporting from decisions sought. Company risks the boardroom. This is especially relevant at this time as These interventions are designed to free we think about the recruitment of a more Board time for high level strategic → Consider the Company’s We recognise the value of culture, and new Non-Executive Director to replace decisions. This revised format is working digitalisation strategy these visits also create opportunities for Nigel Turner. well, as has been borne out in the recent → Review regular updates on safety, a cultural tone to be cascaded from the Board evaluation, which welcomed the We have focused on succession planning health and the environment; risk boardroom. Directors are able to promote improved meeting discipline. and ethical supply chain the values-based conduct and behaviours to ensure that we have a healthy talent expected from every part of the Company. pipeline for future Executive Committee → Review and implement the The Board has spent time working on the and Board roles. We have overlaid the relevant requirements of the development of our Culture Plan, linking Board skills assessment onto the Financial Reporting Council’s our culture to our Business strategy in development plans of those members of revised UK Corporate Governance order to deliver business results. Central the Executive Committee and other key Code, which is anticipated to this plan is the Global Employee Culture management employees who were following the FRC’s announcement of its plans and subsequent public consultation in 2017. 1 The Code can be accessed at www.frc.org.uk.

Croda International Plc Croda International Plc 38 Annual Report and Accounts 2017 Annual Report and Accounts 2017 39 Directors’ Report | Corporate Governance | Leadership

A strong framework

At the date of this report, the Board experience, gender or ethnicity. Directors’ Leadership comprises eight Directors: the Chairman; biographical notes appear on pages 36 the Group Chief Executive; the Group and 37 and at www.croda.com Governance structure Finance Director; four independent With support from the Company The Board has three main Committees: The day-to-day operational management the Risk Management Committee; Non-Executive Directors and one non- Secretary, the Chairman sets the annual the Audit Committee; the Remuneration of the Business is delegated by the Board the Group Safety, Health, Environment Role and operation independent Non-Executive Director, who Board agenda programme and Board Committee and the Nomination to the Group Chief Executive, who uses and Quality (SHEQ) Steering Committee; of the Board was the Company’s Chief Technology meeting agendas and determines the Committee. The terms of reference for several Committees to assist him in this the Group Ethics Committee and the The Board has ultimate responsibility Officer until his retirement in 2017. The number of meetings to be held during each Board Committee can be found at task: the Group Executive Committee; Routine Business Committee. For further for the overall leadership of the small size of our Board allows time for the year. She ensures enough time is www.croda.com. the Group Finance Committee; information on each of these Committees Group. In this role, it oversees the full discussion and debate of items and devoted, during meetings and throughout see page 60. development of a clear Group strategy, enables all Directors’ views to be heard. the year, to discuss all material matters, monitors operational and financial The Non-Executive Directors have a including strategic, financial, operational, performance against agreed goals broad range of business, financial and business, risk, human resources and and objectives and ensures that international skills and experience, which governance issues. provide appropriate balance and diversity appropriate controls and systems Group Board exist to manage risk. within the Board. A key consideration for The Board has taken action to strike a Directors’ Report any new Board appointment will be the balance between reporting, approvals and Chaired by Anita Frew Specific Board matters additional breadth a new Director could governance matters, whilst ensuring more The matters reserved for the Board bring, in terms of skills, knowledge, time is devoted to major strategic issues. fall into four broad areas: 1. Matters required by law to be Principal Board Committees Group Chief Executive reserved for the Board’s decision, Board roles such as approving the Annual Chairman Independent Non-Executive Directors Report and Accounts, appointing The Chairman leads the Board and is The role of independent Non-Executive Director new Directors and declaring responsible for promoting open and effective is central to an effective and accountable dividends communication between the Executive and Board structure. They constructively challenge Audit Committee Group Executive Committee Chaired by Alan Ferguson 2. The requirements of the UK Listing, Non-Executive Directors and for creating an the Executive Directors and scrutinise the Chaired by Steve Foots environment at Board meetings in which all performance of management in meeting agreed Monitors the integrity of the Group’s financial Prospectus and Disclosure and Directors contribute to discussions and feel goals and objectives. They help develop and statements and announcements, the effectiveness Transparency Rules, such as comfortable in engaging in healthy debate monitor the delivery of the strategy within of internal controls and risk management as well as approving circulars to shareholders managing the external auditor relationship. For more and constructive challenge. the risk and control framework set by the Group Finance Committee and other significant Board. They determine appropriate levels of information see pages 51 to 57. The Chairman leads the annual Board communications remuneration for Executive Directors and have Chaired by Steve Foots effectiveness review process and ensures that a prime role in succession planning and the UK Corporate Governance Code all new Directors have an appropriately tailored appointment and, where necessary, the removal induction process. recommendations, such as of Executive Directors. Remuneration Committee ensuring the Company has a Group Chief Executive Chaired by Steve Williams Non-independent Non-Executive Risk Management Committee sound system of internal control The Group Chief Executive has day-to-day Approves the Company’s remuneration policy Chaired by Jez Maiden and risk management, and responsibility for the effective management Directors and framework and determines the remuneration approving the Board and of the Group’s Business and for ensuring that Having served Croda for 33 years, the latter packages for members of senior management. Committees’ terms of reference Board decisions are implemented. He plays five of which were as a member of the Board, For more information see pages 61 to 77. a key role in devising and reviewing Group Keith Layden is not considered independent. 3. Other matters, such as approval of strategies for discussion and approval by the However, because of that experience, Keith Group SHEQ Steering Committee the Group’s strategy and budget, Board. The Group Chief Executive is tasked with contributes strongly to the Board’s culture and Chaired by Stuart Arnott material corporate transactions providing regular reports to the Board on all personality, and adds unique and valuable and capital expenditure. matters of significance relating to the Group’s insight and constructive challenge. With Nomination Committee Business, or reputation, to ensure that the appropriate management of conflicts, Keith can Chaired by Anita Frew The full schedule of matters reserved Board has accurate, timely and clear information constructively challenge the Executive Directors Reviews the structure, size and composition of the Group Ethics Committee for the Board can be found at on all matters. and scrutinise the performance of management Board and its Committees, identifies and nominates in meeting agreed goals and objectives in a way Chaired by Tom Brophy www.croda.com suitable candidates for appointment to the Board and Senior Independent Director largely unavailable to the Independent Non- has responsibility for Board and Executive Committee The Senior Independent Director provides a Executive Directors. succession planning. For more information see pages sounding board for the Chairman and acts 58 and 59. as an intermediary for the Non-Executive Group General Counsel and Directors, where necessary. He is available Company Secretary Routine Business Committee to shareholders where communication through The Group General Counsel and Company Chaired by Steve Foots or Jez Maiden the Chairman or Executive Directors has not Secretary is secretary to the Board and its been successful or where it may not seem Committees. He ensures that Board procedures appropriate. The Senior Independent Director are complied with and advises on regulatory is responsible for leading the Non-Executive compliance and corporate governance. In Directors in appraising the performance of the addition, he develops Board and Committee Chairman and in their discussions of her term agendas and collates and distributes meeting of appointment and fees. papers. He facilitates induction programmes for new Directors and provides briefings on governance, legal and regulatory matters. Croda International Plc Croda International Plc 40 Annual Report and Accounts 2017 Annual Report and Accounts 2017 41 Directors’ Report | Corporate Governance | Leadership

The Board’s 2017 activities and priorities Update on 2016 Board evaluation actions In 2016, the Board review was conducted using an online questionnaire tailored to our activities and concerns. The key actions, and progress in meeting them, are summarised below: Membership of the Board and attendance (eligibility) at Board meetings held during the year ended 31 December 2017 Key actions What we did Status Spend time looking at major → Appointed a Chief Digital Officer to grow our digital strategy Anita Frew The Board has an agenda programme Executive Committee. The strategy day strategic issues including (Chairman) 8 (8) that ensures strategic, operational, in the first half of the year is followed → Performed a technology gap analysis as a blueprint for future organic and inorganic growth innovation, sustainability Alan Ferguson 8 (8) financial, human resources and corporate by the consideration of the three year and market dynamics → Reviewed our sustainability agenda and completed the installation phase of our industry Steve Foots 8 (8) governance items are discussed at the plan in the autumn and then the approval leading bio-surfactant plant in North America Helena Ganczakowski 8 (8) appropriate time at Board meetings. The of the budget towards the end of the → Reviewed the market landscape and generated plans to remain ahead. Keith Layden 8 (8) Board agenda has strong links to the year. Key highlights of the Board’s 2017 Jez Maiden 8 (8) strategic objectives for the Business. The activities and priorities are set out below, Regularly review our innovation → Reviewed the technology acquisition pipeline pipeline

Nigel Turner 8 (8) Board has seven routine meetings during along with an estimate of the proportion of → Considered the open innovation pipeline Directors’ Report Steve Williams 8 (8) the year and an additional strategy day, the time that the Board spent discussing → Reviewed the importance of innovation as part of a strategy day session which is attended by all members of the each area. → Regularly received updates on each Sector’s performance against innovation KPIs. Continue to monitor the culture → Commissioned a group wide Global Employee Culture Survey and behaviours within the → Considered Global Employee Culture Survey results and proposed action plans organisation, taking account of Board activity in 2017 these when making decisions → Focused on cultural fit when considering Non-Executive Director succession planning. Focus on Board succession → Undertook a Directors’ skills and experience analysis (p37) planning and the optimum → Prepared a talent succession development profile for each member of the Executive balance and composition Strategy Committee of the Board → Undertook a Board and Committee effectiveness review (pp46 and 47). Delivering Driving Sustainable

growth (p12) (20%) innovation (p12) (20%) solutions (p12) (15%) Completed Ongoing → Croda Latin America, Incotec Latin → Product innovation programmes → Safety, health, environment America and Croda India business and technology platforms and quality includes discussions on business strategy accompanied by Steve Williams. Nigel reviews → Technology led acquisitions and → Sustainability strategy and targets Outside the boardroom → Adjacent market opportunities entrepreneurial cells In addition to formal Board meetings, and leadership chaired by a Director, Turner and Alan Ferguson visited Incotec’s → Review of Sustainability Report as well as interacting with employees headquarters and manufacturing → Product manufacturing strategies → New and Protected Products pipeline the Directors attended offsite meetings → Senior management succession to review the Group’s strategy and were on the programme in team building site at Enkhuizen, in the Netherlands. → Various acquisition opportunities → Innovation and Research and → Ethical supply chain compliance present at the AGM. They also met with sessions or at dinners. The Non-Executive Directors discussed and pipeline Development metrics programme the Company’s financial and public The Board visited our manufacturing site a wide range of topics with the local → Open innovation relations advisers to discuss the feedback and sales office in Campinas, Brazil and management teams, including process from investors and analysts on the Group’s Incotec’s Brazilian operation at Holambra. safety, innovation, business ethics, plant annual results. The Chairman and Non- More details of this visit can be read on expansion plans and challenges and opportunities in each market. People (15%) Governance and reporting (10%) Financial, risk and performance Executive Directors met together without page 45. management (20%) the Executive Directors present. As in previous years, members of the → Talent review and succession → Review of Annual Report and Accounts During the year, all of the Non-Executive Executive Committee and other senior planning and other financial statements → Capital expenditure approvals and The Chairman spends a considerable Directors (with the exception of Keith managers from across the Company performance reviews of historic amount of time meeting with Steve Foots Layden) made additional overseas site → Board diversity → External Board and Committee attended Board dinners where the Board effectiveness evaluation capex and the senior management team at the visits, outside of the normal Board site → Executive development profiles for discussed topics relevant to the Business → Capital allocation policy and capital Company’s head office. This ensures visits. Anita Frew visited the Croda India the Executive Committee → Defence strategy and its strategy. In addition, during the returns that she is kept appraised of significant manufacturing site in Thane and the → The Croda culture → Investor relations review Board’s visit to Brazil, the Directors met → The Group’s budget, forecasts developments in the Business between Argentinian sales office, accompanied → Health and safety of our employees → Tendering of external audit (p55) informally with many of the Group’s and key performance targets and Board meetings. by Helena Ganczakowski on the latter and contractors employees. These interactions enhance indicators All Directors are involved in the Group’s visit. Helena also visited the Mevisa → Diversity and inclusion of our the Board’s understanding of the Business → Dividend approvals Leadership Development Programme. This manufacturing site in southern Spain, workforce and allow Directors to spend time with the → USA tax changes involves attending various sessions, and → Women in leadership roles initiatives Group’s senior managers and potential → Change of Group insurance broker → Change to Group remuneration future leaders. advisers → Cyber security, anti-bribery and major capital projects risk reviews → Long term viability

Croda International Plc Croda International Plc 42 Annual Report and Accounts 2017 Annual Report and Accounts 2017 43 Directors’ Report | Corporate Governance | Effectiveness

Effectiveness includes site visits, typically hosted by one Board support other Boards, papers have been Conflicts of interest of our Executive Committee members. This Each Director has access to the advice significantly shortened, concentrating The Board has an established process Case study Board re-election allows our new Directors to get to know the and services of the Company Secretary. on performance through the use of KPI for declaring and monitoring actual regional and local leadership teams and to dashboards and distinguishing information The Board has a broad range of Where necessary, the Directors may take and potential conflicts. The Articles of Outside the boardroom discuss a wide range of topics, including reporting from decisions sought. Meeting skills and experience from different independent professional advice at the Association of the Company allow the the local organisation structure, growth papers are made available one week in In September 2017, the Board visited industries, advisory roles and from Company’s expense. non-conflicted members of the Board plans, strategic priorities, risks and the advance, which ensures that each Director the Company’s operations in Brazil international markets. Training and briefings are available to all to authorise a conflict or potential conflict competitive landscape. Directors also has the time and resources to fulfil his/her where Directors officially opened Directors taking into account their existing situation. In addition to the potential These skills support the strategic aims spend time at our laboratories with the duties. Directors have the opportunity to a new laboratory facility, which then experience, qualifications and skills. In conflicts of Steve Williams noted above, of the Company. Following individual research and development teams, where raise questions stemming from the papers hosted them for interactive demonstrations. order to build and increase the Non- Nigel Turner declared a potential conflict performance assessments, the Board they gain insight into technology platforms prior to the meeting, should they wish The Directors undertook tours of Executive Directors’ familiarity with, and in relation to the possible sale of farm is satisfied that each Director continues and chemistries, as well as our product to do so. A resource centre within the both the local Croda and Incotec understanding of, the Group’s people, produce (oilseed rape) through agents to perform effectively, allocates sufficient development pipeline. Visiting our web portal provides access to useful manufacturing facilities, where they businesses and markets, senior managers to Croda. In the period, Helena time for his/her duties and remains fully manufacturing sites enables new Directors information about the Group, including met with local management and members regularly make presentations at Board Ganczakowski held a Non-Executive committed to his/her role in the Company. to explore our complex manufacturing corporate governance materials, finance of the operational teams to gain a meetings. The Board also receives regular Director role at customer, People Against With the exception of Nigel Turner, all processes and approach to process safety and strategy information, Group policies fuller understanding of the sites’ key Directors’ Report face-to-face briefings from the Company Dirty, prior to its dissolution on sale. Directors will stand for re-election and behavioural safety. They are also able and procedures, and information on topics technologies. The Directors also met Secretary and, where appropriate, the Jez Maiden has a Non-Executive Director at the 2018 AGM. Full biographies for the to discuss our challenging sustainability such as risk and insurance. with many of the local employees, which Company’s professional advisers. As well role on the board of PZ Cussons plc, Directors can be found on pages 36 and targets and find out about quality and allowed them to interact in a less formal as planned training on governance, legal a customer of Croda. 37, with more detail at www.croda.com regulatory matters. Independence of Non-Executive setting, whilst spending time with senior and regulatory matters, the programme is Details of the professional commitments Directors managers and potential future leaders. New Directors are given lots of sufficiently flexible to capture new and of the Chairman and the Non-Executive Directors’ induction Croda complies with the Code in having opportunities to spend time engaging with, emerging regulation, development Directors are included in their biographies Upon joining Croda, Directors receive a experienced Non-Executive Directors and talking to, a wide variety of employees stemming from evaluation and specific on pages 36 and 37. The Board is tailored induction programme. New who represent a source of strong advice, across all functions and seniorities. This training requests from Directors. Each satisfied that these do not interfere Directors need to quickly absorb a great judgement and challenge to the Executive includes time at dinners and social events. Director’s training programme includes the with the performance of their duties deal about the Business if they are to fulfil Directors. At present there are five such Through these interactions new Directors same online training on competition law for the Company. their roles effectively from the start. Our Directors, including the Chairman and gain an insight into the Croda culture and and anti-bribery and corruption as taken by tailored inductions offer a swift and the Senior Independent Director, each During 2017, no Independent Non- our values, which are a key differentiator managers and selected employees across thorough way to help new Directors of whom has significant commercial Executive Director had served on the between us and our competitors. the Business. understand our Business, markets, culture experience. Their understanding of the Board for more than nine years from the and relationships and to establish a link Review Before each Board meeting, the Company Group’s operations is enhanced by regular date of their first election, with the range with employees. Secretary makes sure that the meeting between three years and eight and a half The Company Secretary and the new business presentations and site visits. papers and other information are delivered years. Keith Layden served just over five As part of the induction, new Directors gain Director have regular reviews, with input The independence of the Non-Executive electronically, via a secure, iPad- years as an Executive Director, prior to his a thorough understanding of our Business from the Chairman, to agree what extra Directors is kept under review. The accessible, web portal. Following feedback appointment as a Non-Executive Director through meetings with Croda employees insights the induction needs to deliver. Chairman was independent upon her from the 2016 Board effectiveness review on 1 May 2017. across all regions in which we operate. This appointment in 2015 but, as Chairman, and leveraging experience gained from is not classified as independent. Steve The terms and conditions of appointment Williams has consultancy roles with of Non-Executive Directors can be viewed Eversheds LLP, which provides legal at www.croda.com. They can be inspected services to the Group of immaterial during normal business hours at the monetary value, and Spencer Stuart, a Company’s registered office by contacting When planning an induction we take the following steps: search consultancy firm that has previously the Company Secretary and will also be been used by Croda. The Board does not available for inspection at the AGM. consider that these roles would affect his judgement in relation to Croda and its Time commitment 1 2 3 4 Business. With the exception of Keith Each Director is aware of the need to Layden, the Board therefore considers allocate sufficient time to the Company Bespoke Varied delivery Length Review that all Non-Executive Directors who to discharge his/her responsibilities served during the year are independent in effectively. In addition to time spent at programme We use diverse formats to Conscious of a Director’s other The Company Secretary and character and judgement, with no Board and Committee meetings, the communicate information. commitments and not wanting the new Director have regular relationships or circumstances that are Directors participate in several Company Our Company Secretary These include iPad reading to overload him/her with too reviews, with input from the discusses how the materials, meetings with much information in too short a Chairman, to agree what extra likely to affect, or could appear to affect, related events; details are set out on programme should be employees and fellow Directors, time, we deliver the induction insights the induction needs their judgement. Keith Layden is not page 43. tailored to meet a new briefings and training from over the full Board cycle of to deliver. considered independent, having served as Director’s needs. external advisers and site visits. 12 months. the Company’s Chief Technology Officer External consultants prior to retirement from the Company and In the period, Korn Ferry and Deloitte have appointment as a Non-Executive Director provided remuneration consultancy to the in May 2017. Remuneration Committee.

Croda International Plc Croda International Plc 44 Annual Report and Accounts 2017 Annual Report and Accounts 2017 45 Directors’ Report | Corporate Governance | Effectiveness

2017 Board evaluation The Board undertakes a formal review of challenge to management that is actively its performance and that of its Committees promoted by the Chairman. The review 2017 External evaluation of the Board: the process Board performance each year. The 2017 review was conducted identified some opportunities for the by EgonZehnder, an external board Board, which have helped inform the The nature of Board service has review specialist. At the time of the review, Board’s priorities for 2018 and beyond. significantly changed, requiring an ever We covered a broad range of areas EgonZehnder had no other connections The Board’s resulting areas of focus are wider range of skills and greater time with the Company in line with the summarised on page 47. Its priorities for commitment. The Board is not just a requirements of the Code. The last such 2018 are set out on page 39. governing body; boards are being Purpose Strategy and Risks Culture People Meetings Committees Effectiveness independent evaluation was carried out in leveraged as a competitive advantage to performance benchmarking 2014 and we anticipate the next will take complement and support management place in 2020. The results of the review and add value. Demand for exceptional, were, once again, extremely positive. highly qualified Directors is growing and They endorsed the boardroom culture and increasingly specialist skills are required We took a deeper dive on certain topics Non-Executive Director participation and in the boardroom. Directors’ Report

2017 External evaluation of the Board: the preparation Strategy Risk Growth Future

The Board identified a number of EgonZehnder were briefed on the focus EgonZehnder held one-to-one discussions potential independent external Board areas for the review and developed and with each Director and the Company review specialists. The Chairman, CEO distributed a tailored questionnaire to the Secretary, as well as the Group Human and Company Secretary interviewed members of the Board. Resources Director and the Group’s Vice three of those identified, selecting President of Risk and Assurance. EgonZehnder from that process. What we found

The Board is appropriately Board Directors are clear on The Board is fully aligned on Board meetings are well involved with strategy formulation the type and level of risks that growth as a strategic priority led; agendas are balanced and is well equipped to help the Business needs to take to and the Directors demonstrate and Board papers have Phase Three shape the strategic debate. The deliver its growth plan and feel a sense of responsibility for the been streamlined. Board Phase One Phase Two Board is aligned on the strategic confident that the potential success of the Company. members actively leverage One-to-one priorities of the Business. risks facing the Business their knowledge of other Engagement Questionnaire Board deliberations are are clearly defined and Board practices to improve discussions The Board’s agenda covers constructive and robust, with appropriately mitigated. Board effectiveness. the right issues for the Company high levels of energy and pace. and strikes the right balance The Directors have clarity on The CEO and Executives feel There is clear and appropriate between strategy and operations. our values and how they are comfortable bringing open- division of roles between shaping our culture. ended questions to the Board. the Chair and the CEO, who enjoy an open and trusting relationship.

Our areas of focus Phase Four Phase Six Phase Five Observations → Perform longer term strategic reviews Summary → Refine risk appetite for key Company risks Feedback with from the Board recommendations → Define those elements of the culture that must be preserved and those that might flex as the Company grows and the markets the Chairman and Committee to the Board around us develop meetings → Commission an external gap analysis for succession → Development mechanisms for the evaluation of past Board decisions.

EgonZehnder reported back with a EgonZehnder held a one-to-one meeting EgonZehnder attended Board and Board presentation of findings and made with the Chairman, where feedback on Committee meetings to observe each recommendations on further performance the summary findings was presented meeting’s effectiveness and the contribution improvements for the Board, the Committees and discussed. of each individual Director. and their operation. The report and findings were discussed by the Board at its December meeting and areas of focus to address certain recommendations agreed.

Croda International Plc Croda International Plc 46 Annual Report and Accounts 2017 Annual Report and Accounts 2017 47 Directors’ Report | Corporate Governance | Accountability

Accountability self-assessment of compliance with → Reports from the external auditors Relations with shareholders arises; no such meetings were requested Substantial shareholders these controls, which is assured during by shareholders during the year. → Presentations of key risks and controls As at the date of this Annual Report The Audit Committee planned internal audit visits by the Executive owner and other Communication with shareholders The Board believes its practices in and Accounts the Company had The Audit Committee’s report, which → Comprehensive monitoring and assurance providers The Chairman, Executive Directors and this area are consistent with both received notification of the following quantification of business risks, under the Code’s provisions concerning material shareholdings pursuant to the describes the membership of the Audit → Half-yearly report on significant controls other senior managers maintain regular Disclosure and Transparency Rules Committee, its responsibilities, main the direction of the Risk Management from the Vice President of Risk and contact with existing and potential dialogue with shareholders and with of the UK Listing Authority: activities in 2017 and priorities for 2018, Committee. The Group’s approach Assurance shareholders to ensure that our strategy good governance. to risk management and the principal % of is set out on pages 51 to 57. and trading trends are clearly understood. During the year, numerous meetings Number issued risks facing the Group are discussed This system is designed to mitigate, of shares capital Recognising the importance of were held with investors in the UK, North Risk management and in more detail in the Strategic Report rather than eliminate, the risk of failure to BlackRock, Inc. 7,463,118 5.68% communicating with our shareholders, America, Europe and Asia, including internal control on pages 30 to 34 achieve business objectives and provides reasonable, but not absolute, assurance our Vice President, Investor Relations face-to-face meetings, telephone and The Board acknowledges its responsibility → Capital investment with detailed manages the day-to-day contact with the video conferences and hosted site visits for ensuring the maintenance of a sound against material misstatement or loss. As appraisal, risk analysis, authorisation appropriate, the Board also ensures that investment community, including investors in numerous regions. system of internal controls and risk and post-investment review and analysts, as well as co-ordinating site management. In accordance with the necessary actions have been, or are being The Board invites the Company’s brokers Investor concentration procedures. taken, to remedy failings or weaknesses visits and presentations at investor and financial public relations advisers to Directors’ Report guidance set out in the Financial Reporting conferences and roadshows. Percentage of issued capital Council’s (FRC’s) Guidance on Risk This process has been in place for the full identified from the review of internal attend at least one meeting each year, by type of holder Management, Internal Control and Related financial year and up to the date on which controls’ effectiveness and judges their The Board engages in active dialogue at which the economic and investment Financial Business Reporting 2014, and in the financial statements were approved by level of significance. with shareholders through the Group environment, Croda’s performance the Corporate Governance Code itself, the Directors. Chief Executive, Group Finance Director (generally and in comparison with its Fair, balanced and understandable an ongoing process has been established The Board discharged its responsibility for and the Chairman, who regularly meet sector peers) and investor reactions are for identifying, evaluating and managing monitoring the operational effectiveness of The process of compiling the Annual with shareholders. These meetings provide discussed. These presentations are the principal risks faced by the Group the internal control and risk management Report and Accounts starts early an appropriate means of capturing webcast live, so all shareholders have (p30). The Directors have established an systems throughout the financial year and enough to give the Board time to shareholders’ opinions and the Chairman access to them, and are also available organisational structure with clear operating up to the date of approval of the Annual assess whether it is fair, balanced and ensures that the Board is regularly to download. We answer all investor procedures, lines of responsibility and Report and Accounts. It used a process understandable, as required by the Code. appraised of shareholders’ views and key questions sent to our website. delegated authority. which involved: The Board considered whether the Annual issues. All Non-Executive Directors are Set out on page 50 are answers to the Report and Accounts contained the available to attend meetings if requested by most commonly asked shareholder In particular, there are clear procedures → Written confirmations from relevant necessary information for shareholders to shareholders and the Senior Independent questions and a calendar of our investor and defined authorities for the following: senior executives and divisional Institutional holders 93.19% assess the Company’s position and Director is available to discuss matters events attended by senior management → Financial reporting, with clear policies directors concerning the operation of performance, business model and concerning the Chairman if the need Private holders 3.54% those elements of the system for which throughout the year. and procedures governing the financial strategy. The tone was reviewed to ensure Other holders 3.27% reporting process and preparation they are responsible a balanced approach and the Board made of the financial statements. There is → Internal audit work carried out by sure the narrative at the front end of the a clear and documented framework KPMG LLP, which reports through the Annual Report was consistent with the of required controls. Each reporting Vice President of Risk and Assurance financial statements. location prepares an annual to the Audit Committee Geographical breakdown of shareholder base

Continental Europe Our annual internal audit with its findings and any emerging themes 18.39% programme being reported to the Audit Committee. The January North Committee places great importance on the Planning America One element of our internal control UK framework is the work carried out by self-assessments and is concerned when 31.69% our internal auditors. there are differences (positive or negative) 46.32% between the self-assessed scores and those Reporting Preparation The planning process for the year’s audit work assessed during the audit visits. is undertaken by the internal audit team, led On-going by our Vice President Risk and Assurance. The site-based audit fieldwork and IT audits communication with: April are undertaken between May and October, Audit Committee, Themes from prior year audits, key risk senior management and followed by the risk-based reviews. The October external auditors Asia areas and fundamental controls feed into Site and the selection of the audit programme, which outcome of this work is reported to the Audit IT audits and IT self risk reviews 3.60% is approved by the Audit Committee. Committee and any failures of internal controls assessment Consideration is given to the appropriate or weaknesses from non-financial and risk- mix of IT and manual controls to be tested. based reviews are followed up by the Audit Site-based Committee, with common themes feeding audits Self-assessments of controls are carried out into the planning process for the following July by local management and systems’ owners, year’s audit programme. which are analysed by the internal audit team

Croda International Plc Croda International Plc 48 Annual Report and Accounts 2017 Annual Report and Accounts 2017 49 Directors’ Report | Corporate Governance | Relations with shareholders

Audit Committee

Dear fellow shareholder twice each year to discuss the detail Top 5 investor questions Report of the In my capacity as Chairman of the Audit of the year end and half year results before the relevant Committee meetings. Our investor calendar Audit Committee Committee, I am pleased to present the Audit Committee Report for the year This helps me to better understand 1 Set out below is a calendar of our investor events attended by senior for the year ended ended 31 December 2017, which I hope the key issues and to make sure management in 2017: 31 December 2017 you find informative. It provides detail of the enough time is devoted to them at the How does the Company activities carried out by the Committee in subsequent meeting. manage its allocation of what was a busy year. By its very nature February July Responsibilities capital? → Full year results announced → Half year results announced this report covers a number of matters The Committee assists the Board in The Company has good capital that were also covered last year. Whilst → Roadshow in London ensuring that the Group’s financial discipline that is aligned with its clearly it is important that these are reported on, March systems provide accurate and up-to-date defined Capital Allocation Policy (p28) I would draw your attention to the sections → Roadshows in London, Frankfurt, September information on its financial position. Montreal, Toronto and Boston and on external audit tendering, internal → Conferences in Dublin and London Mid-Atlantic, USA audit and risk management and those Key responsibilities: → Roadshow in Zurich highlighting our key focus areas for 2017 2 → To monitor the integrity of the Directors’ Report → Conferences in New York, and looking ahead to 2018. Stockholm and London → Investor field trips to France and financial statements and results What are the growth targets the UK announcements of the Group and to → Investor field trip in the UK Committee membership for the core business? review significant financial reporting The Committee consists of four Non- Low-to-mid single digit growth October issues and judgements April Executive Directors. The experience of (excluding raw material price → Q3 Trading Update announced each member of the Committee is → To recommend external auditor recovery) (p24) → Q1 Trading Update published → Roadshow in Helsinki summarised on pages 36 and 37. I have appointment and removal, assess → Annual General Meeting in York audit quality, negotiate and approve → Conference in East Yorkshire held a number of senior finance director roles and am Chairman of the Audit the audit fee, assess independence, 3 May Committees of two other FTSE 100/250 monitor non-audit services and be November The Committee has → Roadshows in Edinburgh, companies, as well as an AIM listed responsible for audit tendering What are the Company’s Copenhagen, Oslo, London and → Conferences in Boston and delivered on its key company. The Board considers each → To review the adequacy and priorities in respect of merger Mid-West, USA London priorities during the year, member of the Committee is independent effectiveness of the Group’s internal and acquisition activity? → Roadshows in London, New York, within the definition of the Code and controls and risk management June Chicago and Toronto including the successful The Company has three types of has relevant financial experience, as systems, and the adequacy, → Roadshows in Geneva and the tenders of the external M&A targets: → Investor field trip in the UK well as a broad and diverse spread effectiveness and output of the Netherlands → Nacent technologies and internal audits.” of commercial experience. Such internal audit function → Conferences in Paris and London December consideration provides the Board with → Small to medium sized bolt-ons Alan Ferguson assurance that the Committee has the → To review the adequacy of the Group’s → Investor field trip to Paris → Investor field trip in the UK Chairman of the Audit Committee whistleblowing arrangements and → Transformational appropriate skills and experience to ensure that it can be fully effective, and that it procedures for detecting fraud. meets the Code requirement that at least In addition to its business as usual Members and attendance Annual General Meeting (AGM) Deadlines for exercising one member has significant, recent and activities, the Committee selects certain 4 (eligibility) at meetings held voting rights relevant financial experience. focus areas each year for detailed review. The AGM provides an opportunity for during the year ended What is the target for New private shareholders to raise questions Votes are exercisable at a General Meeting 31 December 2017 The Chairman of the Board, Professor Detailed responsibilities are set out in the and Protected Products (NPP) with Board members. The Directors of the Company in respect of which the Layden (a Non-Executive Director), the Committee’s terms of reference, which sales growth? are also available to answer questions business being voted upon is being heard. Alan Ferguson Group Chief Executive, the Group Finance can be found at www.croda.com. Chairman 6 (6) The aim is to grow NPP at twice the afterwards, in an informal setting. Votes may be exercised in person, by Director, the Group Financial Controller, The Annual Report and Accounts, proxy or, in relation to corporate members, Helena Ganczakowski the Vice President of Risk and Assurance, non-NPP sales growth rate (p24) Independent Non-Executive 6 (6) including the notice of AGM, are sent to by corporate representatives. The who leads the internal audit function, shareholders at least 20 working days Company’s Articles of Association provide Nigel Turner Independent Non-Executive 6 (6) and representatives from the external before the meeting. There is a separate a deadline for submission of proxy forms and internal auditors attend the meetings 5 investor relations section on www.croda. of not less than 48 hours before the time Steve Williams Independent Non-Executive 6 (6) by invitation. com that includes, amongst other items, appointed for the holding of a meeting or Can the Company expand presentations made to analysts. The AGM adjourned meeting. The Committee periodically, and I more One of the meetings held during the its margin? will be held at the Pavilions of Harrogate, regularly, meet separately with the Vice year was solely concerned with the Our focus on value over volume on 25 April 2018 at 12 noon. President of Risk and Assurance and the growth and increasing innovation outcome of the external and internal external auditors without the Executives should lead to margin expansion audit tenders. In addition there were being present. While these meetings are two meetings held subsequent to the invaluable, I also meet with the external year end, with attendance full at both, auditors, the Group Finance Director and other than for Nigel Turner who the Group Financial Controller at least missed one meeting due to commitments overseas.

Croda International Plc Croda International Plc 50 Annual Report and Accounts 2017 Annual Report and Accounts 2017 51 Directors’ Report | Corporate Governance | Audit Committee

Main (business as usual) activities of the Committee since the publication of the 2016 Annual Report Key focus areas for 2017 (25%) and Accounts The Audit Committee has delivered on our ‘business as usual’ work, as set out in our terms of reference, and from this perspective The Committee met four times in 2017 after publication of the 2016 Annual Report and Accounts and twice between the there is nothing to highlight for your attention. Last year, we noted five focus areas for 2017, which absorbed the balance of the year end and the publication of this Annual Report. The key issues covered at the Committee meetings were reported at the Committee’s time of around 25%, which is much higher this year due to the incremental work on the two audit tenders. subsequent Board meeting. The Committee’s main business as usual activities, excluding the focus areas, and an estimate of the proportion of time spent Key focus area Actions during the year Progress on them, are detailed below: Plan and conduct the tenders of the We undertook a rigorous process for both tenders, including pre-meetings with the external and internal audit services tendering firms, the provision of a comprehensive data room and detailed selection Committee activity in 2017 criteria. All Committee members attended and fully participated in the tender presentations, reaching a unanimous decision in respect of both appointments (see page 55).

Financial reporting (20%) → Undertook regular reviews of the Internal audit and risk Review the implementation of In support of the renewed programme, new and enhanced internal controls were Group’s material litigation and was management (20%) our enhanced ethical compliance adopted and self-assessments against these controls were carried out by local Directors’ Report The Committee: programmes relating to anti-bribery management and control owners. In addition, the internal audit team conducted testing → Monitored the Group’s financial satisfied with the approach to The Committee: and sales of products into sanctioned of these controls at sites visited during the year. The Committee received a review of statements and results provisioning → Received a report from the Vice President markets compliance against the renewed programme, follow up actions were approved and announcements, and reviewed → In conjunction with the Board, Risk and Assurance at each meeting will be monitored. This will remain a focus area for 2018 as the programme becomes significant financial reporting and reviewed the financial modelling and and monitored compliance with the embedded around the world. accounting issues including the stress testing based on plausible Group risk management programme. going concern assessment and scenarios arising from selected key The Committee reviewed the reliance Review the progress of the project to PwC were engaged to run their process analytics tools on the SAP purchase to pay exceptional items risks, noting the effect they would placed by management on the risk increase the use of data analytics process to help ensure the investment in one version of SAP is fully maximised. The have during the viability period. mitigating controls of the Group’s highest both as an audit tool and as a tool to review was undertaken cross region and company, based on 12 months of SAP risks and analysed the types of examine process flows within SAP transactional data. The findings from the review were shared with the Audit Committee, assurance, both internal and external, with the Committee agreeing detailed recommendations to be followed up by Governance (20%) External audit (15%) that applied to these controls The Committee: The Committee: management and internal audit. The Committee will monitor the follow up of these → Agreed a revised approach to the → Reviewed the effectiveness of the → Discussed and approved the external recommendations during 2018. A review of the inventory management process using coverage of internal audit’s programme Group’s anti-bribery and fraud audit plan, including: the assessment of the same tools is planned in Q1 2018. of work. Further details on this approach procedures, including the whistle- significant audit risks; the engagement The innovative use of SAP and data analytics was a key selection criterion for the are described on page 54 blowing procedure. The Committee risk profile; the scope of the audit; the external and internal audit tenders (see page 55) and we expect to see a further step were satisfied that appropriate materiality level and the de minimus → Assessed the 2017 risk-based and change integrated into the audit approaches from 2018 onwards. procedures were in place for reporting threshold (see pages 82 to 85 thematic assurance activity carried out proportionate and independent of the Audit Report); the approach to by internal audit (with reference to the Continue to focus on cyber security Our internal audit team undertook a cyber security maturity review to obtain a holistic investigation of whistleblowing reports, working with internal audit; and the Group’s principal risks), which included risk and ensure the Committee view of Croda’s information security assurance capability. A report was presented to including follow up actions key members of the engagement team a review of: cyber security maturity; receives training in this area the Committee, which included a maturity assessment across several areas, including: supported by specialist auditors UK payroll and UK pensions; ethics → Met with internal audit and external leadership and governance; training and awareness; information risk management; where necessary. The resulting audit and compliance programme; and audit without management being business continuity; operations and technology; and legal and compliance. The fee was approved Group Treasury present Committee discussed how we benchmarked against industry peers, identified → Reviewed compliance with the → Considered the results of the 2017 opportunities to improve cyber maturity and agreed a detailed action plan with → Received presentations from the FRC’s Ethical Standard for auditors internal audits and the IT audits, the management. Cyber security testing forms a core part of the IT controls testing by Finance Director of Personal Care, the and the restrictions on auditors to self-assessment process, the adequacy internal audit, as well as the ISO27001 standard adopted within the Group. The Group Financial Controller and Finance provide non-audit services; in particular of management’s response to matters Committee reviewed the IT activity relating to cyber security, including the output of Director of Life Sciences and the as regards to PriceWaterhouseCooper’s raised and the time taken to resolve penetration testing and breach detection tools. Finance Director of Asia (PwC) role in tax compliance services such matters In response to the output of the 2016 Committee effectiveness review, the Committee → Undertook an externally facilitated in the USA (see page 56 for further → Considered controls over the participated in a face to face training session conducted by cyber security specialists effectiveness review as part of the details) implementation of capital projects as from PwC. review of the Board and its Committees → Discussed the FRC’s 2016/2017 Audit part of the site internal audit reviews as described on page 46 Quality Inspection of PwC in support of → Reviewed and approved the 2018 internal Completed Ongoing → Reviewed its terms of reference and the Committee’s annual assessment of audit plan and the plans to transition the made changes to reflect the updated the quality of the external audit. Further internal audit co-source provider from UK Corporate Governance Code details can be found on page 56 KPMG to PwC (see page 54) and the FRC Guidance on Audit → Considered and confirmed the Committees → Conducted its annual review of the independence of PwC, as further Group’s internal auditor (see page 54). → As part of its annual review of described on page 56 the Group’s tax strategy and → Approved the plans for the transition of risks, approved the publication the external audit from PwC to KPMG of the tax strategy on our website (see pages 55 and 56). www.croda.com.

Croda International Plc Croda International Plc 52 Annual Report and Accounts 2017 Annual Report and Accounts 2017 53 Directors’ Report | Corporate Governance | Audit Committee

Internal audit and risk management In February, the Committee conducted Significant financial statement In 2017 I met with the Vice President Risk its annual review of the internal auditor, Case study reporting issues and Assurance several times outside including the approach to audit planning and risk assessment, communication With support from the external auditors, of the formal meetings to discuss the External Audit Tender within the Business and with the the Committee considered a number of performance and output of the internal Set out below is the process we ran to select the best external auditor for the Business. The Internal Audit tender essentially followed the significant ongoing issues related to the audit function and aspects of risk Committee and its relationship with the same process, other than in September the Audit Committee Chairman, Group Finance Director and Vice President, Risk and Assurance financial statements for the year ended management. The Vice President Risk external auditors. Internal feedback is used reduced the internal audit candidate firms from five, including the incumbent KPMG, to four shortlisted firms and the Vice President Risk and 31 December 2017, as set out below. and Assurance attended each Committee in this process. This did not highlight any Assurance was a member of the selection panel. significant areas for development other Pensions: The Committee monitored the meeting and presented an internal audit Group’s pension arrangements, in particular report that was fully reviewed and than the desire for a more analytical based October 2016 The Audit Committee Chairman and Group Finance Director met with potential successor firms (PwC were the funding of the defined benefit plans in discussed, highlighting any major audit approach to be considered. not asked to tender due to their tenure as external auditors), at the most senior level, and gave an outline of the UK, the US and the Netherlands, which deviations from the annual plan agreed As previously reported, the Committee the tender process that we intended to run. Most importantly the key attributes that we expected from the lead audit partner and senior members of the audit team as well as the likely structure of that team were set are sensitive to assumptions made in with the Committee. took the decision to tender the internal out. This enabled the firms to select the most appropriate audit partners who could lead the tender. In respect of discount rates, salary increases audit contract held by KPMG for the last and inflation. The Committee reviewed the At each meeting, the Committee addition independence was discussed and processes put in place to avoid any such issues arising. considered the results of the audits seven years. This was because of the actuarial assumptions used, compared Directors’ Report Following the introductory meetings three firms confirmed interest in tendering and put forward their them with those used by other companies, undertaken and the adequacy of length of their tenure and the fact that if November 2016/ proposals for lead audit partner followed by other senior team members. Time was taken to meet with considered the views of the external management’s response to matters raised, KPMG were successful in the external January 2017 those individuals to ensure the ones selected were the best fit for Croda, in its broadest sense, as without auditors and found them to be reasonable. including the time taken to resolve such audit tender we would have to tender the internal audit contract in undue haste. that it was unlikely that Croda would receive the best possible tenders. Provisions: The Committee reviewed matters. Particular focus was addressed The Committee were then notified of the key individuals selected from each tendering firm. whether certain environmental, to those areas where there was a major A description of the tender process is set out on page 55. As a result of the tender, reorganisation, litigation and other legal divergence between the outcome of the April 2017 The Committee finalised the detailed selection criteria for the tendering process. These included: provisions were sufficient to cover estimated internal audit and the scoring of the the Committee approved PwC as the costs of potential and actual claims and self-assessment questionnaire, completed internal audit co-source provider from the → Expertise, competency and cultural fit of the lead partner and team decided that they were reasonable and annually by each business unit. In these financial year 2018. This decision was → Knowledge and understanding of our business, industry and key geographies appropriate. For larger areas of exposure, instances the Committee challenged unanimous. It was based on the belief that → Audit approach including use of data analytics the Committee was reassured by legal management as to what actions it was their analytical based approach would drive → Technical expertise, including SAP, and audit quality, including the results of recent FRC Audit Quality opinions and insurance coverage. taking to minimise the chances of most benefit to the Business and that the Reviews and Inspections Taxation: The global footprint of the Group divergences arising in the future. The team put forward by PwC had the right → Conflicts of interest and independence necessitates an understanding of, and range of skills to address the changing Committee looked at recurring themes → Quality of reporting and communication, including the ability to challenge constructively compliance with, complex tax regulations. where issues were identified across a nature of the audit as well as having the The Committee reviewed the basis of → The selection panel’s previous experience of the firms number of locations; these will inform the best cultural fit. PwC’s appointment will calculation of the effective tax rate, including not commence before their resignation as → Value for money. the impact of the recent USA legislative scope of the work undertaken in the 2018 external auditor at the Company’s AGM on changes, the status of the Group’s tax audit plan. Formal tender request issued and data room opened. 25 April 2018; however, familiarisation July/August 2017 compliance, details of potentially significant The approach to the selection of locations meetings have taken place with PwC team challenges from tax authorities, the level for audit visits for the 2017 internal audit September 2017 Meetings, held over a number of days, allowing each of the tendering firms to meet with our key personnel members and the 2018 audit approach, in order for them to get a better understanding of the culture, the business and the key requirements. of accruals and the relevant disclosures. plan evolved from that used the prior year. The Committee concurred with including further use of extended data Feedback was gathered from our attendees following each meeting to provide input into the subsequent Using the three lines of defence model, management’s views. analytics in both internal audit and peer decision making process. assurance obtained from multiple internal reviews, have been discussed. Goodwill: The strategy of the Group and external assurance providers were Written proposal documents were then received and reviewed. includes acquiring new technologies and mapped, with core levels of assurance Details on how the Business implements businesses operating in adjacent markets. October 2017 Selection panel interviews conducted with oral presentations from the shortlisted firms. being provided by the annual controls its risk management and controls on a Goodwill represents a significant asset value The panel comprised: self-assessment process and embedded Group wide basis are set out on pages on the balance sheet (£320.2m out of a total → All members of the Audit Committee SAP application controls. This was 30 and 31. net assets of £829.9m at 31 December → Group Chief Executive 2017). The Committee completed its routine supported by enhanced assurance at annual impairment review of the carrying a selection of sites provided through an → Group Finance Director value of goodwill, as prepared by internal audit visit in line with the refreshed → Group Financial Controller management, including the sensitivity to a risk assessment process. In addition a A formal decision was made by the Committee, taking account of the selection panel’s recommendations, number of underlying assumptions. After programme of ‘Croda peer reviews’ was and its recommendation to appoint KPMG as external auditor was made to the Croda Board. due challenge, the Committee was satisfied implemented within regions as part of the that the assumptions were reasonable and internal audit plan, under the direction of that no impairments were necessary. the Vice President Risk and Assurance, In addition to the ongoing issues the reporting back to the Audit Committee. Committee reviewed the capitalisation of This revised approach ensured that the interest this year as it was significantly internal audit resource added the greatest higher than normal due to the investment in value to the internal control environment the bio-surfactant plant in North America. It also reviewed and discussed the Alternative by focusing in the right areas. Performance Measures being used (p29) and the associated disclosures.

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External auditors’ effectiveness discussed with the Committee during the Following the tender, the Committee a globally consistent approach should scoring well in the questionnaire and During the year, the Committee assessed presentation of the 2017 audit plan. recommended two firms to the Board be taken and this work has been getting good feedback from the Looking ahead to 2018 the effectiveness of PwC as Group external Following the review, the Committee as possible external auditors, with a moved away from PwC, with a new firm observations. The Committee was felt to In addition to our routine business, auditor. To assist in the assessment, the concluded that the audit was effective. unanimous recommendation to appoint appointed who were not involved in be operating effectively, having a balanced the Committee has four focus areas Committee reviewed the output from a KPMG with Chris Hearld as the Lead the external audit tender process. agenda, receiving high quality papers and for 2018. We will: questionnaire completed by senior External audit tendering Audit Partner. This decision was based setting high standards. The challenge, not Non-audit fees have fallen for the sixth untypical in my experience, is making sure → Monitor and assist in the transition members of the finance team to obtain We are in compliance with the Statutory on the view that the team put forward by consecutive year. In 2017, they were all members of the Committee feel able to to the new firms providing external their views on PwC’s effectiveness in Audit Services Order 2014. Although PwC Chris was the strongest and best fit for £0.1m, significantly less than the total challenge and contribute when the topic and internal audit services with carrying out the 2017 audit. The could remain as auditor until 2020, as our Business and that the proposed audit fees of £1.0m; the non-audit to audit has an element of technical content. a focus on driving audit quality questionnaire covered: previously reported, the Committee agreed audit approach would bring a fresh fees ratio stands at 0.1:1. Something for me to continually work on. → Continue to review the → Quality of planning, delivery and to coincide an audit tender with the expiry perspective through greater use of implementation of our enhanced execution of the audit of Ian Morrison’s term as Lead Audit analytics being applied to Croda’s The Committee undertook its annual I will be available at the AGM to respond to Partner, when he would sign the 2017 review of the Group’s policies relating to any questions shareholders may raise on ethical compliance programme as → Quality and knowledge of the single instance of SAP. Annual Report and Accounts, or sooner if it external audit, including the policy that the Committee’s activities in the year. it becomes embedded across audit team were felt necessary by the Committee. The Once the decision was made thoughts governs how and when employees and the world Directors’ Report → Effectiveness of communications Committee formally committed to tender turned to managing the transition. former employees of the Group’s auditors → Review the implementation of between management and the the audit during 2017, with the first year to Plans to do this effectively and efficiently can be employed by the Company. No effective policies and procedures audit team be audited by the newly appointed firm were drawn up and then discussed changes were made. The Committee also to comply with the General Data with the Committee. reviewed PwC’s Independence letter. → Robustness of the audit, including being the year to 31 December 2018. Protection Regulation coming into the audit team’s ability to challenge In conclusion the Committee agreed that Alan Ferguson force in May 2018 For the reasons noted in the Internal audit External auditors’ independence management as well as demonstrate and risk management section (p54) the PwC were independent. Chairman of the Audit Committee → Maintain our ongoing focus on professional scepticism and Committee considered that it was most The Committee and the Board place cyber security risk independence. effective and efficient to run the external great emphasis on the objectivity of the External auditor reappointment Group’s external auditors in reporting As noted above, the Committee The Committee also considered the quality and internal audit tenders at the same time. to shareholders. recommended to the Board that KPMG be of reports from PwC and the additional When the Committee decided to tender offered for election at the forthcoming insights provided by the audit team, it was made clear that audit quality was PwC were the Group’s joint auditors AGM, based on the audit tender process. particularly at partner level. It took account to be at forefront of mind when going from 1970 to 1980 and have been the of the views of the Group Finance Director through the process. A timely, rigorous sole auditors since 1981. To ensure Committee Effectiveness Review and Group Financial Controller, who had and independent audit is fundamentally objectivity, the rotation of audit partners This year the Committee undertook an met local audit partners when visiting some important to the Business. Upfront has taken place. externally facilitated effectiveness review of the Group’s businesses, to gauge the planning was key to making sure the right Our Group policy on the provision as part of the review of the Board and its quality of the team and their knowledge senior teams were selected from the Committees as described on page 46. and understanding of the Business. The tendering firms and that they were given of non-audit services by external The process involved completing a Committee considered how well the enough information and access to enable auditors, which is on our website questionnaire, one to one discussions and auditors assessed key accounting and them to prepare a compelling tender, the www.croda.com, sets out prohibited EgonZehnder observing a meeting. The audit judgements and the way they applied objective being to have the best possible non-audit services and the controls over output was positive with the Committee constructive challenge and professional tenders from all the competing firms. Part assignments awarded to the external scepticism in dealing with management. of the planning process included reviewing auditor to ensure that audit We reviewed the FRC’s 2016/2017 Audit auditor independence. In conjunction with independence is not compromised. Quality Inspection report on the PwC’s the firms themselves, we ensured they During the year, the Committee UK arm. The results were reassuring and were independent at the start of the undertook a detailed review of the process and then monitored the Group’s given our focus on data analytics it was provision of non-audit services by PwC spend with those tendering to avoid any encouraging to see this was an area and compliance with the FRC’s Revised independence issues arising in the run highlighted as an example of good Ethical Standard for auditors, in particular up to the tender. practice. The main areas identified by in regard to the work undertaken by PwC the FRC as requiring actions were More information on the tender process, in relation to providing tax compliance discussed by the Committee. A review including a chronology and details of the and advice to our North American of effectiveness also forms part of PwC’s selection criteria, are contained in the business. The Committee decided that own system of quality control and this was case study on the previous page.

Croda International Plc Croda International Plc 56 Annual Report and Accounts 2017 Annual Report and Accounts 2017 57 Directors’ Report | Corporate Governance

Nomination Committee

Dear fellow shareholder, future. Diversity is a central A copy of our Board diversity policy, Responsibilities Report of the On behalf of your Board, and as consideration for all new Board which is regularly reviewed by the Board, The Committee is responsible for Looking ahead to 2018 appointments. It is also vital that we is available at www.croda.com Nomination Committee Chairman of the Nomination Committee, nominating candidates for appointment to In addition to our routine business, I have pleasure in presenting the have diversity throughout the Company, The Committee considered a talent the Board for approval by the Board, and during the year the Committee will: for the year ended as this leads directly to more balanced for succession planning. It evaluates the Nomination Committee report for the succession development profile for each → Oversee the recruitment of a new 31 December 2017 decision making and helps generate a balance of skills, knowledge, experience year ended 31 December 2017. member of the Executive Committee, Non-Executive Director upon diverse talent pipeline for the Executive ensuring that a healthy talent pipeline and diversity on the Board. Committee, and ultimately the Board. Nigel Turner’s retirement Main activities and priorities exists for future Board roles. The Key responsibilities in 2017 Our Leadership Development Committee discussed each individual’s → Monitor the outcome and programmes comprise of employees During the year the Committee carried existing strengths, development → To regularly review the structure, size consider the effectiveness of from different cultures, backgrounds out a review of the size, structure and opportunities and future development and composition, including the skills, interventions intended to increase and nationalities. The global review of composition of the Board for its current plan. For those considered potential knowledge, experience and diversity, of diversity, in particular looking at talent undertaken by the Executive and future needs, to align with the Group Chief Executive (CEO) successors, the Board and make recommendations the number of women on the Committee and the Board aims to Company’s strategy. Whilst considering the development profiles were overlaid for any changes to the Board Board and Executive Committee ensure that we will have diverse and and in senior roles in the succession planning for Board roles, the against the Board expertise analysis → To give full consideration to succession global representation for the Group’s Company Directors’ Report Committee focused on the collective described earlier. This allows for the further planning for Directors and other senior future leaders. skills and experiences of the Directors. A focusing of the future development plan Executives, taking into account the → Prepare for Steve Williams’ number of areas were identified from the One recommendation of the Hampton- of each of those individuals to ensure that challenges and opportunities facing the retirement in 2019 as he latest two Board evaluations, against Alexander Review, an independent, they bring the right strengths, should they Company and, consequently, what concludes his nine year Board which the Committee assessed existing business led review supported by the be appointed to the Board. skills and expertise the Board will need tenure, focusing on the Board expertise and experience. The UK Government, is that all FTSE 350 The Committee reviewed the time in the future opportunity to further diversify results of this analysis helped identify Boards should target 33% female the Board commitment of the Non-Executive → Where a Board vacancy is identified, to opportunities for the Board (p37). These membership. Currently, 25% of the Directors and was satisfied that all of evaluate the balance of skills, knowledge, → Review and implement the opportunities informed the candidate existing members of the Board are the Non-Executive Directors remain experience and diversity on the Board, relevant requirements of the The Committee considers brief for the recruitment of a new female and we have committed to reach able to commit the required time for the and prepare a description of the role Financial Reporting Council’s Non-Executive Director to succeed Nigel the Hampton-Alexander target of 33% diversity on the Board and proper performance of their duties. The and capabilities required for the revised UK Corporate Governance Turner, as he retires from the Board at in the medium term. We have updated Committee considered and concluded respective appointment Code, which is anticipated throughout the Company our Board diversity policy to capture the AGM, having served his nine-year that, with the exception of Keith Layden, following the FRC’s announcement to be a key factor in the this commitment; the policy already → To identify and nominate candidates to tenure. Looking ahead, an updated all Non-Executive Directors continue of its plans and subsequent public contained a commitment to maintain fill Board vacancies, for the approval of Company’s strategic and version of this analysis will guide our to fulfil the criteria of independence. consultation in 2017. the Board, as and when openings arise financial success.” recruitment process as we begin to the existing 25% level of female As Keith was formerly an Executive consider a replacement for Steve representation on the Board. We Director of the Company, he is not → To keep the organisation’s leadership Anita Frew Williams, who will retire in 2019, also ensure that the specification for any considered independent. needs, both Executive and Non- Chairman of the Nomination Committee having served nine years on the Board. new Director role is equally suited to Executive, under review to ensure that applicants of any gender and that no The Committee also considered The Committee considered which the Company continues to compete unlawful discrimination occurs at any emergency CEO succession, should of the Independent Non-Executive effectively in the marketplace stage in the selection process on any the Board need to appoint a temporary Members and attendance Directors should succeed Nigel Turner applicant characteristic. We are CEO due to unforeseen circumstances. → To review annually the time required (eligibility) at meetings held as Senior Independent Director, intensifying our efforts across the from a Non-Executive Director and the during the year ended concluding that Alan Ferguson had I will be available at the AGM to respond to Company to increase the number Chairman 31 December 2017 a suitable combination of skills and any questions shareholders may raise on of women in leadership roles with a experience to perform that role. Alan the Committee’s activities. → To make recommendations on Anita Frew range of initiatives. Examples include will become the Senior Independent succession planning for the Board. Chairman 3 (3) a mentoring programme for high Director upon Nigel’s retirement. Detailed responsibilities are set out in the Alan Ferguson potential female employees on executive Independent Non-Executive 3 (3) Committee’s terms of reference, which can The Committee considers diversity on succession plans, unconscious bias Steve Foots* the Board and throughout the Company be found at www.croda.com Group Chief Executive 2 (2) training amongst management to be a key factor in the Company’s Helena Ganczakowski populations, greater internal promotion Independent Non-Executive 3 (3) strategic and financial success. We see of flexible working approaches and Anita Frew Keith Layden** diversity of thought, skills, knowledge, ‘female friendly’ job adverts and Chairman of the Nomination Committee Non-Executive 2 (2) experience, gender and ethnicity as gender balanced shortlists in our Nigel Turner critical to the Company’s sustainable recruitment processes. Independent Non-Executive 3 (3) Steve Williams Independent Non-Executive 3 (3)

* Stood down July 2017, responding to shareholder expectations ** Joined the Committee upon appointment as a Non-Executive Director

Croda International Plc Croda International Plc 58 Annual Report and Accounts 2017 Annual Report and Accounts 2017 59 Directors’ Report | Corporate Governance

Other Committees Remuneration Report

The operational management of the Group Finance Committee Group Ethics Committee Chairman’s Letter Delivering growth – is an objective that is Business is delegated by the Board to the The Committee meets every month to This Committee was set up at the start of Report of the aligned with our performance measures Group Chief Executive, who uses several review monthly operating results and 2017 and meets quarterly in support of our On behalf of your Board, and as Chair and targets. Our annual bonus targets are Committees to assist him in this task. examine capital expenditure projects. culture of integrity, honesty and openness, Remuneration Committee of the Remuneration Committee, I have based on a single operating profit metric These Committees and their membership and to promote the importance of ethics for the year ended pleasure in presenting the Directors’ with the principal requirement that no at the date of the Annual Report and Risk Management Committee and compliance across the Group and 31 December 2017 Remuneration Report for the year ended bonus can be paid unless and until the Accounts is shown in the table below. The Committee meets quarterly to evaluate amongst our supply chain partners. 31 December 2017. previous year’s income is exceeded. For and propose policies and monitor The Committee believes that the our longer term Performance Share Plan Group Executive Committee processes to control business, operational Routine Business Committee properly chosen remuneration policies (PSP), 40% of the award is based on The Committee meets eight times and compliance risks faced by the Group, The Committee comprises the Group can and do aid the Group. First they Earnings Per Share (EPS) growth, and a year and is responsible for: developing and to assess emerging risks. Chief Executive and Group Finance support the successful achievement of 40% is based on performance against a and implementing strategy, operational Director, with the Group General Counsel our business objectives and second they bespoke Total Shareholder Return group, plans, policies, procedures and Group SHEQ Steering Committee and Company Secretary and Group reward only those actions that result in of our most relevant competitors. budgets; monitoring operational and The Committee meets quarterly to monitor Financial Controller acting as alternates. sustainable growth. Driving Innovation – is an objective financial performance; assessing and progress against the Group safety, health, The Committee attends to business of a Last year we submitted a new that is directly aligned through the controlling risk and prioritising and Directors’ Report environment and quality objectives and routine nature and to the administration remuneration policy to all our shareholders introduction in 2017 of a new and allocating resources. targets, review safety performance and of certain matters, the principles of which and it was adopted without amendment. challenging PSP target relating to the audits, and determine the requirement for have been agreed by the Board or the This year, we are making only one change introduction of New and Protected new or revised SHEQ policies, procedures Group Executive Committee. to the operation of that policy. Responding Products (NPP) – products upon which and objectives. to developing shareholder expectations, our future growth depends. 20% of the we will be aligning the pension provisions total award is based on this metric. Group Group Risk Group SHEQ Group Routine for future Executive Directors with those Sustainable solutions are a key Committee membership Executive Finance Management Steering Ethics Business of other employee members of the UK (as at the date of this report) Committee Committee Committee Committee Committee Committee component of our growth plans. We are pension scheme. Steve Foots Group Chief Executive • • • • Keeping in mind our One Croda an industry leader in using sustainable materials and processes to deliver Stuart Arnott President Global Operations • • • • Culture, Executive Directors, Also this year we have sought to simplify Executive Committee members the presentation of our Remuneration value for our customers. We consider Sandra Breene President Personal Care • • progress against our sustainability and other senior leaders all Report. This has been done both to aid Tom Brophy Group General Counsel and • • • • understanding and provide greater clarity metrics, specifically safety, health and Company Secretary share the same performance for our shareholders. I hope you agree that environment, as a key underpin for both Nick Challoner President Life Sciences • • • metrics for annual bonus and it is an improvement and one that we hope our annual and long term incentive plans. Anthony Fitzpatrick President Corporate Development • • • Performance Share Plan to build upon. We look at rewards holistically, which Maarten Heybroek President Performance Technologies • • schemes. We believe that this We strongly believe that pay should be means that the Committee must & Industrial Chemicals focuses everyone on working aligned to company performance and the satisfy itself, each year, that other Jez Maiden Group Finance Director • • • • together to provide the best delivery of our strategy. During 2017, we measures of corporate performance Graham Myers Group Financial Controller • • • • for our customers and in turn made progress against each of the three have not been sacrificed to achieve a areas of our strategy; delivering consistent result against our primary incentive plan for our shareholders.” performance measures. • Chairman • Member top and bottom line growth, increasing Steve Williams the proportion of protected innovation Keeping in mind our one Croda culture, Chairman of the Remuneration Committee and accelerating the capture of new Executive Directors, Executive Committee sustainable technologies. members and other senior leaders all Let me now summarise how our policy share the same performance metrics Chairman’s Letter ...... 61 aligns with our key business objectives and for annual bonus and PSP schemes. Remuneration at a glance ...... 63 We believe that this focuses everyone Summary and feedback from how we have responded to shareholder feedback. I will also provide a summary of on working together to provide the best Remuneration Policy adopted 2017 ...... 64 for our customers and in turn, for Report of the Remuneration Committee the remuneration out-turns for 2017 and look forward to 2018. our shareholders. for year ending 2017 ...... 66 Main components of the Alignment to key strategic Responding to shareholder Remuneration Policy ...... 76 objectives feedback and expectations The objectives of the business have At the 2017 Annual General Meeting remained constant over a number of years (AGM) we received support from 86% – delivering growth, driving innovation and of our shareholders. Whilst the policy providing sustainable solutions to meet our received a strongly positive vote, we customers’ needs. In addition, we consider recognised that some shareholders our culture to be as important as our withheld their support and a key issue for strategy, and therefore we believe it is them was a change we made to pensions important to keep our cultural values in in 2016. We continued a dialogue with mind when assessing and operating our shareholders following the AGM and have remuneration policy. changed our pension policy for new Croda International Plc Croda International Plc 60 Annual Report and Accounts 2017 Annual Report and Accounts 2017 61 Directors’ Report | Remuneration Report | Chairman’s Letter

Executive Directors and indeed new With regard to longer term incentives, 2017 month in the 2014 Sharesave plan would members of the Executive Committee. was the year in which grants made in 2015 have been awarded 510 shares; if they 2017 remuneration at a glance under the PSP reached the conclusion of chose to sell those shares today they In future the implementation of our pension How we performed in 2017 policy for new Executive Directors and the three year performance period. As would make in excess of £13,000 profit you will read in the following pages, these based on recent share price. Members of the Executive Committee Adjusted Operating Profit EPS NPP as a % of Group Sales will be wholly consistent with that of our programmes required TSR and EPS New remuneration advisers + 11.4% to £332.2m + 14.9% to 179.0p + 0.2% to 27.6% general UK pension scheme members. targets to be met in the years from 2015 to 2017 before any vesting could take place. We began this year with a change of Thus, going forward for any future new How was our policy implemented in 2017? Executive Directors and members of the Over the performance period we delivered advisers to the Remuneration Committee. a three year TSR of 87.5% which placed I would like to welcome Deloitte to the role Executive Committee, the cash supplement Key component Feature Metrics and results our performance in the top quartile against and to thank Korn Ferry and Aon New How we implemented in 2017 element of their pension will be 15% of and timeline our FTSE 350 comparator group, which Bridge Street for their support over the base salary. Chief Executive Group Finance Chief Technology was the relevant comparator for grants last few years. Officer Director Officer* under the old policy. This results in 100% Remuneration outturn for 2017 Competitive package to N/A Pay rise of 1% awarded to Executive Directors. of this part of the award vesting. EPS Looking ahead to 2018 Basic salary This year the Group has delivered another attract and retain high UK workforce was awarded a 2% increase. growth over the performance period was and core Directors’ Report strong performance; with sales increasing With the exception to the change to calibre Executives 43%, resulting in 100% of this part of the by 10.4% to £1,373.1m and operating profit the application of our policy described benefits £624,316 £430,563 £333,349 award vesting. Therefore, overall vesting by 6.9% to £318.9m, on a constant earlier, your Committee does not propose will be at 100% of the total award. Incentivise delivery of (see page 66 for £734,102 £421,898 £85,911 currency basis. This strong performance to make any further changes in 2018. Annual bonus Income growth strategic plan, targets set definition of income) has resulted in a bonus payment of 78.39% It is the Committee’s view that these Targets have been set in line with 2017, and we are confident that the current in line with Group KPIs of the maximum potential for 2017. awards are consistent with and reflective Threshold 2016 actual of the overall success of the business in policy will serve us well in the coming The annual bonus is subject to a safety, Maximum 2016 actual plus 10% the last three years. year. We will of course continue our health and environment underpin and this dialogue with shareholders and are received explicit consideration by the Actual 2016 actual plus 7.83% Salaries for 2018 committed to ensuring that our Committee. I am pleased to confirm that 78.39% of maximum bonus paid In 2018 the general increase set for remuneration policies reflect the changing health, safety and environment performance expectations of shareholders, across the Group was good and in line the UK workforce was 3% and this level Deferred Compulsory deferral N/A £244,701 £140,633 £28,637 of increase was also given to the stakeholders and society at large. with our internal objectives. Under our new element of one third of bonus into deferred deferred deferred Executive Directors. Yours sincerely, shares with three year (out of (out of (out of performance framework, the Committee of bonus also specifically considered Return on holding period to align £734,102) £421,898) £85,911) Sharing success with our employees with long term business Invested Capital (ROIC), as part of the performance general financial underpin, before We have a high take up for our Sharesave. approving bonus payments. Again I am Indeed around 83% of our UK workforce pleased to say that the Company target participated in this plan and therefore share Steve Williams PSP Incentivise execution of the Vesting of the 2015 PSP award £1,865,602 £964,949 £581,035 in rewards enjoyed by all shareholders. For Chairman of the Remuneration business strategy over long of maintaining ROIC at two to three times EPS* TSR weighted average cost of capital was met example, an employee saving £250 per Committee term measuring profit and Threshold 6% p.a. Median i n 2017. shareholder value (EPS growth p.a. is calculated on a simple Maximum 12% p.a. Upper quartile The Remuneration Committee year average basis over the three year period). Actual over 43% 87.5% 3 years Februar y 2017 → Considered feedback from the shareholder consultation exercise 100% of maximum PSP vesting York, UK → Reviewed the draft Director Remuneration Report → Approved the calculation for 2016 annual bonus award for payment in March 2017 → Approved the vesting outcome for the 2014 Performance Share Plan (PSP) Awards → Approved the granting of PSP Awards for 2017 Shareholding Share ownership guideline CEO 200% of salary → Agreed leaving arrangements for the Chief Technology Officer requirements to ensure material personal stake in business >200% <150% >150% → Reviewed update on ABI headroom limits as they apply to the Business. GFD 150% of salary of target of target of target April 2017 → Gave authority for UK employees to join the UK Sharesave Scheme and non-UK employees to join the International CTO York, UK Scheme → Agreed the tender process to appoint a new Independent Adviser. * Represents annual salary – Professor Layden retired as an Executive Director in April 2017 October 2017 → Appointed a new Independent Adviser Time horizon key Single figure remuneration at a glance Snaith, UK → Considered and reviewed remuneration trends → Agreed a change to future pension contributions for Executive Directors and Executive Committee Steve Foots (total £3,430,462) Salary → Reviewed the updated Committee’s Terms of Reference Benefits Jez Maiden (total £1,953,230) → Agreed dividend enhancement to the Deferred Bonus Share Plan. Pension (incl. supplement) Keith Layden (total £864,874)† December 2017 → Approved salary increases for Executive Directors, Executive Committee and fee increase for the Chairman 1 year 2 years 3 years Ongoing Bonus LTIPs York, UK → Approved the creation of a new Restricted Share scheme to be used below Executive Committee level 0% 20% 40% 60% 80% 100% Reviewed shareholder consultation feedback Other → † Includes all earnings in 2017 as an Executive Director and Non-Executive Director → Reviewed proposed targets for 2018 annual bonus and PSP award.

Croda International Plc Croda International Plc 62 Annual Report and Accounts 2017 Annual Report and Accounts 2017 63 Directors’ Report | Remuneration Report

Summary and Feedback Objectives of the policy 3. To ensure that the policy properly Changes to the application of A summary of the policy can be found on central to our long term growth. Many of The Committee spent several months reflects the various concerns of Remuneration Policy effective 2018 pages 76 to 77. our customers are well known brands that Remuneration Policy considering the effectiveness of the shareholders as to structure and In direct response to shareholder have a direct connection to consumers adopted 2017 previous policy and any potential changes metrics concerns, the Committee has agreed How our Remuneration Policy who expect branded products to be for the future. This review was completed that for all future Executive Director or links to strategy made using sustainable ingredients. An updated Remuneration Policy was 4. To ensure that year by year target with the following five principal objectives in Executive Committee appointments the Delivering both top and bottom line growth Our customers rely on the integrity of presented and approved by shareholders setting sets truly stretching ambitions mind: cash supplement element of their pension is critical to our business success. our ingredients to retain their market at the 2017 AGM and will operate until the and that the scale of reward is will be 15% of base salary in line with the Therefore we reward increases in profit position. Therefore the EPS and NPP AGM in 2020. Changes to the Policy 1. To achieve the closest possible proportionate alignment with the Company’s strategy general population. over prior year within our bonus plan. metric within the PSP, by measuring long were minimised and the Committee 5. The Committee’s method of operation Longer term growth is measured and term growth and innovation, drives our believes that the changes that were made 2. To raise the profile of performance and will be flexible and dynamic taking Consultation with shareholders rewarded through the EPS and TSR sustainability agenda. A very direct are right for the business, reflect the values to ensure that it is judged against true account of external changes and Prior to the 2017 AGM and also afterwards metrics within the PSP; the general connection to sustainability is also of the organisation and remain reasonable business competition business performance the Committee Chairman supported by the financial underpin ensures that the rewarded within the annual bonus plan and proportionate. Group General Counsel and Group Human Remuneration Committee can use its through the provision of a safety, health Resources Director consulted directly with discretion to reduce payments if profit and environment underpin. Summary of policy shareholders about the new Remuneration growth has been achieved at the expense We are proud of our culture at Croda and Directors’ Report Policy; in all nearly 20% of the total of other financial measures. believe sustaining this culture is key to our Set taking into account an individual’s responsibilities, performance and experience, as well as external factors, pay Salary shareholders were talked to. These ongoing success. One of the principal and employment conditions elsewhere in the Group. Driving innovation is the key differentiator discussions were open, frank and often between ourselves and our peers, making pillars of our culture is ‘One Croda’ Annual Bonus Maximum annual bonus opportunities: wide ranging. As a direct result of this us the preferred supplier for our customers. coupled with a strong sense of fairness → Group Chief Executive 150% of salary consultation, changes to the pension We reward success in this area directly and transparency, therefore we have the → Group Finance Director 125% of salary policy were approved for new appointments, through the New and Protected Products same simple bonus metric for the top the Board Chairman, Anita Frew, stood Income growth targets, with no bonus payable until the previous year’s income is exceeded. General financial and (NPP) metric in the PSP but we also 400 employees within Croda; profit has down from the Remuneration Committee, safety, health and environmental underpins apply. recognise that sustained EPS growth can to increase over prior year for any bonus and the Committee is looking at ways to only come about through relentless to be paid. Another prime element of our One third deferred for three years. incorporate wider sustainability metrics into innovation and the creation of new culture, as well as our strategy, is creativity Malus and clawback provisions apply. the PSP and bonus underpins. Throughout ingredients for our customers. and innovation which as discussed is this useful consultation exercise we were supported by our PSP metric related Performance Maximum performance share plan award: We are industry leaders in providing asked how the new policy relates to the to NPP. sustainable solutions for our customers Share Plan → Group Chief Executive 200% of salary business strategy, below is a summary and innovation in sustainable products is → Group Finance Director 150% of salary of this alignment. Awards based on EPS, Relative TSR and NPP. Subject to satisfactory underlying financial performance of the Group. Three year performance period with an additional two year holding period. Malus and clawback provisions apply. How our Remuneration Pension and Pension benefits are either a capped career averaged defined benefit pension plan with a cash supplement above benefits the cap, or a cash supplement. practices support Cash allowance of up to 25% of salary, for future appointments this will be reduced to up to 15% of salary. our strategy Delivering Driving Sustainable One Croda Long term growth innovation solutions culture shareholder return Typical other benefits include company car, private fuel allowance, private health insurance and other insured benefits. Bonus Profit Shareholding Shareholding guidelines apply. Long term EPS guidelines incentive plan TSR

NPP

Underpins Safety, health and environment General financial

Other Holding periods features & deferrals Shareholding requirements

Croda International Plc Croda International Plc 64 Annual Report and Accounts 2017 Annual Report and Accounts 2017 65 Directors’ Report | Remuneration Report | Annual Report on Remuneration

Directors’ Remuneration for the year ending 2018 Report of the Remuneration Committee Key component Implementation in 2018 Key component Implementation in 2018 for the year ended Basic salary → Executive Directors’ base salaries were reviewed during the final Performance → In 2018, award levels will be as follows: quarter of the financial year ending 31 December 2017. Salaries for Share Plan 31 December 2017 2018 are as follows: Steve Foots Jez Maiden 200% of salary 150% of salary Salary at Salary at In this section Increase Jan 2018 Jan 2017 → The targets for the 2018 award are set out below: Directors’ Remuneration for the Steve Foots £643,045 £624,316 3% Performance measures Threshold Maximum year ending 2018 ...... 66 Jez Maiden £443,480 £430,563 3% (weighting) vesting vesting Directors Remuneration for the Relative TSR1 (40%) Median Upper quartile year ending 2017 ...... 68 2 → UK based employees will be awarded an increase of 3% in 2018. EPS growth (40%) 5% p.a. 11% p.a. Pension ...... 70 NPP (20%) Target vesting for NPP sales Keith Layden Retirement ...... 70 Commentary growth to be at least twice non-NPP Payment for Cessation of Office ...... 71 → The Committee considered each individual’s progression in sales, subject to a minimum average of 5% growth per year and overall positive Directors’ Report Payments to past Directors ...... 71 their role as well as their responsibilities, performance, skills and Group profit growth Share Interests...... 71 experience. Ten year Remuneration Figures → The Committee also took into account the wider pay levels and salary 1 TSR peer group constituents: AkzoNobel, Albemarle, Arkema, Ashland, BASF, Clariant, increases being proposed across the Group as a whole. Koninklijke DSM, Eastman Chemicals, Elementis, Evonik Industries, Givaudan, for Group Chief Executive...... 71 Johnson Matthey, Kemira, Lanxess, Novozymes, Solvay, Symrise, Synthomer, Victrex. Chairman and other Non-Executive → Other benefits such as company cars or car allowances, fuel 2 EPS growth p.a. is calculated on a simple average basis over the three year period and Other benefits therefore growth of 33% or more over three years is required for maximum vesting. Directors’ remuneration ...... 71 allowance and health benefits are made available to Executive Non-Executive Director Remuneration ...... 72 Directors. Commentary Performance Graph ...... 72 Performance → In 2018, award levels will be as follows: → No change to maximum awards or performance measures Service Contracts and Outside Interests ...... 72 from last year. related Steve Foots Jez Maiden Wider Employee Context of Reward ...... 73 → Awards are also subject to a general finance underpin, the Committee Percentage change in annual bonus 150% of salary 125% of salary may consider such things as management of ROIC and cash. Remuneration Levels ...... 74 → The targets for 2018 are set out below: → An additional two-year holding period will apply for any shares vesting. Relative importance of the spend on pay ...... 74 Level of award Income* % of bonus payable → Malus and clawback provisions apply. Remuneration Committee and Advisers ...... 74 At least equivalent → Performance period 01.01.18 to 31.12.20. Statement of Voting ...... 75 Threshold to 2017 actual 0% Maximum 2017 actual plus 10% 100% Full retrospective disclosure of the targets and actual performance will be provided in * Income growth is the growth in underlying profitability (defined for bonus purposes as next year’s Annual Report on Remuneration. Group EBITDA for continuing operations before exceptional items and any charges or credits under IFRS2 share based payments) less a notional interest charge on working capital employed during the year. Income is measured after providing for the cost of EPS vesting schedule bonuses on a constant currency basis. 100 → When determining bonus outcomes the Committee will take health, safety and environmental performance into consideration and may 80 reduce the bonus awards if it considers it appropriate. → One third of any bonus paid will be deferred into shares for a three 60 year period. → Malus and clawback provisions apply. 40 → Full retrospective disclosure will be made. 20 Commentary % of EPS element vesting 0 → No change to maximum awards or performance measures from 1% 3% 5% 7% 9% 11% 13% 15% 17% 19% last year. Adjusted EPS growth (p.a.) → The Committee remains comfortable that the structure of the annual bonus does not encourage inappropriate risk taking and that the mandatory deferral of one third of bonus into shares provides TSR vesting schedule clear alignment with shareholders and fosters a longer term link between annual performance and reward. 100 → The Committee considers the targets set for 2018 to be at least as demanding as in previous years and were set after taking 80 due account of the Company’s commercial circumstances and 60 inflationary expectations. 40

20

% of TSR element vesting 0 25 50 75 100 Percentile ranking %

Croda International Plc Croda International Plc 66 Annual Report and Accounts 2017 Annual Report and Accounts 2017 67 Directors’ Report | Remuneration Report | Report of the Remuneration Committee for the year ended 31 December 2017

Directors’ Remuneration for the year ending 2017 Gains made on exercise of share options and PSPs The gains are calculated according to the market price of Croda International Plc ordinary shares of 10.35143p each on the date of Elements of remuneration exercise, although the shares may have been retained. Executive Directors’ Remuneration Executive Director Exercise date Shares exercised Scheme Exercise price Market price Gain (before tax) Salaries Pension3 Annual Long term Steve Foots 12 May 2017 20,701 PSP 0 3923.5p £812,203.74 2 4 5A-B 6 and fees¹ Benefits supplement Pension bonus Incentives Other Total Keith Layden 12 May 2017 7,56 5 PSP 0 3923.5p £296,812.78 Executive Director £ £ £ £ £ £ £ £ Steve Foots 2017 624,316 31,650 146,704 28,088 734,102 1,865,602 – 3,430,462 PSP awards granted in 2017 2016 618,135 30,302 132,276 35,884 772,669 812,204 2,971 2,404,441 Directors were eligible to receive PSP awards up to a value of 200% of salary at grant. The PSP awards granted on 9 March 2017 were Jez Maiden 2017 430,563 28,179 107,641 – 421,898 964,949 – 1,953,230 as follows: 2016 426,300 27,377 101,246 – 426,300 – 3,843 985,066 Keith Layden7 2017 111,116 7,630 27,779 – 85,911 581,035 11,710 825,181 Basis of Face/maximum % of award vesting Number of PSP award granted value of awards at at threshold Performance 2016 330,049 20,061 78,387 – 330,049 296,813 1,581 1,056,940 Executive Director shares awarded (% of salary) grant date1 (maximum) period Total 2017 1,165,995 67,459 282,124 28,088 1,241,911 3,411,586 11,710 6,208,873 Steve Foots 34,880 200% 1,248,599 25% (100%) 01.01.17 – 31.12.19 Total 2016 1,374,484 77,740 311,909 35,884 1,529,018 1,109,017 8,395 4,446,447 Jez Maiden 18,041 150% 645,814 25% (100%) 01.01.17 – 31.12.19 Directors’ Report 1 Steve Foots’ salary before salary sacrifice pension contributions of £3,000 1 Face value/maximum value of award is calculated based on a share price of £35.797, being the average mid-market share price of the three dealing days prior to the date of grant 2 Benefits include benefit-in-kind for company car or cash allowance, benefit-in-kind for private medical insurance and private fuel allowance 3 Represents the 20% cash supplement paid to Jez Maiden and Keith Layden and the 20% supplement paid to Steve Foots in relation to benefits provided above the salary pension cap from 1 January to 31 March 2016. The cash supplements increased to 25% with the introduction of the CARE scheme on 1 April 2016 The 2017 PSP awards, are subject to a performance condition which is split into three parts; 40% EPS, 40% TSR and 20% NPP. 4 For defined benefit pensions the amount included is the additional value accrued during the year, calculated using HMRC’s methodology for the purposes of income tax using a multiplier of 20 Vesting will take place on a sliding scale. 5A The PSP awards granted in March 2015 reached the end of their performance period on 31 December 2017. The awards will vest at 100% (see below). The values included in the table above are based on the three month average price to 31 December 2017 of 41.482. These values will be updated in next year’s Annual Report based on the share price at vesting which will take place on All employee share plans 5 March 2018. Executive Directors are invited to participate in the HMRC tax-approved UK Sharesave Scheme and the Croda Share Incentive Plan 5B The 2016 PSP award has been updated to reflect the actual share price at vesting of 3923p 6 Holiday pay and fractional payment relating to SIP (SIP) in line with, and on the same terms as, the wider UK workforce. 7 Keith Layden retired as an Executive Director on 30 April 2017. Details on the treatment of his outstanding share awards is set out on page 70. Following his retirement as an Executive Director he SIP was appointed as a Non-Executive Director, remuneration in respect of these services is included in the table on page 72. Details of shares purchased and awarded to Executive Directors under the SIP are shown in the table below. A brief description of the Annual bonus SIP is set out in note 22 on page 124.

The 2017 bonuses for Executive Directors were calculated by reference to the amount by which the income for the year exceeded the SIP shares Partnership shares Matching shares Total shares SIP shares that became Total unrestricted SIP income for 2016 (the ‘base income’). Bonuses for 2017 are payable against a graduated scale once the 2017 income exceeds the base Executive Director held 01.01.17 acquired in year awarded in year held 31.12.17* unrestricted in the year shares held at 31.12.17 income with bonus targets set, and performance measured, based on constant currency actual exchange rates. Steve Foots 5,623 47 47 5,717 112 5,239 Jez Maiden1 100 48 48 199 – – Bonus outcome Threshold target Maximum target Actual (% of maximum) Keith Laydon 5,623 17 17 – 5,657 – £319m £350.9m (last year’s (10% above the 1 Jez Maiden also had three additional shares acquired through the Dividend Reinvestment Plan Income income) threshold target) £343.9m 78.39% Sharesave The Remuneration Committee has discretion to reduce (including to zero) the amount of any payment under the scheme if it considers Details of awards made under the UK Sharesave scheme are set out below: the safety, health or environment (SHE) performance is in serious non-compliance with the Croda SHE policy statement, document of Earliest Number at Number at minimum standards. In addition the Committee can also reduce any payment (including to zero) if it considers the underlying business exercise Expiry Face Exercise 01.01.17 Granted Exercised 31.12.17 performance of the Company is not sufficient to support the payment of any bonus. Date of grant date date value* price ( shares) in year in year (shares) Steve Foots PSP 18 September 2014 1 November 2017 30 April 2018 £ 2,247.0 6 1763p 102 – 102 PSP awards vesting in March 2018 17 September 2015 1 November 2018 30 April 2019 £4,490.29 2232p 161 – 161 The PSP awards granted in March 2015 reached the end of their three-year performance period on 31 December 2017. 16 September 2016 1 November 2019 30 April 2020 £6,728.94 2639p 204 – 204 Actual Out-turn 13 September 2017 1 November 2020 30 April 2021 £6,725.10 3092p – 174 174 Measure Weighting Threshold Maximum Performance (% of max element) 467 174 – 641 Median Upper quartile 87.5% Jez Maiden Relative TSR versus FTSE 350 constituents 50% (50th percentile) (75th percentile) percentile% 100% 17 September 2015 1 November 2018 30 April 2019 £11,239.67 2232p 403 – 403 Adjusted annual average EPS growth over 3 years* 50% 6% pa 12% pa 43% 100% 16 September 2016 1 November 2019 30 April 2020 £11,247.8 9 2639p 341 – 341 * EPS growth p.a. is calculated on a simple average basis over the three year period; and therefore growth of 36% or more over three years is required for maximum vesting. 744 – – 744

As well as considering the EPS and TSR targets under the rules of the PSP, the Remuneration Committee are obliged to consider the During 2017, the highest mid-market price of the Company’s shares was 4413p and the lowest was 3214.5p. The year end closing price was 4424p. The year end mid-market price was 4413.5p. underlying performance of the Company over the performance period. * Face value is calculated using the market value on the day before the date of grant, multiplied by the number of shares awarded The forecast vesting value of the awards made in March 2015, subject to the above performance targets, is included in the 2017 single figure table above.

Croda International Plc Croda International Plc 68 Annual Report and Accounts 2017 Annual Report and Accounts 2017 69 Directors’ Report | Remuneration Report | Report of the Remuneration Committee for the year ended 31 December 2017

Pension Payments for cessation of office The pension rights that accrued during the year in line with the policy on such benefits as set out in the Policy Report were as follows: There were no payments for loss of office during the year under review. Defined benefit schemes Payments to past directors Accrued pension Single remuneration Single remuneration Single remuneration figure Normal retirement 2017 figure 2017 figure 2016 excluding supplement Mike Humphrey, former CEO, was paid £60,000 in 2017 in respect of consultancy services to the business. Executive Director date under the CPS £000 £000 £000 £000 Steve Foots 14 September 2033 119 175 168 28 Share interests Jez Maiden N/A 0 108 101 0 The interests of the Directors who held office at 31 December 2017 are set out in the table below: Keith Layden 18 October 2020 691 28 78 0 Legally owned1 SIP 1 Keith Layden started to draw his pension on 19 October 2014. PSP DBSP Sharesave Total % of salary held under Note: Members of the CPS have the option to pay voluntary contributions. Neither the contributions nor the resulting benefits are included in this table. During 2017, Steve Foots was paid £146,704 31.12.16 31.12.17 (unvested) (unvested) (unvested) Restricted Unrestricted 31.12.17 shareholding guideline (2016: £132,275), Keith Layden was paid £27,779 (2016: £67,386) and Jez Maiden was paid £107,641 (2016: £101,246) in addition to their basic salary to enable them to make independent provision Executive Director for their retirement. Steve Foots 124,225 135,177 121,138 14,077 641 478 5,239 276,750 >200% target Croda has a number of different pension plans in the countries in which we operate. Pension entitlements for Company Executives are Jez Maiden 3,475 3,475 44,616 7,76 3 744 199 – 56,797 <150% target tailored to local market practice, length of service and the participant’s age. Non-Executive Director Directors’ Report Following a review of pension provision in the UK conducted in 2014, a Career Average Revalued Earnings scheme was introduced with Alan Ferguson 2,414 2,414 – – – – – 2,414 – a cap applied to pension benefits. The plan was rolled out in 2016 and at this time, the cap was set at £65,000; and is increased each Anita Frew 9,655 9,655 – – – – – 9,655 – year in line with inflation and from April 2018 will be £67,620. Helena Ganczakowski 362 370 – – – – – 370 – Keith Layden 68,141 72,143 34,542 6,011 – – – 112,696 – Employees who earn in excess of the pension cap receive a pension supplement. For current Executive Directors this supplement is up Nigel Turner 14,482 14,482 – – – – – 14,482 – to 25% of salary; however from 2018, any new appointments to the role of Executive Director or to the Executive Committee will receive Steve Williams 11,566 11,824 – – – – – 11,824 – a supplement of up to 15% in line with the general population. Where employees elect not to join the pension plan, cash is paid in lieu of a Company pension contribution. Again, for current Executive 1 Including connected persons Directors this is set at 25% of salary; however from 2018, any new appointments to the role of Executive Director or to the Executive There have been no changes in the interests of any Directors between 31 December 2017 and the date of this report, except for the Committee will receive a supplement of 15% in line with the general population. purchase of 7 partnership shares and 7 matching shares by Steve Foots and Jez Maiden during January and February 2018. Steve Foots’ pension provision Steve Foots accrues pension benefits under the Croda Pension Scheme (CPS) with an accrual rate of 1/60th and an entitlement to retire Ten year remuneration figures for Group Chief Executive at age 60. From 6 April 2011 onwards, pension benefits accruing are based on a capped salary. This cap was £187,500 until April 2014 The total remuneration figure includes the annual bonus and long term incentive awards which vested based on performance in those at which point it reduced to £150,000, and due to annual allowance regulations and changes to the pension scheme, reduced to £37,500 years. The annual bonus and long term incentive award percentages show the payout for each year as a percentage of the maximum. in April 2016 (reduced from the scheme cap of £65,650 due to annual allowance regulations). If Steve Foots retires before he is 61, a reduction will be applied to the element of his pension accrued after 6 April 2006. If he retires before the age of 60, a reduction will be 2009* 2010* 2011* 2012^ 2013^ 2014^ 2015^ 2016^ 2017^ applied to the element of his pension accrued before 6 April 2006, unless in either instance, he is retiring at the Company’s request. In Total remuneration (£) 1,943,740 3,224,875 4,142,608 1,364,048 1,427,156 769,414 1,374,046 2,404,441 3,430,462 the event of death, a pension equal to two-thirds of the Director’s pension would become payable to the surviving spouse. Steve Foots’ Annual bonus (%) 100% 100% 100% 28% 0% 0% 76.38% 100% 78.36% pension in payment is guaranteed to increase in line with the rate of inflation up to a maximum of 10% per annum for benefits accrued Long term incentives vesting (%) 100% 100% 100% 100% 81.8% 0% 0% 42.95% 100% before 6 April 2006, and in line with inflation up to a maximum of 2.5% per annum for benefits accrued from 6 April 2006 onwards. * Relate to Mike Humphrey Steve Foots is entitled to death-in-service benefits from the CPS. He also receives a pension supplement at 25% of salary above his ^ Relate to Steve Foots personal pension benefit cap. Jez Maiden’s pension provision Chairman and other Non-Executive Directors’ remuneration Jez Maiden has elected not to join the CPS and is therefore paid a pension supplement of 25% of salary. He has an agreement with The fees paid to the Non-Executive Directors (including for chairmanship of Committees) and to the Senior Independent Director were the Company to provide him with death-in-service benefits outside of the CPS. reviewed in December 2017 and increased by 3% which was in line with the UK employee population. These changes will take effect from 1 January 2018. The revised fee structure for the Chairman and other Non-Executive Directors for 2018 is detailed below. Keith Layden’s pension provision As previously detailed, Keith Layden started to draw his pension under the CPS on 19 October 2014. He can draw this deferred Non-Executive Director Position 2017 Fee 2018 Fee Anita Frew Chairman £238,000 £245,140 pension, with Company consent, while continuing in employment. His pension will increase in line with retail price index (RPI) to Alan Ferguson* Audit Committee Chairman £65,000 £66,950 a maximum of 10% per annum for pension accrued before April 2006 and a maximum of 2.5% for pension accrued afterwards. Helena Ganczakowski Non-Executive Director £55,000 £56,650 Keith Layden was paid a pension supplement of 25% of salary up until his retirement as an Executive Director in April 2017. Keith Layden Non-Executive Director £55,000 £56,650 Nigel Turner* Senior Independent Director £65,000 £66,950 Keith Layden retirement Steve Williams* Remuneration Committee Chairman £65,000 £66,950 As announced on 28 February 2017, Keith Layden retired from his role as Chief Technology Officer and Executive Director on 30 April 2017. Keith continued to receive base salary and contractual benefits up to his retirement date at which time these payments and * Committee Chairman and the Senior Independent Director receive a supplementary fee of £10,000 in respect of their additional duties. benefits ceased. In line with the provisions in the relevant plan rules, as a retiree, he was considered to be a good leaver. As a result, he was eligible to receive a pro-rata annual bonus payment for the period of his employment in 2017 (based on the number of complete calendar months worked in the relevant year). The payment will be made at the normal time calculated based on the performance targets tested over the complete financial year. One-third of the bonus earned will be deferred for three years. With regard to his outstanding shares awards, as a good leaver, these will remain eligible to vest in line with the relevant plan rules. Vesting in connection with Performance Share Plan awards will be subject to a pro-rata reduction to reflect the proportion of the relevant performance periods for which he was employed and with performance targets tested at the normal time. The holding period applying to vested share awards will continue to apply. No PSP awards were made in 2017. No further payments will be made in connection with his retirement.

Croda International Plc Croda International Plc 70 Annual Report and Accounts 2017 Annual Report and Accounts 2017 71 Directors’ Report | Remuneration Report | Report of the Remuneration Committee for the year ended 31 December 2017

Non-Executive Directors’ remuneration Non-Executive Directors The remuneration of Non-Executive Directors for the year ended 31 December 2017 payable by Group companies was as follows: The effective dates of the letters of appointment for the Chairman and each Non-Executive Director who served during 2017, are shown in the table below: Salaries and fees Benefits1 Total Non-Executive Director £ £ £ Non-Executive Director Original appointment date Expiry date of current term Anita Frew 2017 236,917 7,295 244,212 Anita Frew 5 March 2015 5 March 2021 2016 225,000 8,727 233,727 Alan Ferguson 1 July 2011 30 June 2018 Nigel Turner 2017 64,917 4,947 69,864 Helena Ganczakowski 1 February 2014 31 January 2020 2016 63,583 2,651 66,234 Nigel Turner 1 June 2009 31 May 2018 Steve Williams 2017 64,917 4,043 68,960 Steve Williams 1 July 2010 30 June 2018 2016 63,833 3,263 67,0 9 6 Keith Layden 1 May 2017 1 May 2020 Alan Ferguson 2017 64,917 3,215 68,132 2016 63,833 2,077 65,910 Helena Ganczakowski 2017 54,917 6,230 61,147 2016 53,833 4,370 58,203 Wider employee context of reward Keith Layden 2017 36,667 3,026 39,693 When making decisions about Executive remuneration the Committee considers the pay and reward structures across the Directors’ Report 2016 – – – business. One of the principles of Croda’s culture is to forge ‘One Croda’. Therefore many of the Remuneration structures that Total 2017 523,252 28,756 552,008 apply to Executives also apply further in the global organisation: Total 2016 470,082 21,088 491,170 Number of Annual bonus based Employee group employees on operating profit Pension (UK only)1 PSP SIP Sharesave2 1 The benefits relate to Directors undertaking business travel on behalf of Croda and ensuring the Directors are not out of pocket for related tax. Yes Yes Executive Directors 2 125% – 150% Defined benefit plan 150% – 200% after 1 yrs service Yes Performance graph Executive Committee 7 Yes Defined benefit plan Yes after 1 yrs service Yes Senior Managers 400 Yes Defined benefit plan Top 60 after 1 yrs service Yes Total shareholder return No – but local bonus schemes 1,200 apply in many All employees 3,391 locations Defined benefit plan No after 1 yrs service Yes 1,000

800 1 Other pension arrangements, aligned to local practice and legislation apply to many of our global locations. 2 Sharesave or similar schemes are provided where local security law allow 600

400 Employee participation in our SIP and Sharesave plans has remained consistently strong and is driven by our culture of employees feeling a strong loyalty to the business. 200

0 Employee participation in employee share schemes

Total Shareholder Return (Rebased) 31/12/2008 31/12/2009 31/12/2010 31/12/2011 31/12/2012 31/12/2013 31/12/2014 31/12/2015 31/12/2016 31/12/2017 100 Croda International FTSE 100 FTSE 250 FTSE 350 90 Source: Thomson Reuters Datastream 80

70 Service contracts and outside interests 60 The Executive Directors have service contracts as follows: 50 Executive Director Contract date Termination provision Steve Foots 16 September 2010 by the Company 12 months 40 by the Director 6 months 30 Jez Maiden 9 October 2014 by the Company 12 months 20 by the Director 6 months 10

External directorships 0 Executive Directors are permitted to accept external appointments with the prior approval of the Board. It is normal practice for 2013 2014 2015 2016 2017 Executive Directors to retain fees provided for non-executive roles. Jez Maiden was appointed as a Non-Executive Director of PZ Cussons on 16 October 2016 and received a fee of £65,382 for 2017. UK Overseas

Croda International Plc Croda International Plc 72 Annual Report and Accounts 2017 Annual Report and Accounts 2017 73 Directors’ Report | Remuneration Report | Annual Report on Remuneration

The Committee is also considering the Remuneration Committee Responsibilities Change in remuneration levels % implications of the gender pay gap and and advisers The Committee determines and Summary of key decisions for 2017 CEO pay ratios. The Committee will Salary Members and attendance (eligibility) agrees with the Board the Company’s → New Remuneration Policy presented and approved by shareholders at the AGM; main continue to consider these issues over the % at meetings held during the year remuneration policy and framework. change was the increase of bonus quantum for Group CEO and Group Finance Director coming months and will make specific % ended 31 December 2017 It determines the remuneration packages → Vesting of 2014 PSP awards; the EPS target representing 50% of the award was not met, recommendations as the data becomes the TSR target vested at 85.9% with the overall award vesting at 42.95% Steve Williams for all Executive Directors and the clear. One initial recommendation that has enefits Chairman 4 (4) Chairman, and recommends and monitors → Payment of 2016 annual bonus in March 2017 at 100% of maximum target reflecting been adopted is to sign up for the real % the level and structure of remuneration Alan Ferguson a 12.9% increase in operating profit Living Wage accreditation from the Living % for senior managers. → Granting of 2017 PSP Awards based on 40% EPS, 40% TSR and 20% NPP target Wage foundation. We are pleased to Independent Non-Executive 4 (4) onus Key responsibilities: announce that in February 2018 we gained Helena Ganczakowski → Establishing annual bonus target for 2017 % Independent Non-Executive 4 (4) accreditation as a Living Wage Employer → To determine the Company's → Salary of the CEO and Group Finance Director to be increased by 3% effective 1 January from the Living Wage foundation. From % Nigel Turner remuneration policy and framework, 2018, in line with UK workforce 1 January 2018 all directly employed UK Senior Independent -30 -20 -10 0 10 20 30 taking into account factors which it → Fee of Chairman also to be increased by 3% effective from 1 January 2018 based employees met the minimum real Non-Executive 4 (4) % change (from 2016 to 2017) deems necessary, including legal and wage requirement outside of London of regulatory requirements → Agreed that Professor Layden would be treated as a good leaver for bonus and PSP Directors’ Report purposes upon his retirement but that no loss of office payments would be made £8.75 per hour. Only a small group of UK employees (ex. Executive Directors) The Chairman, Anita Frew, stepped → To review the ongoing appropriateness employees required an increase to meet CEO down as a member of the Committee → Appointment of Deloitte as the new independent advisers to the Committee and relevance of the remuneration this standard, and all regular contractors in October 2017. Anita Frew attended 2 (2) meetings prior to stepping down from policy will move to this wage during 2018. External advisers to the Committee remuneration and Non-Executive fees. Relative importance of the the Committee. → To determine the total individual The Company, in line with current market spend on pay Korn Ferry Hay Group was retained as the Deloitte also provided overseas tax and In addition the Committee invites remuneration packages for the practice, does not actively consult with The chart below shows the movement appointed adviser to the Committee until legal advisory services. Both Deloitte and individuals to attend meetings to ensure Chairman, each Executive Director, employees on Executive remuneration, in spend on staff costs versus that in October 2017 to provide independent Korn Ferry Hay Group are signatories to that decisions are informed and take the Company Secretary and other however the Group Human Resources dividends and adjusted profit after tax. advice on remuneration policy and the Remuneration Consultants Group account of pay and conditions in the wider members of the Executive Director updates the Committee practice. During the Summer of 2017, the Code of Conduct. Group. During 2017, invitees included other management team as are designated periodically on feedback received on Committee conducted a tendering process Relative importance of the spend on pay % Directors and employees of the Group by the Board from time to time The total fees paid to Korn Ferry Hay remuneration practices across the inviting a long list of members of the Group for its services during the year were and the Committee’s advisers (see below), Group and this again will be a topic of Employee remuneration cost → To ensure that no payment or proposed Remuneration Consulting Group (RCG) to including Steve Foots (Group Chief £74,320 (excluding VAT) and the total fees conversation at the Board during 2018. % payment is made that is not consistent participate in the pre-tender process. From Executive), Jez Maiden (Group Finance paid to Deloitte during the year were with the remuneration policy most this process, four firms were invited to Director), Keith Layden (Non-Executive £13,600 (excluding VAT). recently approved by shareholders present to a sub-group of the Committee ividends Director), Tracy Sheedy (Group HR The Committee regularly reviews the → To select, appoint and set the terms and Deloitte were selected to be the new Director), and Tom Brophy (Group General external adviser relationship and is % of reference for any remuneration advisers from October 2017. Counsel and Company Secretary). comfortable that the advice it is receiving consultants who advise the Committee Korn Ferry Hay Group did not have any remains objective and independent. dusted profit after tax → To oversee any major changes in connection with the Group other than in % employee benefit structures throughout providing advice in relation to Executive the Group. Detailed responsibilities are set out in the Percentage change in 0 25 50 75 100 125 150 175 200 225 250 275 Statement of voting Committee’s terms of reference, which can remuneration levels £m At the 2017 AGM, the Directors Remuneration Policy and Directors Remuneration Report 2017 be found at www.croda.com. The following chart shows the movement received the following votes from shareholders: in the salary, benefits and annual bonus 2016 Remuneration Policy Annual Report on Remuneration for the Group Chief Executive between 1 Employee remuneration costs, as stated in the notes to the number of votes % of votes number of votes % of votes the current and previous financial year Group accounts on page 105. These comprise all amounts Votes cast in favour 77,434,375 86.34 87,511,176 97.36 compared with that of the average UK charged against profit in respect of employee remuneration for the relevant financial year, less redundancy costs and Votes cast against 12,253,393 13.66 2,369,282 2.64 employee. The Committee has chosen this share-based payments, both of which can vary significantly Total votes cast 89,687,768 100 89,880,458 100 comparator as it feels it provides a more from year to year Withheld 320,236 127,546 2 Dividends are the amounts payable in respect of the relevant appropriate reflection of the earnings of the financial year average worker than the movement in the 3 Adjusted profit after tax is profit for the relevant year I will be available at the AGM to respond to any questions shareholders may raise on the Group’s total wage bill, which is distorted adjusted for exceptional items, acquisition costs, amortisation of intangible assets arising on acquisition Committee’s activities. by fluctuations in the number of employees and the tax thereon On behalf of the Board and variations in wage practices in our overseas markets.

Steve Williams Chairman of the Remuneration Committee 27 February 2018 Croda International Plc Croda International Plc 74 Annual Report and Accounts 2017 Annual Report and Accounts 2017 75 Directors’ Report | Remuneration Report | Remuneration Policy

Remuneration Policy Link to strategy Operation Maximum opportunity Performance related Compulsory deferral of one third of any bonus paid into Group Chief Executive: 150% of salary An updated Remuneration Policy was presented and approved by shareholders at the 2017 AGM and will operate until the AGM in 2020. bonus shares for three years through the Deferred Bonus Share Group Finance Director: 125% of salary To incentivise and reward Plan (DBSP). Changes to the application of Remuneration Policy effective 2018 Other Executive Directors: 100% of salary delivery of the Group’s key The Committee has the discretion to permit DBSP In direct response to shareholder concerns the Committee has agreed that for all new Executive Director or Executive Committee annual objectives. awards to benefit from dividends on shares that vest. appointments the cash supplement element of their pension will be up to 15% of base salary. To contribute to longer term The balance of the bonus is paid in cash. alignment with shareholders Main components of the Remuneration Policy Framework used to assess performance and for the recovery of sums paid Details of the performance measures used for the current year and targets set for the year under review and performance against them is provided in the Annual Report on Remuneration. Bonus will be based on a challenging range of financial targets set in line with the Group’s KPIs (for example Link to strategy Operation Maximum opportunity income growth targets). The Committee has the flexibility to include, for a minority of the bonus, targets related to the Group’s other KPIs where this is considered appropriate. For each objective set, bonus starts to accrue once the threshold target is met (0% payable) rising on a graduated scale Basic salary Reviewed annually with increases effective from Salaries may be increased each year in percentage of to 100% for out-performance. The Committee takes health, safety and environmental performance into consideration when determining the actual To assist in the recruitment 1 January. salary terms. overall level of individual bonus payments and it may reduce the bonus awards if it considers it appropriate to do so. Bonuses paid are subject to Directors’ Report and retention of high-calibre Base salaries will be set by the Committee, taking into The Committee will be guided by the salary increase provisions that enable the Committee to recover value overpaid through the withholding of variable pay previously earned or granted (malus) or executives. account: budget set in each region and across the workforce through requesting a payment from an individual (claw back) in the event of a material misstatement of results or serious misconduct. The provisions generally. will operate for a three-year period following the date on which the bonus is paid. → The performance and experience of the individual concerned Increases beyond those linked to the region of the → Any change in responsibilities Executive or the workforce as a whole (in percentage of Performance Share Plan The PSP provides for awards of free shares (ie either Normal maximum opportunity of 200% of salary. (PSP) conditional shares or nil-cost options) normally made → Pay and employment conditions elsewhere in the salary terms) may be awarded in certain circumstances In exceptional circumstances (eg recruitment), awards To incentivise and reward annually which vest after three years subject to Group such as where there is a change in responsibility, may be granted up to 300% of salary to compensate for the execution of business continued service and the achievement of challenging → Rates of inflation and market-wide wage increases experience or a significant increase in the scale of the role value forfeited from a previous employer. across international locations and/or size, value or complexity of the Group. strategy over the longer term performance conditions. → The geographical location of the Executive The Committee retains the flexibility to set the salary of a To reward sustained growth Shares (on an after tax basis) are subject to a two year → Rates of pay in international manufacturing and new hire at a discount to the market level initially, and to in (i) profit and (ii) shareholder post-vesting holding period. pan-sector companies of a comparable size and implement a series of planned increases in subsequent value The Committee has the discretion when awards are complexity. years, in order to bring the salary to the desired granted, to permit awards to benefit from the dividends positioning, subject to individual performance. paid on shares that vest. Framework used to assess performance and for the recovery of sums paid Framework used to assess performance and for the recovery of sums paid The Committee considers individual salaries at the appropriate Committee meeting each year, taking due account of the factors noted Granted subject to a blend of challenging financial (eg EPS), shareholder return (eg relative TSR) and strategic targets (eg NPP). in operation of the salary policy. Targets will normally be tested over three years. In relation to financial targets (eg EPS growth and TSR) 25% of awards subject to such targets will vest for threshold performance with a graduated Benefits The Group typically provides the following benefits: Cost of benefits is not pre-determined and may vary scale operating through to full vesting for equalling, or exceeding, the maximum performance targets (no awards vest for performance below To provide competitive from year to year based on the cost to the Group. threshold). In relation to strategic targets, the structure of the target will vary based on the nature of target set (i.e it will not always be practicable to set → Company car (or cash allowance) benefits to act as a retention such targets using a graduated scale and so vesting may take place in full for strategic targets if specific criteria are met in full). Vesting is also → Private fuel allowance mechanism and reward dependent on satisfactory underlying financial performance of the Group over the performance period and subject to potential claw back in the event → Private health insurance and other insured benefits service. of a material misstatement of results or serious misconduct. The claw back provisions will operate for a three year period following the date on which → Other ancillary benefits, including relocation the awards vest. expenses/arrangements as required. All-employee share plans Periodic invitations are made to participate in the Group’s The maximum participation level (for UK-based Additional benefits might be provided from time to time To encourage long term Sharesave Plan and Share Incentive Plan. employees) is as per HMRC limits (see Annual Report on (for example in circumstances where an Executive shareholding in the Remuneration for current maximum limits). Director is recruited from overseas). The Committee will Shares acquired through these arrangements have Company consider whether the payment of any additional benefits significant tax benefits in the UK subject to satisfying is appropriate and in line with market practice when To provide all employees certain HMRC requirements. determining whether they are paid. with the opportunity to The plans can only operate on an all-employee basis. become shareholders in the Framework used to assess performance and for the recovery of sums paid The plans operate on similar terms but on a non-tax Company on similar terms None. favoured basis outside the UK as appropriate. Framework used to assess performance and for the recovery of sums paid There are no post-grant performance targets applicable to these awards.

Pension Pension benefits are typically provided either through Career Average Revalued Earnings Scheme with up to To provide competitive long (i) participation in the UK’s defined benefit pension plan 1/60th accrual up to a capped salary currently set at up term retirement benefits with a cash supplement provided above any pension to £65,650 plus cash allowance of up to 15% of salary salary cap or (ii) a cash supplement provided in lieu of above the cap. The salary cap may be reduced due to To act as a retention pension. annual allowance regulations. mechanism and reward service Only basic salary is pensionable. or Cash allowance of up to 15% of salary. (A cap of 25% applies to Executive Directors appointed prior to 2018) Framework used to assess performance and for the recovery of sums paid None.

Croda International Plc Croda International Plc 76 Annual Report and Accounts 2017 Annual Report and Accounts 2017 77 Directors’ Report

Other Disclosures

Pages 36 to 81 inclusive, together with of Nigel Turner, who will retire at the AGM. Share capital Power to issue or buy back shares Employees The continuous development of all of our the sections of the Annual Report and Details of the Directors’ service contracts At the date of this Report, 135,124,108 At the 2017 AGM, authority was given Diversity: We are committed to the employees is key to meeting the future Accounts incorporated by reference, are given in the Directors’ Remuneration Ordinary Shares of 10.357143p each have to the Directors to allot unissued shares in principle of equal opportunity in demands of our customers, especially in constitute a Directors’ Report that has Report on page 72. been issued and are fully paid up and the Company up to a maximum amount employment and to ensuring that no relation to enhanced creativity, innovation been drawn up and presented in Apart from the share option schemes, long quoted on the London Stock Exchange. equivalent to approximately one third of the applicant or employee receives less and customer service. During 2017, 82.7% accordance with applicable English term incentive schemes and service At the date of this Report, the Company issued share capital, excluding shares held favourable treatment on the grounds of our employees received training, totalling company law; the liabilities of the Directors contracts, no Director had any beneficial has issued and fully paid up 21,900 7.5% in treasury, for general purposes, plus up of gender, marital status, race, ethnic over 107,000 hours. in connection with that report are subject interest in any contract to which the Cumulative Preference Shares, 498,434 to a further one third of the Company’s origin, religion, disability, sexuality or age, Involvement: We are committed to to the limitations and restrictions provided Company or a subsidiary was a party 6.6% Cumulative Preference Shares and issued share capital, excluding shares held or is disadvantaged by conditions or ensuring that employees share in the by that law. during the year. 615,562 5.9% Cumulative Preference in treasury, but only in the case of a rights requirements that cannot be shown to be success of the Group. Owning shares Shares, all of £1 each (the Preference issue. No such shares have been issued. justified. Group human resources policies in the Company is an important way Research and development A statement indicating the beneficial and Shares). The rights and obligations A further special resolution passed at that are clearly communicated to all of our of strengthening involvement in the Research and development activities are non-beneficial interests of the Directors in attached to the Company’s Ordinary meeting granted authority to the Directors employees and are available through development of the Business and bringing undertaken with the prospect of gaining the share capital of the Company, including Shares and Preference Shares are set to allot equity securities in the Company the Company intranet. together employees and shareholders’ new scientific or technical knowledge share options, is shown in the Directors’ out in the Articles, copies of which can be for cash, without regard to the pre-emption Recruitment and progression: It is interests. In 2017, 83.26% of our UK and understanding. Remuneration Report on page 71. Directors’ Report obtained from Companies House in the provisions of the Companies Act 2006. established policy throughout the Business employees and 56.89% of our non-UK The Directors are responsible for managing UK or by writing to the Company Secretary. Both of these authorities expire on the date that decisions on recruitment, career employees participated in one of our Dividends the business of the Company and may There are no restrictions on the voting of the 2018 AGM, that is 25 April 2018, and development, promotion and other all-employee share plans, indicating The Directors are recommending a final exercise all the powers of the Company rights attached to the Company’s Ordinary so the Directors propose to renew them for employment related issues are made solely employees’ continued desire to be dividend of 46p per share (2016: 41.25p). If subject to the provisions of relevant Shares or on the transfer of securities a further year. on the grounds of individual ability, involved in the Company. approved by shareholders, total dividends statutes, the Company’s Memorandum in the Company. The 7.5% Cumulative achievement, expertise and conduct. Employees are kept informed of matters for the year will amount to 81p per share and Articles and any directions given by Preference Shares do not confer on the At last year’s AGM the members renewed of concern to them in a variety of ways, (2016: 74p). Details of dividends are shown special resolution. holders any right to receive notice of or the Company’s authority to purchase up to We give full and fair consideration to including the Company magazine, the in note 8 on page 104; details of the to be present or to vote at any general 10% of its Ordinary Shares. No purchases applications for employment from people Croda Way; quarterly updates; the Company’s Dividend Reinvestment Plan Directors’ indemnities meeting of the Company, unless the were made during the year. As a result the with disabilities, having regard to their Company intranet, Connect; team briefing can be found on page 141. The Company The Company maintains Directors and cumulative preferential dividend on such Company will be seeking to renew its particular aptitudes and abilities. Should an webinars and Croda Now email messages. has established various Employee Benefit Officers’ liability insurance that gives shares is more than 12 calendar months authority to purchase its own shares at the employee become disabled during their These communications help achieve Trusts (EBTs) in connection with the appropriate cover for any legal action in arrears. The 6.6% and 5.9% Cumulative 2018 AGM. Shares will only be purchased employment with the Company, they are a common awareness of the financial obligation to satisfy future share awards brought against its Directors. The Preference Shares do not confer on the if the Board believes that such purchases fully supported by our Occupational Health and economic factors affecting the under employee share incentive schemes. Company has also granted indemnities holders any right to receive notice of or will improve earnings per share and be in provision. Efforts are made to continue performance of Croda and of changes The trustees of the EBTs have waived their to each of its Directors and the Company to be present or to vote at any general the best general interest of shareholders. It their employment with reasonable within the Business. We are committed rights to receive dividends on certain Secretary, which represent ‘qualifying third meeting of the Company, unless the is the Company’s intention that any shares adjustments being made to the workplace to providing employees with opportunities Ordinary Shares of the Company held in party indemnity provisions’ (as defined by cumulative preferential dividend on such purchased will be held as treasury shares. and role where feasible. Retraining is to share their views and provide feedback the EBTs. Such waivers represent less than Section 234 of the Companies Act 2006), shares is more than six calendar months At the date of this report the Company provided if necessary. on issues that are important to them. All 1% of the total dividend payable on the in relation to certain losses and liabilities in arrears or the business of the general holds 3,731,314 shares in treasury. Development and learning: regions have undertaken an employee Company’s Ordinary Shares. Further that the Directors or Company Secretary meeting includes the consideration of a The Company recognises that the key to survey since 2010. More information on details of the EBTs can be found in note 24 may incur to third parties in the course of resolution for reducing the share capital future success lies in the skills and abilities the 2017 Global Employee Culture Survey on page 124. acting as Directors or the Company of the Company, to sell the undertaking of its dedicated global workforce. can be found on page 02. Secretary or as employees of the Company of the Company or to alter the Articles. Directors or of any associated company. In addition, No person holds securities in the Company The Company’s Articles of Association such indemnities have been granted to that carry special rights with regard to (Articles) give the Directors power to other officers of the Company who are control of the Company. The Company appoint and replace Directors. Under the Directors of subsidiary companies within is not aware of any agreements between terms of reference of the Nomination the Group. The Company has also granted holders of securities that may result in Committee, any appointment must be an indemnity representing ‘qualifying restrictions on the transfer of securities recommended by the Nomination pension scheme indemnity provisions’ (as or on voting rights. Committee for approval by the Board of defined by Section 235 of the Companies Directors. The present Directors of the Act 2006) to a paid Director of the Company are shown on pages 36 and 37. corporate trustee of the Group’s UK In line with the UK Corporate Governance pension scheme. Such indemnities were Code, each Director will be standing for in place during 2017 and at the date of re-election at the AGM, with the exception approval of the Group financial statements.

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Articles of Association Other disclosures All the information cross referenced above Unless expressly specified to the contrary Certain information that is required to is incorporated by reference into the Statement of Directors’ → Prepare the financial statements on Practice (United Kingdom Accounting in the Articles, the Company’s Articles may be included in the Directors’ Report can Directors’ Report. responsibilities the going concern basis unless it is Standards, comprising FRS101 be amended by a special resolution of the be found elsewhere in this document References in this document to other The Directors are responsible for inappropriate to presume that the ‘Reduced Disclosure Framework’, and Company’s shareholders. as referred to below, each of which is documents on the Company’s website, preparing the Annual Report, the Company will continue in business. applicable law), give a true and fair incorporated by reference in to the such as the Sustainability Report, are Directors’ Remuneration Report and the The Directors are responsible for keeping view of the assets, liabilities, financial Significant contracts and Directors’ Report: included as an aid to their location and are financial statements in accordance with adequate accounting records that are position and profit of the Company change of control → Information on greenhouse gas not incorporated by reference into any applicable law and regulations. sufficient to show and explain the → The Group financial statements, The Group has borrowing facilities which emissions (p22) section of the Annual Report and Accounts. Company law requires the Directors to Company’s transactions and disclose which have been prepared in may require the immediate repayment of all with reasonable accuracy at any time accordance with IFRSs as adopted → An indication of likely future prepare financial statements for each outstanding loans together with accrued Independent auditors the financial position of the Company and by the EU, give a true and fair view of developments in the Group’s Business financial year. Under that law the interest in the event of a change of control. PricewaterhouseCoopers LLP will sign the Group, and enable them to ensure the assets, liabilities, financial position can be found in the Strategic Report, Directors have prepared the Group The rules of the Company’s employee the 2017 audit report and will then that the financial statements and the and profit of the Group starting on page 02 financial statements in accordance share plans set out the consequences retire as external auditors. Following a Directors’ Remuneration Report comply with International Financial Reporting → The Directors’ Report and Strategic of a change in control of the Company → An indication of the Company’s comprehensive tender process, which is with the Companies Act 2006 and, as Standards (IFRSs) as adopted by the Directors’ Report on participants’ rights under the plans. Report include a fair review of the overseas branches (pp138 to 140) fully described on page 55, KPMG, with European Union, and the Company regards the Group financial statements, Generally, such rights will vest and become development and performance of There have been no events affecting the Chris Hearld as Lead Audit Partner, will be financial statements in accordance with Article 4 of the IAS Regulation. They are exercisable on a change of control the Business and the position of the Company since the financial year end to recommended for appointment as the United Kingdom Generally Accepted also responsible for safeguarding the subject to the satisfaction of performance Group and Company, together with report to shareholders in accordance with Company’s external auditors at the AGM Accounting Practice (United Kingdom assets of the Company and the Group conditions. None of the Executive a description of the principal risks the Accounts Regulations and Disclosure on 25 April 2018. Accounting Standards, comprising and hence for taking reasonable steps Directors’ service contracts contains and uncertainties that they face. and Transparency Rules. FRS101 ‘Reduced Disclosure for the prevention and detection of fraud provisions that are affected by a change of In the case of each Director in office Audit Information Framework’, and applicable law). and other irregularities. control and there are no other agreements For the purposes of Listing Rule (LR) The Directors confirm that, so far at the date the Directors’ Report is The Directors are responsible for that the Company is party to that take 9.8.4R, the information required to be as they are aware, there is no relevant Under Company law the Directors must approved: effect, alter or terminate in the event of a disclosed by LR 9.8.4R can be found on not approve the financial statements the maintenance and integrity of the audit information of which the Company’s → So far as the Director is aware, there is change of control of the Company, which the following pages of this Annual Report unless they are satisfied that they give a Company’s website. Legislation in auditors are unaware, and that they have no relevant audit information of which are considered to be significant in terms and Accounts: true and fair view of the state of affairs of the United Kingdom governing the each taken all the steps they ought to the Group and Company’s auditors of their potential impact on the Group. the Group and the Company and of the preparation and dissemination of Section Topic Page reference have taken as a Director in order to are unaware, and profit or loss of the Group and Company financial statements may differ from The Company does not have any (1) Capitalised interest Page 80 make themselves aware of any relevant for that period. In preparing the financial legislation in other jurisdictions. → They have taken all steps that they contractual or other arrangements that are (2) Publication of unaudited Not applicable audit information and to establish that statements, the Directors are required to: ought to have taken as a director essential to the business of the Group. financial information the Company’s auditors are aware The Directors consider that the Annual to make themselves aware of any (3) Smaller related party Not applicable of that information. → Select suitable accounting policies Report and Accounts, taken as a whole, transactions relevant audit information and to Political donations and then apply them consistently is fair, balanced and understandable and (4) Details of long term Not applicable provides the information necessary for establish that the Group and No donations were made for political incentive schemes → Make judgements and accounting established specifically shareholders to assess the Company’s Company’s auditors are aware of purposes during the year (2016: £nil). estimates that are reasonable and to recruit or retain a position and performance, business that information. Director prudent model and strategy. Financial risk management (5) (6) Waiver of emoluments by Not applicable → State whether applicable IFRSs as The Group’s exposure to and management a Director Each of the Directors, whose details are adopted by the European Union of capital, liquidity, credit, interest rate and (7) (8) Allotments of equity Page 79 set out on pages 36 and 37, confirms securities for cash and applicable UK Accounting foreign currency risks are contained in note that, to the best of his/her knowledge: (9) Participation in a placing Not applicable 19 on pages 115 to 119. Standards have been followed, of equity securities subject to any material departures → The Company financial statements, (10) Contracts of significance Page 80 disclosed and explained in the Group which have been prepared in Capitalised interest (11) (14) Controlling shareholder Not applicable and Company financial statements accordance with the United Kingdom The Group’s policy for capitalising disclosures respectively Generally Accepted Accounting borrowing costs directly attributable to the (12) (13) Dividend waiver Page 78 purchase or construction of fixed assets is set out on page 98. The Directors’ Report and the Strategic Board on 27 February 2018 and is signed Report, including the sections of the on its behalf by Annual Report and Accounts incorporated by reference, is the ‘management report’ for the purposes of the Financial Conduct Authority Disclosure and Transparency Rules (DTR 4.1.8R). It was approved by the Tom Brophy Group General Counsel and Company Secretary 27 February 2018

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Group Independent Auditors’ Report to the Members of Croda International Plc Report on the audit of the Our audit approach Key audit matters not due to fraud) identified by the auditors, addressed in the context of our audit Overview Key audit matters are those matters that, in including those that had the greatest effect of the financial statements as a whole, and Group financial statements the auditors’ professional judgement, were on: the overall audit strategy; the allocation in forming our opinion thereon, and we do Materiality → Overall Group materiality: £15.7 million (2016: £13.8 million), of most significance in the audit of the of resources in the audit; and directing the not provide a separate opinion on these Opinion based on 5% of profit before tax. financial statements of the current period efforts of the engagement team. These matters. This is not a complete list of all In our opinion, Croda International Plc’s and include the most significant assessed matters, and any comments we make on risks identified by our audit. Group financial statements (the ‘financial Audit scope → We, as the Group engagement team, audited the two risks of material misstatement (whether or the results of our procedures thereon, were statements’): financially significant components – the UK and the US – covering 43% of the Group’s external revenues and 46% of → give a true and fair view of the state of the Group’s profit before tax. the Group’s affairs as at 31 December Key audit matter How our audit addressed the key audit matter 2017 and of its profit and cash flows for → For the next seven largest components of the Group, which Provision for environmental remediation We obtained and read the Directors’ assessment of each specific the year then ended; are audited by PwC component auditors (the five largest as full scope audits and the remaining two subject to specified Refer to page 54 (Audit Committee Report), page environmental matter that the Directors made us aware of, and assessed → have been properly prepared in procedures), we were heavily involved at all stages of their 93 (Accounting Policies) and page 119 (notes). the completeness of the list against publicly available information and other accordance with IFRSs as adopted by audits by virtue of numerous communications throughout the As a consequence of the Group’s production of information on potential environmental exposure at current and former sites. the European Union; and process, including the issuance of detailed audit instructions, chemicals, there are a number of open claims and We performed audit work on each matter as there is a risk that the liability for each matter could be materially misstated. → have been prepared in accordance review and discussion of audit findings, in particular over our litigation against the Group relating to soil and with the requirements of the areas of focus. potential groundwater contamination on sites, We evaluated the Directors’ assumptions, both in terms of the likelihood of Companies Act 2006 and, as regards → As a result of this scoping we obtained coverage over 75% of both currently in use and previously occupied. the Group being found liable and also of any resulting financial obligation by: the Group financial statements, Article the Group’s external revenues and 87% of the Group’s profit Environmental standards and legislation are → reading publicly available information, correspondence with relevant 4 of the IAS Regulation. before tax. specific to, and often contain unique requirements, stakeholders and other information available to the Directors relating to We have audited the financial statements, in each territory the Group operates in and may be the specific matters identified, and assessing the Directors’ assumptions included within the Annual Report and Key audit → Provision for environmental remediation. subject to change. As such, understanding the against this information; Accounts (the ‘Annual Report’), which potential environmental risks and the financial matters → Valuation of defined benefit pension scheme liability. → reading remediation plans drawn up by the Directors’ external experts comprise: the Group balance sheet as implications that the Group is exposed to is and considering whether the Directors have properly reflected them at 31 December 2017; the Group income → Taxation. often complex. in the calculation of the provision; statement and statement of comprehensive The provision held for environmental liabilities income, the Group statement of cash To the best of our knowledge and belief, respond to the risk, recognising that → evaluating the independence, objectivity and competence of the experts within the balance sheet at 31 December 2017 flows, and the Group statement of changes we declare that non-audit services the risk of not detecting a material that the Directors engage to assess the likely outcome of the cases totalled £10.2 million, which relates to a number of in equity for the year then ended; the prohibited by the FRC’s Ethical Standard misstatement due to fraud is higher than against the Group, and the cost of remediation needed, by confirming matters. For each matter, the Directors, in Financial Statements accounting policies; and the notes to the were not provided to the Group. the risk of not detecting one resulting from they are qualified and affiliated with the appropriate industry bodies in the conjunction with experts they engaged, assessed financial statements. Other than those disclosed in the Directors’ error, as fraud may involve deliberate respective local territory; concealment by, for example, forgery or the likelihood of the Group being found liable for Our opinion is consistent with our reporting Report, we have provided no non-audit → comparing historic provisions with actual remediation costs incurred intentional misrepresentations, or through any remedial work and, where applicable the costs to the Audit Committee. services to the Group in the period from of that work, as well as any associated fines and during the year to assess the Directors’ historical forecasting accuracy; 1 January 2017 to 31 December 2017. collusion. We designed audit procedures legal costs. → assessing the Directors’ accuracy in estimating exposures for fines and Basis for opinion that focused on the risk of non-compliance The scope of our audit related to the Group’s financial conduct Assessing the likelihood and quantum of any legal costs by comparing historic provisions for cases that have been We conducted our audit in accordance As part of designing our audit, we as well as ongoing legal claims as a financial obligations arising, requires judgement. settled with the actual fine/legal costs; with International Standards on Auditing determined materiality and assessed the consequence of the Group’s production There is a risk that the provision could be materially → discussing all matters with the Group’s legal counsel and Vice President (UK) (‘ISAs (UK)’) and applicable law. Our risks of material misstatement in the of speciality chemicals. Our tests included misstated and the required disclosures insufficient of Sustainability, and obtaining independent confirmations from the responsibilities under ISAs (UK) are further financial statements. In particular, we review of legal correspondence, discussions due to the inherent uncertainties and the potentially Group’s external legal advisers on the progress of each claim; and described in the Auditors’ responsibilities looked at where the Directors made with the Group’s legal counsel and wide range of outcomes and timelines in respect of → discussing all matters arising in Europe and the US with local for the audit of the financial statements subjective judgements, for example in management’s experts. We did not the resolution of each matter. section of our report. We believe that respect of significant accounting estimates management, and corroborating information received from all parties. identify any key audit matters relating to The Directors performed a detailed assessment of the audit evidence we have obtained is that involved making assumptions and We found, based on the results of our testing, that the provision recorded irregularities, including fraud. As in all of environmental liabilities to ensure that the level of sufficient and appropriate to provide considering future events that are and disclosures made in the financial statements were consistent with the our audits we also addressed the risk of environmental provision held remains appropriate. a basis for our opinion. inherently uncertain. management override of internal controls, supporting evidence obtained. We consider management’s estimates to Independence We gained an understanding of the legal including testing journals and evaluating be a reasonable reflection of the current situation. We remained independent of the Group in and regulatory framework applicable whether there was evidence of bias by the accordance with the ethical requirements to the Group and the industries in which Directors that represented a risk of material that are relevant to our audit of the financial it operates, and considered the risk of misstatement due to fraud. statements in the UK, which includes the acts by the group which were contrary to FRC’s Ethical Standard, as applicable to applicable laws and regulations, including listed public interest entities, and we have fraud. We designed audit procedures to fulfilled our other ethical responsibilities in accordance with these requirements.

Croda International Plc Croda International Plc 82 Annual Report and Accounts 2017 Annual Report and Accounts 2017 83 Financial Statements | Group Independent Auditors’ Report to the Members of Croda International Plc

How we tailored the audit scope Materiality Key audit matter How our audit addressed the key audit matter We tailored the scope of our audit to The scope of our audit was influenced by our application of materiality. We set certain ensure that we performed enough work to quantitative thresholds for materiality. These, together with qualitative considerations, Valuation of defined benefit pension scheme We primarily focused our work on the pension plan surplus/deficit in the UK be able to give an opinion on the financial helped us to determine the scope of our audit and the nature, timing and extent of our liability and the US which, together, account for the majority of the balance and, statements as a whole, taking into account audit procedures on the individual financial statement line items and disclosures and in Refer to page 54 (Audit Committee Report), hence, estimation uncertainty. page 93 (Accounting Policies) and pages 106 the structure of the Group, the accounting evaluating the effect of misstatements, both individually and in aggregate on the financial We evaluated the Directors’ assessment of the assumptions they made in to 109 (notes). processes and controls, and the industry in statements as a whole. relation to the valuation of the liabilities in the pension plan as follows: which it operates. The Group has a number of defined benefit Based on our professional judgement, we determined materiality for the financial → we agreed the discount and inflation rates used in the valuation of the pension schemes that, together, are in a net deficit The Group operates through various statements as a whole as follows: pension liabilities to our internally developed expectations using our position of £30.5 million, which is material both in components in 37 different countries internal actuarial specialists and compared the assumptions around the context of the overall balance sheet and the across five continents. Overall Group materiality £15.7 million (2016: £13.8 million). salary increases and mortality to national and industry accepted results of the Group. We, as the Group engagement team, averages; How we determined it 5% of profit before tax. The valuation of the pension liability requires tailored the scope of our audit to ensure → we evaluated the competence of the experts that the Directors engaged significant levels of judgement and technical that we performed enough work to be able We believe that profit before tax is the primary to calculate the defined benefit pension schemes, by confirming they are Rationale for expertise in choosing appropriate assumptions, a to give an opinion on the financial measure used by the shareholders in assessing qualified and affiliated with the appropriate industry body; benchmark applied number of which can be volatile. Small changes in statements as a whole, taking into account the performance of the Group, and is a generally a number of the key assumptions (including salary → we evaluated the sensitivity of the pension scheme liabilities to differences the geographic structure of the Group, the accepted auditing benchmark. increases, inflation, discount rates, and mortality) between our independent judgements and those made by the Directors, accounting processes and controls, and the industry in which the Group operates. can have a material impact on the calculation of both individually and in aggregate; and For each component in the scope of our Group audit, we allocated a materiality the liability. → we have reviewed the Trust Deed and Rules for the UK scheme to confirm We, as the Group engagement team, hat is less than our overall Group materiality. The range of materiality allocated that the Group has the unconditional right to the refund, in line with the performed an audit of the complete across components was between £0.7 million and £14.0 million. Certain components requirements of IFRIC 14 and IAS 19R. financial information for the two financially were audited to a local statutory audit materiality that was also less than our overall significant components- the UK and the Group materiality. Based on the evidence obtained, we found that the assumptions used US. For the next five largest components We agreed with the Audit Committee that we would report to them misstatements by the Directors in the valuation of the liability were within a range considered of the Group, PwC component auditors, identified during our audit above £0.8 million (2016: £0.7 million) as well as misstatements to be reasonable using an internally developed range of acceptable under our instructions, performed an audit below that amount that, in our view, warranted reporting for qualitative reasons. assumptions for valuing pension liabilities, based on our view of various of their complete financial information. economic indicators. PwC component auditors also performed Going concern Taxation We evaluated the Directors’ assumptions for determining and calculating specified procedures at the two next In accordance with ISAs (UK) we report as follows: Refer to page 54 (Audit Committee Report), page the consolidated tax expense, balances and accruals. For all in scope largest components of the Group. Financial Statements 93 (Accounting Policies) and pages 102 and 103 territories we: Where the work was performed by Reporting obligation Outcome (notes). PwC component auditors we determined → obtained the Group’s tax computations and tested the deductions and We are required to report if we have anything We have nothing material to add the level of involvement we needed to have Due to the large number of tax jurisdictions in tax rates applied by reference to local tax legislation; material to add or draw attention to in respect of or to draw attention to. However, in the audit work at those components to which the Group operates, the calculation of the the Directors’ statement in the financial because not all future events or → obtained the Group’s latest internal transfer pricing studies and be able to conclude whether sufficient Group’s tax position is complex and is subject to statements about whether the Directors conditions can be predicted, this associated documentation and used our internal tax specialists to assess appropriate audit evidence had been scrutiny and challenge by different tax authorities. considered it appropriate to adopt the going statement is not a guarantee as to its reasonableness; obtained as a basis for our opinion on the An error in the interpretation of, often complex, concern basis of accounting in preparing the the Group’s ability to continue as → assessed the amount of the specific tax accruals based on our Group financial statements as a whole. financial statements and the Directors’ a going concern. tax regulations, particularly relating to transfer experience of similar situations both related and unrelated to the Group; We were involved at all stages of their identification of any material uncertainties to the pricing, could lead to a material misstatement audits by virtue of numerous communications → read the latest correspondence between the Group and tax authorities Group’s ability to continue as a going concern in the tax expense. throughout the process, including the and considered any implications this may have had on the tax position over a period of at least twelve months from the The Group also holds a number of specific issuance of detailed audit instructions, reported in the Group’s financial statements; date of approval of the financial statements. judgemental tax accruals that relate to specific review and discussion of audit findings, transfer pricing risks, open tax investigations/audits → utilised our experience of similar tax exposures and risks faced by other in particular over our areas of focus. We are required to report if the Directors’ We have nothing to report. and other such matters. The estimation of the multinational groups to assess the evidence described above; and We, as the Group engagement team, statement relating to going concern in accrual is dependent on the Directors’ assessment → compared the levels of tax expense by territory with the local statutory tax were also responsible for other head accordance with Listing Rule 9.8.6R(3) is of the outcome of the outstanding matters. rates and investigated the basis for any differences. office activities such as the consolidation, materially inconsistent with our knowledge financial statement disclosures and share obtained in the audit. The Directors’ judgements in respect of the Group’s position on uncertain based payments. tax items are supportable and reasonable in the context of the information currently available to them and no matters were identified by our work that The procedures performed over the the Directors had not adequately reflected in their estimate of the tax components (either by the Group team expense, balances and accruals. or PwC component audit teams) and specifically by the Group team (for example, on goodwill), accounted for 75% of the Group’s external revenues and 87% of the Group’s profit before tax.

Croda International Plc Croda International Plc 84 Annual Report and Accounts 2017 Annual Report and Accounts 2017 85 Financial Statements | Group Independent Auditors’ Report to the Members of Croda International Plc

Reporting on other information whether the other information is materially With respect to the Strategic Report and Responsibilities for the financial A further description of our responsibilities Appointment The other information comprises all of the inconsistent with the financial statements Directors’ Report, we also considered statements and the audit for the audit of the financial statements Following the recommendation of the information in the Annual Report other or our knowledge obtained in the audit, whether the disclosures required by the UK Responsibilities of the Directors is located on the FRC’s website at: Audit Committee, we were appointed by than the financial statements and our or otherwise appears to be materially Companies Act 2006 have been included. for the financial statements www.frc.org.uk/auditorsresponsibilities. the Directors in 1970 to audit the financial Auditors’ Report thereon. The Directors are misstated. If we identify an apparent Based on the responsibilities described As explained more fully in the Statement of This description forms part of our statements for the year ended December responsible for the other information. Our material inconsistency or material above and our work undertaken in the Directors’ Responsibilities set out on page Auditors’ Report. 1970 and subsequent financial periods. opinion on the financial statements does misstatement, we are required to perform course of the audit, the Companies Act 81, the Directors are responsible for the Use of this report The period of total uninterrupted not cover the other information and, procedures to conclude whether there is a 2006, (CA06), ISAs (UK) and the Listing preparation of the financial statements in This report, including the opinions, has engagement is 48 years, covering the accordingly, we do not express an audit material misstatement of the financial Rules of the Financial Conduct Authority accordance with the applicable framework been prepared for and only for the years ended December 1970 to opinion or, except to the extent otherwise statements or a material misstatement of (FCA) require us also to report certain and for being satisfied that they give a true Company’s members as a body in December 2017. explicitly stated in this report, any form of the other information. If, based on the work opinions and matters as described and fair view. The Directors are also accordance with Chapter 3 of Part 16 of assurance thereon. we have performed, we conclude that below (required by ISAs (UK) unless responsible for such internal control as they the Companies Act 2006 and for no other Other matter there is a material misstatement of this In connection with our audit of the financial otherwise stated). determine is necessary to enable the purpose. We do not, in giving these We have reported separately on the other information, we are required to report statements, our responsibility is to read the preparation of financial statements that are opinions, accept or assume responsibility Company financial statements of Croda that fact. We have nothing to report based other information and, in doing so, consider free from material misstatement, whether for any other purpose or to any other International Plc for the year ended on these responsibilities. due to fraud or error. person to whom this report is shown or 31 December 2017 and on the information In preparing the financial statements, the into whose hands it may come save where in the Directors’ Remuneration Report Directors are responsible for assessing the expressly agreed by our prior consent that is described as having been audited. Strategic Report and Directors’ Report Group’s ability to continue as a going in writing. In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and concern, disclosing as applicable, matters Directors’ Report for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in related to going concern and using the Other required reporting accordance with applicable legal requirements. (CA06) going concern basis of accounting unless Companies Act 2006 exception Ian Morrison In light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we did not the Directors either intend to liquidate the reporting (Senior Statutory Auditor) identify any material misstatements in the Strategic Report and Directors’ Report. (CA06) Group or to cease operations, or have no Under the Companies Act 2006 we are for and on behalf of realistic alternative but to do so. The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the required to report to you if, in our opinion: PricewaterhouseCoopers LLP Chartered Accountants and Statutory solvency or liquidity of the Group Auditors’ responsibilities for the audit → we have not received all the information Auditors We have nothing material to add or draw attention to regarding: of the financial statements and explanations we require for our Our objectives are to obtain reasonable Leeds → The Directors’ confirmation on page 35 of the Annual Report that they have carried out a robust assessment of the principal audit; or assurance about whether the financial risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. 27 February 2018 statements as a whole are free from → certain disclosures of Directors’ Financial Statements → The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated. material misstatement, whether due to remuneration specified by law are not made. → The Directors’ explanation on page 35 of the Annual Report as to how they have assessed the prospects of the Group, over fraud or error, and to issue an Auditors’ what period they have done so and why they consider that period to be appropriate, and their statement as to whether they Report that includes our opinion. We have no exceptions to report arising have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over Reasonable assurance is a high level of from this responsibility. the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assurance, but is not a guarantee that an assumptions. audit conducted in accordance with ISAs (UK) will always detect a material We have nothing to report having performed a review of the Directors’ statement that they have carried out a robust assessment misstatement when it exists. Misstatements of the principal risks facing the Group and statement in relation to the longer term viability of the Group. Our review was can arise from fraud or error and are substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process considered material if, individually or in supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate aggregate, they could reasonably be Governance Code (the ‘Code’); and considering whether the statements are consistent with the knowledge and understanding expected to influence the economic of the Group and its environment obtained in the course of the audit. (Listing Rules) decisions of users taken on the basis Other Code Provisions of these financial statements. We have nothing to report in respect of our responsibility to report when: → The statement given by the Directors, on page 81, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and provides the information necessary for the members to assess the Group’s position and performance, business model and strategy is materially inconsistent with our knowledge of the Group obtained in the course of performing our audit. → The section of the Annual Report on pages 51 to 57 describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. → The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified, under the Listing Rules, for review by the auditors.

Croda International Plc Croda International Plc 86 Annual Report and Accounts 2017 Annual Report and Accounts 2017 87 Financial Statements

Group Consolidated Statements

Group Income Statement Group Balance Sheet for the year ended 31 December 2017 at 31 December 2017 2017 2017 2017 2016 2016 2016 2017 2016 Reported Reported Note £m £m Adjusted Adjustments Total Adjusted Adjustments Total Note £m £m £m £m £m £m Assets Revenue 1 1,373.1 – 1,373.1 1,243.6 – 1,243.6 Non-current assets Cost of sales (855.7) – (855.7) (798.5) – (798.5) Intangible assets 12 386.3 355.3 Gross profit 517.4 – 517.4 445.1 – 445.1 Property, plant and equipment 13 684.0 598.1 Operating costs 2 (185.2) (6.2) (191.4) (146.9) (12.6) (159.5) Investments 15 2.2 1.0 Operating profit 3 332.2 (6.2) 326.0 298.2 (12.6) 285.6 Deferred tax assets 6 33.1 56.3 Financial costs 4 (12.5) – (12.5) (10.6) – (10.6) Retirement benefit assets 11 19.1 – Financial income 4 0.6 – 0.6 0.7 – 0.7 1,124.7 1,010.7 Profit before tax 320.3 (6.2) 314.1 288.3 (12.6) 275.7 Current assets Tax 5 (85.9) 8.5 (77.4) (80.7) 2.6 (78.1) Inventories 16 258.5 235.7 Profit after tax for the year 234.4 2.3 236.7 207.6 (10.0) 197.6 Trade and other receivables 17 202.2 192.4 Attributable to: Cash and cash equivalents 19 63.3 61.0 Non-controlling interests (0.3) 0.9 524.0 489.1 Owners of the parent 237.0 196.7 Liabilities 236.7 197.6 Current liabilities Trade and other payables 18 (201.4) (186.2) Adjustments relate to exceptional items, acquisition costs, amortisation of intangible assets arising on acquisition and the tax thereon. Borrowings and other financial liabilities 19 (18.4) (10.4) Earnings per 10.36p ordinary share Pence Pence Provisions 20 (5.2) (8.1) Current tax liabilities (45.9) (47.0) Basic 7 180.8 148.2 (270.9) (251.7) Net current assets 253.1 237.4 Diluted 7 179.0 146.9 Non-current liabilities Borrowings and other financial liabilities 19 (426.4) (414.7) Other payables (1.1) (2.6) Retirement benefit liabilities 11 (49.6) (146.5) Financial Statements Group Statement of Comprehensive Income Provisions 20 (7.4) (9.2) for the year ended 31 December 2017 Deferred tax liabilities 6 (63.4) (66.3) (547.9) (639.3) 2017 2016 Note £m £m Net assets 829.9 608.8 Profit for the year 236.7 197.6 Equity Ordinary share capital 21 14.0 14.0 Other comprehensive income/(expense): Preference share capital 23 1.1 1.1 Items that will not be reclassified Share capital 15.1 15.1 subsequently to profit or loss: Share premium account 93.3 93.3 Remeasurements of post-employment Reserves 713.9 492.2 benefit obligations 11 121.9 (65.5) Equity attributable to owners of the parent 822.3 600.6 Tax on items that will not be reclassified 5 (23.8) 10.4 Non-controlling interests in equity 25 7.6 8.2 98.1 (55.1) Total equity 829.9 608.8 Items that may be reclassified subsequently to profit or loss: Currency translation (22.6) 79.0 The financial statements on pages 88 to 125 were signed on behalf of the Board who approved the accounts on 27 February 2018. Other comprehensive income for the year 75.5 23.9 Total comprehensive income for the year 312.2 221.5 Anita Frew Jez Maiden Attributable to: Chairman Group Finance Director Non-controlling interests (0.6) (0.6_ 1.7 Owners of the parent 312.8 219.8 312.2 221.5 Arising from: Continuing operations 313.9 (0.6_ 221.5 Discontinued operations (1.7) – 312.2 22 221.5

Croda International Plc Croda International Plc 88 Annual Report and Accounts 2017 Annual Report and Accounts 2017 89 Financial Statements | Group Consolidated Statements

Group Statement of Cash Flows Group Cash Flow Notes for the year ended 31 December 2017 for the year ended 31 December 2017 2017 2016 Note £m £m (i) Reconciliation to net debt 2017 2016 Cash flows from operating activities Note £m £m Cash generated from operations ii 359.3 345.1 Movement in cash and cash equivalents iii 0.4 (6.1) Interest paid (13.9) (11.1) Movement in debt and lease financing iii (26.7) (66.4) Tax paid (82.9) (70.2) Change in net debt from cash flows (26.3) (72.5) Net cash generated from operating activities 262.5 263.8 New finance lease contracts (0.7) (0.5) Exchange differences 9.6 (31.8) Cash flows from investing activities (17.4) (104.8) Acquisition of subsidiaries 27 (29.0) (1.4) Net debt brought forward (364.1) (259.3) Acquisition of associates 15 (1.4) – Net debt carried forward iii (381.5) (364.1) Purchase of property, plant and equipment 13 (155.8) (103.8) Purchase of other intangible assets 12 (3.5) (1.6) (ii) Cash generated by operations 2017 2016 Proceeds from sale of property, plant and equipment 2.1 0.9 Note £m £m Proceeds from sale of other investments – 0.1 Adjusted operating profit 332.2 298.2 Cash paid against non-operating provisions 20 (2.5) (2.2) Exceptional items iv (1.7) (8.4) Interest received 0.6 0.7 Acquisition costs and amortisation of intangible assets arising on acquisition (4.5) (4.2) Net cash used in investing activities (189.5) (107.3) Operating profit 326.0 285.6 Adjustments for: Cash flows from financing activities Depreciation and amortisation 53.3 49.2 New borrowings 359.3 699.3 Loss on disposal of property, plant and equipment 1.5 0.9 Repayment of borrowings (331.8) (632.5) Net provisions charged (note 20) 1.3 4.3 Capital element of finance lease repayments iii (0.8) (0.4) Share-based payments 9.2 9.5 Sale of own shares held in trust 21 0.7 1.2 Cash paid against operating provisions (note 20) (2.2) (0.7) Dividends paid to equity shareholders 8 (100.0) (230.2) Non-cash pension expense 3.4 (10.9) Net cash used in financing activities (72.6) (162.6) Share of loss of associate 0.1 – Movement in inventories 8.4 (31.0) Financial Statements Net movement in cash and cash equivalents i,iii 0.4 (6.1) Movement in receivables (14.4) (10.9) Cash and cash equivalents brought forward 56.4 55.8 Movement in payables 12.1 9.7 Exchange differences iii (1.9) 6.7 Cash generated by continuing operations 359.3 345.1 Cash and cash equivalents carried forward 54.9 56.4 (iii) Analysis of net debt Cash and cash equivalents carried forward comprise: Cash Exchange Other 2017 flow movements non-cash 2016 Cash at bank and in hand 63.3 61.0 £m £m £m £m £m Bank overdrafts (8.4) (4.6) Cash and cash equivalents 63.3 4.2 (1.9) – 61.0 54.9 56.4 Bank overdrafts (8.4) (3.8) – – (4.6) Movement in cash and cash equivalents 0.4 (1.9) Borrowings repayable within one year (9.6) (4.7) 0.5 – (5.4) Borrowings repayable after more than one year (426.0) (22.8) 11.0 – (414.2) Finance leases (0.8) 0.8 – (0.7) (0.9) Movement in borrowings and other financial liabilities (26.7) 11.5 Total net debt (381.5) (26.3) 9.6 (0.7) (364.1)

(iv) Cash flow on exceptional items The total cash outflow during the year in respect of exceptional items, including those recognised in prior years’ income statements, was £4.7m (2016: £2.9m). Details of exceptional items can be found in note 3 on page 101.

Croda International Plc Croda International Plc 90 Annual Report and Accounts 2017 Annual Report and Accounts 2017 91 Financial Statements | Group Consolidated Statements

Group Accounting Policies

The principal accounting policies Group’s results are likely to occur from Currently, as recoverable amounts Group Statement of Changes in Equity adopted in the preparation of these period to period. The critical judgements exceed carrying values, including financial statements are set out below. required when preparing the Group’s goodwill, there is thus no impairment for the year ended 31 December 2017 These policies have been consistently accounts are as follows: within a reasonable range Share Non- Share premium Other Retained controlling Total applied to all the years presented, (i) Provisions – as disclosed in note 20, of assumptions. Goodwill arising on capital account reserves earnings interests equity unless otherwise stated. acquisition is allocated to the CGU Note £m £m £m £m £m £m the Group has made provision for that is expected to benefit from the At 1 January 2016 15.1 93.3 (2.0) 494.4 6.5 6 07.3 Basis of preparation potential environmental liabilities. The consolidated financial statements The rationale behind these and other synergies of the acquisition. Such goodwill is then incorporated into the Profit for the year – – – 196.7 0.9 197.6 have been prepared under the historical provisions is discussed in note 20, with Group’s standard impairment review Other comprehensive income/(expense) – – 78.2 (55.1) 0.8 23.9 cost convention, in accordance with consideration of contingent liabilities process as described above. Total comprehensive income for the year – – 78.2 141.6 1.7 221.5 International Financial Reporting Standards disclosed in note 28. The Directors Transactions with owners: Interpretations Committee (IFRSIC) and believe that these provisions are (iii) Retirement benefit liabilities – as Dividends on equity shares 8 – – – (230.2) – (230.2) the Companies Act 2006 applicable appropriate based on information disclosed in note 11, the Group’s Share-based payments – – – 9.0 – 9.0 to companies reporting under IFRS. currently available. principal retirement benefit schemes Sale of own shares held in trust – – – 1.2 – 1.2 The standards used are those published (ii) Goodwill and fair value of assets are of the defined benefit type. Year Total transactions with owners – – – (220.0) – (220.0) by the International Accounting Standards acquired (note 12) – under IFRS, end recognition of the liabilities under Board (IASB) and endorsed by the EU management are required to undertake these schemes and the valuation of Total equity at 31 December 2016 15.1 93.3 76.2 416.0 8.2 608.8 at the 31 December 2017. A summary of an annual test for impairment of assets held to fund these liabilities the more important Group accounting indefinite lived assets such as goodwill. require a number of significant At 1 January 2017 15.1 93.3 76.2 416.0 8.2 608.8 policies is set out below. Accordingly, the Group tests annually assumptions to be made, relating Going concern whether goodwill has suffered any to levels of scheme membership, Profit for the year – – – 237.0 (0.3) 236.7 The financial statements which appear impairment and the Group’s goodwill key financial market indicators Other comprehensive (expense)/income – – (22.3) 98.1 (0.3) 75.5 on pages 88 to 125 have been prepared value has been supported by detailed such as inflation and expectations Total comprehensive (expense)/income for the year – – (22.3) 335.1 (0.6) 312.2 on a going concern basis as, after making value-in-use calculations relating to the on future salary growth and asset Transactions with owners: appropriate enquiries, including a review recoverable amounts of the underlying returns. These assumptions are made Dividends on equity shares 8 – – – (100.0) – (100.0) of forecasts, budgets and banking facilities, Cash Generating Units (‘CGUs’). These by the Group in conjunction with Share-based payments – – – 8.2 – 8.2 the Directors have a reasonable expectation calculations require the use of the schemes’ actuaries and the Sale of own shares held in trust – – – 0.7 – 0.7 that the Group has adequate resources to estimates to enable the calculation of Directors are of the view that any Total transactions with owners – – – (91.1) – (91.1) continue in operational existence. the net present value of cash flow estimation should be prudent and in line with consensus opinion. Accounting estimates and judgements projections of the relevant CGU, the Financial Statements Total equity at 31 December 2017 15.1 93.3 53.9 660.0 7.6 829.9 The Group’s significant accounting policies critical estimates are as follows: (iv) Taxation – the Group is subject to Other reserves include the Capital Redemption Reserve of £0.9m (2016: £0.9m) and the Translation Reserve of £53.0m (2016: £75.3m). under IFRS have been set by management → Growth in EBITDA (calculated as corporate income taxes in numerous with the approval of the Audit Committee. operating profit before depreciation jurisdictions. Significant judgement is The application of these policies requires and amortisation) – estimated at 3% often required in determining the estimates and assumptions to be made long term, a prudent estimate given worldwide expense and liability for such concerning the future and judgements to the Group’s historical growth rates taxes, including consideration of the be made on the applicability of policies to potential impact of transfer pricing. → Timing and quantum of capital There are many transactions and particular situations. Estimates and expenditure – estimated to grow judgements are continually evaluated and calculations where the ultimate tax from current levels at the same determination is uncertain during the are based on historical experience and 3% rate other factors, including expectations of ordinary course of business. The future events that are believed to be → Selection of appropriate discount Group recognises liabilities for tax reasonable under the circumstances. rates to reflect the risks involved issues based on estimates of whether Under IFRS an estimate or judgement may – typically the Group’s weighted additional taxes will be due, based on be considered critical if it involves matters average cost of capital would be its best interpretation of the relevant that are highly uncertain or where different used as a starting point unless tax laws and rules. Where the final tax estimation methods could reasonably have the risk profile of a particular outcome of these matters is different been used, or if changes in the estimate acquired business warranted from the amounts that were initially that would have a material impact on the different treatment. recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Croda International Plc Croda International Plc 92 Annual Report and Accounts 2017 Annual Report and Accounts 2017 93 Financial Statements | Group Accounting Policies

Changes in accounting policy obtain the benefits from the good or cash flows, although the impact on the Identifiable assets acquired, and liabilities value in use. Value in use is estimated with products in development are subject (i) New and amended standards adopted service. The standard replaces IAS 18 latter will not be material based on initial and contingent liabilities assumed, in a reference to estimated future cash flows to impairment testing at each balance by the Group for the first time for ‘Revenue’ and IAS 11 ‘Construction estimates. Some existing operating business combination are measured discounted to net present value using a sheet date or earlier upon indication of the financial year beginning on contracts’ and related interpretations. lease commitments are expected to be initially at their fair values at the acquisition discount rate that reflects the risks specific impairment. Any impairment losses are 1 January 2017: The standard is effective for annual covered by the exception for short term date, irrespective of the extent of any to the CGU. Typically the Group’s weighted written off to the income statement. There are no IFRSs or IFRIC periods beginning on or after 1 January and low-value leases. minority interest. The excess of the cost average cost of capital would be used as a Computer software 2018, with earlier application permitted. of acquisition over the Group’s share starting point unless the risk profile of a interpretations that are effective for The Group does not intend to restate Acquired computer software licences The Group has completed a detailed of identifiable net assets acquired is particular acquired business warranted annual periods beginning after prior year comparators when the new covering a period of greater than one assessment of IFRS 15 and has recorded as goodwill. different treatment. The Group uses 1 January 2017 that have had a standard is adopted, with lease asset year are capitalised on the basis of the concluded that the impact will not be prudent growth estimates that track below material impact on the Group. values being set equal to lease liabilities Inter-company transactions, balances costs incurred to acquire and bring to material to the Group’s revenue and and unrealised gains on transactions the Group’s historical growth rates. use the specific software. These costs (ii) New standards and interpretations at the date of transition in line with the profit. This reflects the relatively between Group companies are eliminated. Other intangible assets arising are amortised over their estimated not yet adopted – a number of new ‘simplified approach’ under IFRS 16. non-complex and largely standardised Unrealised losses are also eliminated. on acquisition useful lives (three to seven years). standards and amendments to terms and conditions applicable There are no other IFRSs or IFRIC Accounting policies of subsidiaries have On acquisition, intangible assets other than standards and interpretations are Revenue recognition to the Group’s revenue contracts. interpretations that are not yet effective been changed where necessary to ensure goodwill are recognised if they can be effective for annual periods beginning Sale of goods Accordingly, the Group does not intend that would be expected to have a consistency with the policies adopted by identified through being separable from the on or after 1 January 2018, and have Revenue comprises the fair value for the to restate prior year comparators material impact on the Group in the the Group. acquired entity or arising from specific not been applied in preparing these sale of goods, excludes inter-company when the new standard is adopted. current or future reporting periods and contractual or legal rights. consolidated financial statements. on foreseeable future transactions. Transactions with sales and value-added taxes and Those most relevant to the consolidated IFRS 16, ‘Leases’ will require lessees to non-controlling interests Once recognised, such intangible assets represents net invoice value less estimated financial statements of the Group are recognise a lease liability reflecting Group accounts The Group treats transactions with will be initially valued using either the rebates, returns and settlement discounts. future lease payments and a ‘right-of- General information set out below: non-controlling interests as transactions ‘market approach’ (where a well-defined The Group supplies products to customers use asset’ for virtually all lease Croda International Plc is a public limited with the equity owners of the Group. For external market for the asset exists), the IFRS 9, ‘Financial Instruments’ from its various manufacturing sites and contracts. Under IAS 17, lessees are company, which is listed on the London purchases from non-controlling interests, ‘income approach’ (which looks at the includes requirements for classification warehouses and in some limited instances required to make a distinction between Stock Exchange and incorporated the difference between any consideration future income the asset will generate) or and measurement, impairment and from consignment inventory held on a finance lease (on balance sheet) and and domiciled in the United Kingdom. paid and the relevant share acquired the ‘cost approach’ (the cost of replacing hedge accounting. an operating lease (off balance sheet). It is registered in England and Wales customer sites, under a variety of standard of the carrying value of net assets of the the asset), whichever is most relevant to terms and conditions. In each case It replaces the classification and The IASB has included an optional and the address of its registered office subsidiary is recorded as equity. Gains the asset under consideration. Following exemption for certain short term leases can be found on page 142. revenue is recognised when the transfer measurement models for financial or losses on disposals to non-controlling initial recognition, the asset will be written of legal title, which is defined and generally instruments in IAS 39 with three and leases of low value assets; Subsidiaries interests are also recorded in equity. down on a straight-line basis over its useful however, this exemption can only be accepted in the standard terms and classification categories: amortised Subsidiaries are all entities (including life. Useful lives are regularly reviewed to Financial Statements applied by lessees. The standard is Intangible assets conditions, arises between the Group cost, fair value through profit or structured entities) over which the Parent Goodwill ensure their continuing relevance. and the customer. This will typically be on loss and fair value through other effective for annual periods beginning Company has control. The Parent controls on or after 1 January 2019. On the acquisition of a business, fair values Research and development dispatch or delivery. Provisions for sales comprehensive income. The standard an entity when it is exposed to, or are attributed to the net assets acquired. Research expenditure, undertaken with discounts and rebates to customers are will become effective for periods ending The Group will complete its IFRS 16 has rights to, variable returns from its Goodwill arises where the fair value of the the prospect of gaining new scientific or based upon the terms of sales contracts on or after 1 January 2018, subject implementation work over the next involvement with the entity and has the consideration given for a business exceeds technical knowledge and understanding, and are recorded in the same period as the to EU endorsement. The Group has twelve months. The Group does not ability to affect those returns through its such net assets. Goodwill arising on is charged to the income statement related sales as a deduction from revenue. assessed the impact of IFRS 9 and intend to early adopt IFRS 16, having power over the entity. Subsidiaries are acquisitions is capitalised and carried at in the year in which it is incurred. Internal The Group estimates the provision for sales concluded that it will not have a already undertaken a significant review. fully consolidated from the date on which cost less accumulated impairment losses. development expenditure, whereby discounts and rebates based on the terms material impact, consistent with the control is transferred to the Group. The new standard will result in most of Goodwill is subject to impairment review, research findings are applied to a plan of each agreement at the time the revenue non-complex nature of the Group’s They are deconsolidated from the date both annually and when there are for the production of new or substantially is recognised. financial instruments. the Group’s current operating leases that control ceases. (as defined under IAS 17) being indications that the carrying value may improved products or processes, is Royalties and profit IFRS 15, ‘Revenue from contracts’ recognised on balance sheet. As The Group uses the acquisition not be recoverable. For the purpose of charged to the income statement in sharing arrangements deals with revenue recognition and at the reporting date, the Group had method of accounting to account for impairment testing, assets are grouped at the year in which it is incurred unless it Revenues are recognised on an accruals establishes principles for reporting non-cancellable operating lease business combinations. The consideration the lowest levels for which there are meets the recognition criteria of IAS 38 basis in accordance with the substance useful information to users of financial commitments of £30.7m (as shown in transferred for the acquisition of a separately identifiable cash flows, known ‘Intangible Assets’. Measurement and other of the underlying agreement, subject statements about the nature, amount, note 14). However, the Group has not subsidiary is the fair value of the assets as CGUs. If the recoverable amount of the uncertainties generally mean that such to reliable measurement of the amounts. timing and uncertainty of revenue and yet fully determined to what extent transferred, the liabilities incurred and CGU is less than the carrying value of the criteria are not met. Where, however, the

cash flows arising from an entity’s these commitments will result in the the equity interests issued by the goodwill, an impairment loss is recognised recognition criteria are met, intangible

contracts with customers. Revenue is recognition of an asset and a liability for Group. Acquisition costs are expensed immediately against the goodwill value. assets are capitalised and amortised over recognised when a customer obtains future payments and how this will affect as incurred. The recoverable amount of the CGU is the their useful economic lives from product control of a good or service and thus the Group’s profit and classification of higher of fair value less costs to sell and launch. Intangible assets relating to has the ability to direct the use and

Croda International Plc Croda International Plc 94 Annual Report and Accounts 2017 Annual Report and Accounts 2017 95 Financial Statements | Group Accounting Policies

Interest and dividend income which they arise. Actuarial gains and Currency translations When a foreign operation is sold, such Income statement presentation Impairment of non-financial assets Interest income is recognised on a losses are recognised in the statement Functional and presentation currency exchange differences are recognised The acquisition in 2016 of Inventiva and in The Group assesses at each year end time-proportion basis using the effective of comprehensive income. Payments to Items included in the financial statements in the income statement as part of the 2017 of Enza Biotech AB and IonPhasE whether an asset may be impaired. interest method. defined contribution schemes (pension of each of the Group’s entities are gain or loss on sale. OY, increased acquisition costs and If any evidence exists of impairment, Dividend income is recognised when the plans under which the Group pays fixed measured using the currency of the Taxation amortisation of acquired intangible assets. the estimated recoverable amount is right to receive payment is established. contributions into a separate entity) are primary economic environment in which The charge for taxation is based on the If the right targets can be found, these compared to the carrying value of the asset charged as an expense as they fall due. the entity operates (‘the functional profit for the year and takes into account costs are likely to increase in the future. and an impairment loss is recognised Segmental reporting currency’). The consolidated financial To avoid distorting the underlying trend in where appropriate. The recoverable An operating segment is a group Other post-retirement benefits taxation deferred because of temporary Some Group companies provide statements are presented in Sterling, differences between the treatment of profitability, the Group introduced the amount is the higher of an asset’s value of assets and operations engaged in which is the Company’s functional definitions ‘Adjusted operating profit’, in use and fair value less costs to sell. providing products and services that post-retirement healthcare benefits to certain items for taxation and for their retirees. The entitlement to these and presentation currency. accounting purposes. Temporary ‘Adjusted profit before tax’ and ‘Adjusted In addition to this, goodwill is tested for are subject to risks or returns that are earnings per share’. In each case impairment at least annually. Non-financial different from those of other segments. benefits is usually conditional on the Transactions and balances differences arise on differences between employee remaining in service up to Monetary assets and liabilities are the carrying value of assets and liabilities acquisition costs, amortisation or write-off assets other than goodwill which have Operating segments presented in the of intangible assets arising on acquisition suffered impairment are reviewed for financial statements are consistent retirement age and the completion of a translated at the exchange rates ruling in the financial statements and their tax minimum service period. The expected at the end of the financial period. base and primarily relate to the difference and exceptional items, including the possible reversal of the impairment at with the internal reporting provided to respective tax effect, are excluded. The each reporting date. the Group’s Chief Operating Decision costs of these benefits are accrued over Exchange profits or losses on trading between tax allowances on tangible fixed the period of employment using an transactions are included in the Group assets and the corresponding depreciation Group income statement has been Leases Maker, which has been identified produced in a columnar format to further as the Group Executive Committee. accounting methodology similar to that for income statement except when charge, and upon the net pension fund Assets acquired under finance leases defined benefit pension plans. Actuarial deferred in equity as qualifying cash deficit. Full provision is made for the tax aid this analysis. are included in the balance sheet Employee benefits gains and losses are recognised in the flow hedges and qualifying net effects of these differences. No provision Property, plant and equipment under property, plant and equipment Pension obligations statement of comprehensive income. investment hedges. is made for unremitted earnings of foreign Property, plant and equipment is stated at at an amount reflecting the lower of the The Group accounts for pensions and These obligations are valued annually subsidiaries where there is no commitment Group companies historical cost less depreciation, with the present value of future rentals and similar benefits under IAS 19 ‘Employee by independent qualified actuaries. to remit such earnings. exception of assets acquired as part of a the fair value of the asset and are Benefits’ (revised). In respect of defined The results and financial position of all Termination benefits the Group entities that have a functional Similarly, no provision is made for business combination. Cost includes the depreciated over the shorter of the lease benefit plans (pension plans that define an original purchase price of the asset and the term and their estimated useful lives. amount of pension benefit that an Termination benefits are payable currency different from the presentation temporary differences relating to when employment is terminated by currency are translated into the investments in subsidiaries since realisation costs attributable to bringing the asset to The capital element of future lease rentals employee will receive on retirement, usually its working condition for its intended use. is included in borrowings. Finance charges dependent on one or more factors such as the Group before the normal retirement presentation currency as follows: of such differences can be controlled and date, or whenever an employee accepts is not probable in the foreseeable future. The Group’s policy is to write-off the are allocated to the income statement age, years of service and compensation), (i) assets and liabilities for each balance voluntary redundancy in exchange for Deferred tax assets are recognised, using difference between the cost of all property, each year in proportion to the capital obligations are measured at discounted sheet presented are translated at plant and equipment, except freehold land, element outstanding.

these benefits. The Group recognises the balance sheet liability method, to the Financial Statements present value whilst plan assets are the closing rate at the date of that termination benefits when it is extent that it is probable that future taxable and their residual value on a straight-line The cost of operating leases is charged to recorded at fair value. The assets and balance sheet; basis over their estimated useful lives. liabilities recognised in the balance sheet in demonstrably committed to either profit will be available against which the the income statement on a straight-line (ii) income and expenses for each income respect of defined benefit pension plans is (i) terminating the employment of current temporary differences can be utilised. Reviews are made annually of the basis over the lease period. statement are translated at average the net of plan obligations and assets. A employees according to a detailed formal All taxation is calculated on the basis of the estimated remaining lives and residual exchange rates (unless this average Derivative financial instruments scheme surplus is only recognised as an plan without possibility of withdrawal tax rates and laws enacted or substantively values of individual productive assets, is not a reasonable approximation The Group uses derivative financial asset in the balance sheet when the Group or (ii) providing termination benefits as enacted at the balance sheet date. taking account of commercial and of the cumulative effect of the rates instruments to hedge its exposure to has the unconditional right to future a result of an offer made to encourage technological obsolescence as well as prevailing on the transaction dates, Exceptional items interest rates and short term currency economic benefits in the form of a refund voluntary redundancy. normal wear and tear, and adjustments are in which case income and expenses Exceptional items are those items that in rate fluctuations. or a reduction in future contributions. Share-based payments made where appropriate. Under this policy are translated at the dates of the the Directors’ view are required to be Derivative financial instruments are No allowance is made in the past service The Group operates a number of cash it becomes impractical to calculate average transactions); and separately disclosed by virtue of their size recorded initially at cost. Subsequent liability in respect of either the future and equity-settled, share-based incentive asset lives exactly. However, the total lives or incidence to enable a full understanding measurement depends on the designation expenses of running the schemes or for schemes. These are accounted for in (iii) all resulting exchange differences are range from approximately 15 to 40 years of the Group’s financial performance. In the of the instrument as either: (i) a hedge of non-service related death in service accordance with IFRS 2 ‘Share-based recognised as a separate component for land and buildings, and 3 to 15 years for current year all exceptional items relate the fair value of recognised assets or benefits which may arise in the future. The Payments’, which requires an expense of equity. plant and equipment. All individual assets to environmental costs of businesses are reviewed for impairment when there are liabilities or a firm commitment (fair value operating costs of such plans are charged to be recognised in the income statement On consolidation, exchange differences discontinued in prior years. Exceptional indications that the carrying value may not hedge); or (ii) a hedge of highly probable to operating profit and the finance costs over the vesting period of the options. arising from the translation of the net items in the prior year relate to be recoverable. By far the bulk of the forecast transactions (cash flow hedge). are recognised as financial income or an The expense is based on the fair value investment in foreign entities, and of reorganisation costs. Details can be found Group’s ‘plant and equipment’ asset class expense as appropriate. of each instrument which is calculated borrowings and other currency instruments in note 3 on page 101. relates to the value of plant and equipment using the Black-Scholes or binomial designated as hedges of such investments, Service costs are spread systematically at the Group’s manufacturing facilities. model as appropriate. Any expense are taken to shareholders’ equity. over the lives of employees and financing Consequently, the Group does not seek to costs are recognised in the periods in is adjusted to reflect expected and actual levels of options vesting for non- analyse out of this class other items such market based performance criteria. as motor vehicles and office equipment.

Croda International Plc Croda International Plc 96 Annual Report and Accounts 2017 Annual Report and Accounts 2017 97 Financial Statements | Group Accounting Policies

(i) Fair value hedge redemption value is recognised in the Cash and cash equivalents (ii) Treasury shares – where any Group Changes in the fair value of derivatives, income statement over the period of the Cash and cash equivalents comprise company purchases the Company’s for example interest rate swaps and borrowings using the effective interest cash balances and short term deposits. equity share capital as treasury shares, foreign exchange contracts, that are method. Borrowings are classified as Bank overdrafts that are repayable the consideration paid, including any designated and qualify as fair value current liabilities unless the Group has on demand and form an integral part directly attributable incremental costs hedges are recorded in the income an unconditional right to defer settlement of the Group’s cash management are (net of income taxes) is deducted from statement, together with any changes of the liability for at least 12 months after included as a component of cash and equity attributable to the Company’s in the fair value of the hedged asset the balance sheet date. cash equivalents for the purpose of the equity holders until the shares are or liability that are attributable to the Borrowing costs statement of cash flows. Cash and bank cancelled, reissued or disposed of. hedged risk. General and specific borrowing costs overdrafts are offset and the net amount Where such shares are subsequently (ii) Cash flow hedge directly attributable to the acquisition, reported in the balance sheet when sold or reissued, any consideration The effective portion of changes construction or production of qualifying there is a legally enforceable right to received, net of any directly attributable in the fair value of derivatives that are assets, which are assets that necessarily offset the recognised amounts, there is incremental transaction costs and the designated and qualify as cash flow take a substantial period of time to get an intention to settle on a net basis and related income tax effects, is included hedges are recognised in equity. The ready for their intended use or sale, are interest is charged on a net basis. in equity attributable to the Company’s gain or loss relating to the ineffective added to the cost of those assets, until Environmental, restructuring equity holders. portion is recognised immediately in the such time as the assets are substantially and other provisions Dividends income statement. Amounts accumulated ready for their intended use or sale. The Group is exposed to environmental Dividends on Ordinary share capital are in equity are recycled in the income Trade and other payables liabilities relating to its operations and recognised as a liability when the liability statement in the periods when the hedged Trade and other payables are recognised liabilities arising from the restructuring is irrevocable. Accordingly, final dividends item will affect profit or loss (for instance initially at fair value and subsequently of its operations following the acquisition are recognised when approved by when the forecast sale that is hedged measured at amortised cost using the of Uniqema. Provisions are made shareholders and interim dividends are takes place). However, when the forecast effective interest method. immediately where a legal obligation recognised when paid. transaction that is hedged results in is identified, can be quantified and it is Inventories Investments the recognition of a non-financial asset regarded as more likely than not that an Investments in quoted securities are (for example, inventory) or a liability, Inventories are stated at the lower of cost outflow of resources will be required to and net realisable amount on a first in first treated as ‘available for sale’ and stated the gains and losses previously deferred settle the obligation. The Group does at fair value, being the appropriate quoted in equity are transferred from equity out basis. Cost comprises all expenditure, consider the impact of discounting when including related production overheads, market value, with movements in the and included in the initial measurement establishing provisions and provisions are fair value being recognised in equity. of the cost of the asset or liability. incurred in the normal course of business discounted when the impact is material in bringing the inventory to its location and Investments in unquoted securities are Financial Statements When a hedging instrument expires or is and the timing of cash flows can be carried at fair value unless such value condition at the balance sheet date. Net estimated with reasonable certainty. sold, or when a hedge no longer meets realisable amount is the estimated selling cannot be reliably measured, in which the criteria for hedge accounting, any price in the ordinary course of business Share capital case the investments are carried at cost. cumulative gain or loss existing in equity less any applicable variable selling costs. Investment in own shares Investments in associates are initially at that time remains in equity and is Provision is made for obsolete, slow (i) Employee share ownership trusts – recorded at cost and subsequently recognised when the forecast transaction moving and defective inventory where shares acquired by the trustees of the adjusted for the Group’s share of results. is ultimately recognised in the income appropriate. Profits arising on intra employee share ownership trust (the Investments are subject to impairment statement. Group sales are eliminated in so far as Trustees), funded by the Company and testing at each balance sheet date or When a forecast transaction is no the product remains in Group inventory held for the continuing benefit of the earlier upon indication of impairment. longer expected to occur, the cumulative at the year end. Company are shown as a reduction Held to maturity investments are gain or loss that was reported in equity in equity attributable to owners of the measured at amortised cost using Trade and other receivables parent. Movements in the year arising the effective interest rate method. is immediately transferred to the Trade and other receivables are recognised income statement. from additional purchases by the Trustees initially at fair value and subsequently of shares or the receipt of funds due to Certain derivative instruments do not measured at amortised cost, using the the exercise of options by employees are qualify for hedge accounting. Changes effective interest method, less impairment accounted for within reserves and shown in the fair value of any derivative losses. A provision for impairment is as a movement in equity attributable instruments that do not qualify for made when there is objective evidence to owners of the parent in the year. hedge accounting are recognised that the amount will not be collectible. Administration expenses of the trusts immediately in the income statement. Such amounts are written down to are charged to the Company’s income Borrowings their estimated recoverable amounts, statement as incurred. Borrowings are recognised initially at fair with the charge being made to value, net of transaction costs incurred. operating expenses. Any difference between the proceeds (net of transaction costs) and the

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Notes to the Group Accounts

1. Segmental analysis The Group manages its business segments on a global basis. The operations are based in the following geographical areas; Europe, The Group’s sales, marketing and research activities are organised into four global market sectors, being Personal Care, Life Sciences, with manufacturing sites in the UK, France, the Netherlands, Italy, Spain and Finland; the Americas, with manufacturing sites in the US, Performance Technologies and Industrial Chemicals. These are the segments for which summary management information Brazil and Argentina; Asia, with manufacturing sites in Singapore, Japan, India, China and Indonesia; and Australia and South Africa. is presented to the Group’s Executive Committee, which is deemed to be the Group’s Chief Operating Decision Maker. A review The Group’s revenue from external customers in the UK is £50.2m (2016: £45.0m), in Germany is £113.6m (2016: £113.6m), in the of each sector can be found within the Strategic Report on pages 14 to 20. US is £356.5m (2016: £317.2m) and the total revenue from external customers from other countries is £852.8m (2016: £767.8m). There is no material trade between segments. Segmental results include items directly attributable to a specific segment as well The total of non-current assets other than financial instruments, retirement benefit assets and deferred tax assets located in the UK is as those that can be allocated on a reasonable basis. Segment assets consist primarily of property, plant and equipment, intangible £94.0m (2016: £90.2m), and the total of the non-current assets located in other countries is £658.3m (2016: £557.1m). Goodwill has not assets, inventories and trade and other receivables. been split by geography as this asset is not attributable to a geographical area. 2017 2016 £m £m No single external customer represents more than 3% of the total revenue of the Group. Restated Income statement 2. Operating costs Revenue 2017 2016 £m £m Personal Care 466.6 420.6 Analysis of net operating expenses by function: Life Sciences 322.6 292.2 Distribution costs 74.1 59.5 Performance Technologies2 456.9 405.6 Administrative expenses 117.3 100.0 Industrial Chemicals2 127.0 125.2 191.4 159.5 Total Group revenue 1,373.1 1,243.6 Additional information on the nature of operating expenses, including depreciation and employee costs, is provided in note 3. Adjusted operating profit Personal Care 155.5 143.1 3. Profit for the year Life Sciences 97.0 82.0 2017 2016 Performance Technologies2 75.4 66.6 £m £m Industrial Chemicals2 4.3 6.5 The Group profit for the year is stated after charging/(crediting): Total Group operating profit (before exceptional items, acquisition costs and amortisation of intangible assets Depreciation and amortisation (note 12 & 13) 53.3 49.2 arising on acquisition) 332.2 298.2 Staff costs (note 9) 265.8 245.5 Exceptional items, acquisition costs and amortisation of intangible assets arising on acquisition1 (6.2) (12.6) Redundancy costs Total Group operating profit 326.0 285.6 Non-exceptional 1.6 1.6

1 Relates to Personal Care £0.6m (2016: £0.8m), Life Sciences £3.2m (2016: £11.3m), Performance Technologies £0.6m (2016: £0.5m), Exceptional – 4.1 Industrial Chemicals £0.1m (2016: £nil) and operations discontinued in prior years £1.7m (2016: £nil) Inventories 2 2016 sector revenue and adjusted operating profit have been increased by a net of £3.1m and £0.4m respectively in Performance Technologies for product Cost recognised as expense in cost of sales 741.9 674.8 portfolio changes, with corresponding reductions in Industrial Chemicals. Financial Statements Provision movement in the year (2.4) 5.1 Balance sheet Research and development 37.5 34.6 Total assets Hire of plant and machinery and other operating lease rentals 9.9 5.9 Segment total assets: Net foreign exchange 1.2 (3.3) Personal Care 561.4 527.3 Bad debt charge (note 17) 0.8 1.8 Life Sciences 358.9 315.0 Performance Technologies 444.0 389.4 Adjustments (including exceptional items): Industrial Chemicals 166.7 149.8 Adjustments in the Group income statement of £6.2m (2016: £12.6m) include £1.7m relating to environmental costs of businesses Total segment assets 1,531.0 1,381.5 discontinued in prior years (2016: £8.4m of costs associated with the reorganisation of Incotec during the year). Also included are Tax assets 33.1 56.3 acquisition costs of £0.8m (2016: £1.1m) and amortisation of intangible assets arising on acquisition of £3.7m (2016: £3.1m). Retirement benefit assets 19.1 – 2017 2016 Cash and investments 65.5 62.0 £m £m Total Group assets 1,648.7 1,499.8 Services provided by the Group’s auditors Audit services Capital expenditure and depreciation 2017 2016 Fees payable to the Group auditors for the audit of Parent Company and consolidated financial statements 0.1 0.1 £m £m Additions to Additions to Fees payable to the Group auditors and its associates for the audit of the Company’s subsidiaries 0.9 0.8 non-current Depreciation and non-current Depreciation and assets amortisation assets amortisation Other audit services Personal Care 50.5 14.0 31.4 13.0 Tax compliance services 0.1 0.3 Life Sciences 41.6 14.8 21.2 13.6 1.1 1.2 Performance Technologies 56.3 18.5 43.8 16.8 Industrial Chemicals 15.9 6.0 12.0 5.8 Total Group 164.3 53.3 108.4 49.2

Croda International Plc Croda International Plc 100 Annual Report and Accounts 2017 Annual Report and Accounts 2017 101 Financial Statements | Notes to the Group Accounts

4. Net financial costs On 22 December 2017, The Tax Cuts and Jobs Act was given legislative effect in the US. The principal change for the Group is the reduction 2017 2016 in the headline rate of Federal Corporate tax from 35% to 21% with effect from 1 January 2018. The change in Federal rate will contribute to a £m £m fall in the Group’s future effective rate from where it otherwise would have been. Assuming the Group’s current taxable profits by territory Financial costs remain unchanged, the net benefit of the Act’s changes is estimated to be worth approximately 2.5ppts off the Group’s effective tax rate. The US$100m 5.94% fixed rate 10 year bond 4.6 4.4 change in rate also resulted in a reduction in the Group’s US net deferred tax liability at 31 December 2017, with the £7.7m benefit treated as 2014 Club facility due 2021 2.9 3.2 exceptional in these financial statements. 2016 Club facility due 2021 0.1 0.2 €30m 1.08% fixed rate 7 year bond 0.3 0.1 €70m 1.43% fixed rate 10 year bond 0.9 0.4 6. Deferred tax 2017 2016 £30m 2.54% fixed rate 7 year bond 0.8 0.4 £m £m £70m 2.80% fixed rate 10 year bond 2.0 1.0 The deferred tax balances included in these accounts are attributable to the following: Net interest on retirement benefit liabilities 3.6 2.5 Deferred tax assets Other bank loans and overdrafts 2.3 1.4 Retirement benefit liabilities 12.5 33.8 Capitalised interest (5.0) (3.0) Provisions 20.6 22.5 12.5 10.6 33.1 56.3 Financial income Deferred tax liabilities Bank interest receivable and similar income (0.6) (0.7) Accelerated capital allowances 45.0 52.2 Net financial costs 11.9 9.9 Revaluation gains 1.9 1.9 Acquired intangibles 12.4 9.4 5. Tax Retirement benefit assets 3.1 – 2017 2016 Other 1.0 2.8 £m £m 63.4 66.3 (a) Analysis of tax charge for the year UK current corporate tax 16.4 17.4 The movement on deferred tax balances during the year is summarised as follows: Overseas current corporate taxes 65.5 59.3 Deferred tax (charged)/credited through the income statement Current tax 81.9 76.7 Continuing operations before adjustments (4.0) (2.1) Deferred tax (note 6) (4.5) 1.4 Adjustments and exceptional items 8.5 0.7 77.4 78.1 Deferred tax (charged)/credited directly to equity (note 5(b)) (22.1) 10.9 Acquisitions (3.4) – (b) Tax on items charged/(credited) to equity Exchange differences 0.7 (2.6) Deferred tax on actuarial movement on retirement benefit liabilities 23.8 (10.4) (20.3) 6.9 Financial Statements Deferred tax on share based payments (1.7) (0.5) Net balance brought forward (10.0) (16.9) 22.1 (10.9) Net balance carried forward (30.3) (10.0)

(c) Factors affecting the tax charge for the year Deferred tax (charged)/credited through the income statement relates to the following: Profit before tax 314.1 275.7 Retirement benefit obligations (0.2) (3.0) Tax at the standard rate of corporation tax in the UK, 19.25% (2016: 20.00%) 60.5 55.1 Accelerated capital allowances 4.8 (0.9) Effect of: Provisions (2.7) – Deferred tax rate change (7.7) (0.4) Other 2.6 2.5 Prior year overprovisions (2.9) – 4.5 (1.4) Tax cost of remitting overseas income to the UK 0.8 0.3 Expenses and write-offs not deductible for tax purposes 0.6 0.5 Deferred tax is calculated in full on temporary differences under the balance sheet liability method at rates appropriate to each Net effect of higher overseas tax rates 26.1 22.6 subsidiary. Deferred tax expected to reverse in the year to 31 December 2018 and beyond has been measured using the rate due 77.4 78.1 to prevail in the year of reversal. Deferred tax assets have been recognised in all cases where such assets arise, as it is probable the assets will be recovered. Croda’s 2017 effective adjusted corporate tax rate of 26.8% is significantly higher than the UK’s standard rate of 19.25%. Croda operates in many tax jurisdictions other than the UK, both as a manufacturer and distributor, with the majority of those jurisdictions Deferred tax is only recognised on the unremitted earnings of overseas subsidiaries to the extent that remittance is expected having rates higher than the UK; considerably so in some cases. It is the exposure to these different tax rates that increases the in the foreseeable future. If all earnings were remitted, an additional £3.2m (2016: £2.9m) of tax would be payable. effective tax rate above the UK standard rate and also makes it difficult to forecast the Group’s future tax rate with any certainty given All movements on deferred tax balances have been recognised in income with the exception of the charges shown in note 5(b), the unpredictable nature of exchange rates, individual economies and tax legislators. Other than the exposure to higher overseas tax which have been recognised directly in equity. rates, there are no significant adjustments between the Group’s expected and reported tax charge based on its accounting profit. Of the deferred tax assets, £5.0m are expected to reverse within 12 months of the balance sheet date, due to payments against Given the global nature of the Group, and the number of associated cross-border transactions between connected parties, we are provisions. No material reversal of any of the deferred tax liability is expected within 12 months of the balance sheet date based exposed to potential adjustments to the price charged for those transactions by tax authorities. However, we would not expect such on the Group’s current capital expenditure programme. adjustments, if any, to have a material impact on the Group’s tax charge in future years. Details of the Group’s tax strategy can be found on our website at www.croda.com. The main rate of UK corporation tax reduced from 20% to 19% from 1 April 2017. Further reductions to the UK tax rate have been announced that will reduce the rate to 17% by 1 April 2020, although for 2017 the rate as currently enacted will be 19%. The future changes to rates were substantively enacted on 6 September 2016. Overseas tax is calculated at the rates prevailing in the respective jurisdictions.

Croda International Plc Croda International Plc 102 Annual Report and Accounts 2017 Annual Report and Accounts 2017 103 Financial Statements | Notes to the Group Accounts

7. Earnings per share 9. Employees 2017 2016 2017 2016 £m £m £m £m Adjusted profit for the year 234.4 207.6 Group employment costs including Directors Exceptional items, acquisition costs and amortisation of intangible assets (6.2) (12.6) Wages and salaries 190.3 181.7 Tax impact of exceptional items, acquisition costs and amortisation of intangible assets 8.5 2.6 Share-based payment charges (note 22) 17.0 13.0 Non-controlling interests 0.3 (0.9) Social security costs 35.0 32.5 237.0 196.7 Post retirement benefit costs 23.5 18.3 Redundancy costs 1.6 5.7 Number Number 267.4 251.2 m m

Weighted average number of 10.36p ordinary shares in issue for basic calculation 131.1 132.7 2017 2016 Deemed issue of potentially dilutive shares 1.3 1.2 Number Number Average number of 10.36p ordinary shares for diluted calculation 132.4 133.9 Average employee numbers by function Production 2,659 2,683 Pence Pence Selling and distribution 1,032 1,017 Basic earnings per share 180.8 148.2 Administration 579 589 Adjusted basic earnings per share from continuing operations 179.0 155.8 4,270 4,289

Diluted earnings per share 179.0 146.9 As required by the Companies Act 2006, the figures disclosed above are weighted averages based on the number of employees Adjusted diluted earnings per share from continuing operations 177.3 154.4 at each month end and include Executive Directors. At 31 December 2017, the Group had 4,309 (2016: 4,273) employees in total.

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number 10. Directors’ and key management compensation of ordinary shares in issue during the year, excluding those held in the employee share trusts (note 24) which are treated as cancelled Detailed information concerning Directors’ remuneration, interests and options is shown in the Directors’ Remuneration Report, as except for a nominal amount, dividends have been waived. which is subject to audit on pages 61 to 77 forming part of the Annual Report and Accounts. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all Aggregate compensation for key management, being the Directors and members of the Group Executive Committee, was as follows: potentially dilutive ordinary shares. 2017 2016 £m £m Additional earnings per share calculations are included above to give a better indication of the Group’s underlying performance. Key management compensation including Directors 8. Dividends Short term employee benefits 6.6 7.1 Pence per 2017 Pence per 2016 Post retirement benefit costs 0.1 0.1 share £m share £m Share-based payments 3.4 2.4 Financial Statements Ordinary 10.1 9.6 Interim 2016 interim, paid October 2016 – – 32.75 42.9 2017 interim, paid October 2017 35.00 45.8 – – Final 2015 final, paid June 2016 – – 38.00 51.5 2015 special, paid June 2016 – – 100.00 135.7 2016 final, paid June 2017 41.25 54.1 – – 76.25 99.9 170.75 230.1 Preference (paid June and December) 0.1 0.1 100.0 230.2

The Directors are recommending a final dividend of 46.0p per share, amounting to a total of £60.4m, in respect of the financial year ended 31 December 2017. Subject to shareholder approval, the dividend will be paid on 31 May 2018 to shareholders registered on 20 April 2018 and has not been accrued in these financial statements. The total dividend for the year ended 31 December 2017 will be 81.0p per share amounting to a total of £106.2m.

Croda International Plc Croda International Plc 104 Annual Report and Accounts 2017 Annual Report and Accounts 2017 105 Financial Statements | Notes to the Group Accounts

11. Post retirement benefits The amounts recognised in the balance sheet in respect of these schemes are as follows: The table below summarises the Group’s net year end post-employment liabilities and activity for the year. 2017 2016 £m £m 2017 2016 £m £m Present value of funded obligations Balance sheet: UK pension scheme (991.6) (1,036.1) Retirement benefit assets 19.1 – US pension scheme (127.9) (135.7) Retirement benefit liabilities (49.6) (146.5) Netherlands pension scheme (176.0) (164.1) Net liability in Group balance sheet (30.5) (146.5) Rest of World (22.3) (19.5) (1,317.8) (1,355.4) Net balance sheet liabilities for: Fair value of schemes’ assets Defined pension benefits (17.1) (130.3) UK pension scheme 1,010.1 956.4 Post-employment medical benefits (13.4) (16.2) US pension scheme 128.5 126.3 (30.5) (146.5) Netherlands pension scheme 151.0 134.3 Rest of World 15.2 12.4 Income statement charge included in profit before tax for: 1,304.8 1,229.4 Defined pension benefits 22.1 15.9 Net liability in respect of funded schemes (13.0) (126.0) Post-employment medical benefits 1.0 1.2 Present value of unfunded obligations (4.1) (4.3) 23.1 17.1 Liability in Group balance sheet (excluding post-employment medical benefits) (17.1) (130.3)

Remeasurements included in other comprehensive (income)/expense for: 2017 2016 Defined pension benefits (119.9) 69.2 £m £m Post-employment medical benefits (2.0) (3.7) Movement in present value of retirement benefit obligations in the year: (121.9) 65.5 Opening balance 1,359.7 1,032.4 Current service cost 19.1 14.1 Defined benefit pension schemes Interest cost 34.4 37.4 The Group operates defined benefit pension schemes in the UK, US and several other territories under broadly similar regulatory Remeasurements frameworks. All of the Group’s final salary type pension schemes (which provide benefits to members in the form of a guaranteed Change in demographic assumptions (5.5) (0.7) level of pension payable for life based on salary in the final years leading up to retirement) are closed to future service accrual with the Change in financial assumptions 21.0 272.5 exception of a small number of ‘grandfathered’ employees in the US scheme. The UK scheme operated on a final salary basis until Experience gains (60.3) (7.5) 5 April 2016, following which the scheme changed to a Career Average Revalued Earnings (CARE) defined benefit scheme, with annual Contributions paid in pensionable earnings capped at a CPI indexed £65,000 and indexation of pensions in payment based on CPI (previously RPI), for Employee 2.6 2.6 Financial Statements service accrued from 6 April 2016. This change is expected to reduce the future comparable cost and risk attached to the UK scheme. Benefits paid (41.8) (38.6) Material defined benefit pension schemes in other territories operate on a similar basis to the UK, except in the US, which (other than Exchange differences on overseas schemes (7.3) 47.5 for ‘grandfathered’ employees) operates a cash balance pension scheme that provides a guaranteed rate of return on pension 1,321.9 1,359.7 contributions until retirement. From 1 January 2018 the US scheme has closed to new joiners who will receive defined contribution benefits. The US plans also do not generally receive inflationary increases once in payment. With the exception of this difference in Movement in fair value of schemes’ assets in the year: inflationary risk, the Group’s main defined benefit pension schemes continue to face broadly similar risks, as described on page 109. Opening balance 1,229.4 969.6 Interest income 31.4 35.6 The majority of benefit payments are from trustee administered funds; however, there are also a number of unfunded plans where Remeasurements the relevant Group company meets the benefit payment obligation as it falls due. Return on scheme assets, excluding amounts included in financial expenses 75.1 195.1 Plan assets held in trusts are governed by local regulations and practice in each country, as is the nature of the relationship between Contributions paid in the Group and the trustees (or equivalent) and their composition. Responsibility for governance of the schemes – including investment Employee 2.6 2.6 decisions and contribution schedules – predominantly lies with the particular scheme’s board of trustees with appropriate input from Employer 15.8 25.1 the relevant Group company. The board of trustees must be composed of representatives in accordance with each scheme’s Benefits paid out including settlements (41.8) (38.6) regulations and any relevant legislation. Exchange differences on overseas schemes (7.7) 40.0 1,304.8 1,229.4

As at the balance sheet date, the present value of retirement benefit obligations was comprised of approximately £370m in respect of active employees, £358m in respect of deferred members and £594m in relation to members in retirement. Total employer contributions to the schemes in 2018 are expected to be £12.8m. The significant actuarial assumptions were as follows: 2017 2017 2017 2016 2016 2016 UK US Netherlands UK US Netherlands Discount rate 2.4% 3.6% 1.9% 2.6% 4.0% 1.9% Inflation rate – RPI 3.2% 2.5% 1.9% 3.3% 2.5% 1.9% Inflation rate – CPI 2.2% n/a n/a 2.3% n/a n/a Rate of increase in salaries 4.2% 4.0% 2.4% 4.3% 4.0% 2.4% Rate of increase for pensions in payment 3.0% n/a 1.5% 3.1% n/a 1.5% Duration of liabilities (ie life expectancy) (years) 19.9 11.1 22.4 20.5 11.5 23.9 Remaining working life 12.7 11.1 13.0 15.8 11.1 13.5

Croda International Plc Croda International Plc 106 Annual Report and Accounts 2017 Annual Report and Accounts 2017 107 Financial Statements | Notes to the Group Accounts

11. Post retirement benefits continued Pension and medical benefits – risks and volatility Mortality assumptions are based on country-specific mortality tables and where appropriate allow for future improvements in life Through its defined benefit pension schemes and post-employment medical schemes, the Group is exposed to a number of risks, expectancy. Where credible data exists, actual plan experience is taken into account. Applying the mortality tables adopted, the the most significant of which are detailed below: expected future average lifetime of members currently at age 65 and members at age 65 in 20 years’ time is as follows: Asset volatility Current age 65 Age 65 in 20 years The schemes’ liabilities are calculated using a discount rate set with reference to corporate bond yields; if scheme assets underperform UK US Netherlands UK US Netherlands this yield, a deficit will be created. Both the UK and US plans hold a significant proportion of equities, which are expected to outperform Male 21.5 21.1 22.1 22.9 22.6 23.8 corporate bonds in the long term while providing volatility and risk in the short term. Whilst our Dutch scheme is less mature, regulatory Female 24.0 23.0 24.8 25.5 24.4 26.4 pressures result in lower equity holdings. As the schemes mature, the Group intends to reduce the level of investment risk by investing The sensitivity of the defined benefit obligation to changes in the assumptions is as follows: more in assets that better match the liabilities. However, the Group and the pension trustees (Trustees) believe that due to the long term Impact on retirement benefit obligation nature of the scheme liabilities and the strength of the supporting Group, a level of continuing equity investment is an appropriate Sensitivity Of increase Of decrease element of the Group’s long term strategy to manage the schemes efficiently. See below for more details on the Group’s asset-liability Discount rate 0.5% -9.0% +10.4% matching strategy. Inflation rate 0.5% +6.6% -6.2% Changes in bond yields Mortality (assumes a one year increase in life expectancy) 1 year +3.0% n/a A decrease in corporate bond yields will increase scheme liabilities, although this will be partially offset by an increase in the value of the schemes’ bond holdings. The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined Inflation risk benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated Some of the Group’s pension obligations are linked to inflation, and higher inflation will lead to higher liabilities. However, the level of with the projected unit credit method at the end of the reporting year) has been applied as when calculating the retirement benefit inflationary increases are usually capped to protect the scheme against extreme inflation. The majority of the schemes’ assets are either obligation recognised in the Group balance sheet. unaffected by inflation in the case of fixed interest bonds or loosely correlated in the case of equities, meaning that an increase in inflation will thus increase the deficit. In the US schemes, the pensions in payment are not linked to inflation, so this is a less material risk. The weighted average duration of the defined benefit obligation is 19.3 years (2016: 19.9 years). Life expectancy The assets in the schemes comprised: The majority of the schemes’ obligations are to provide benefits for the life of the member, so increases in life expectancy will result 2017 2017 2016 2016 in an increase in the schemes’ liabilities. This is particularly significant in the UK scheme, where inflationary increases result in higher £m % £m % sensitivity to changes in life expectancy. In the case of the funded schemes, the Group ensures that the investment positions are Quoted managed within an asset-liability matching (ALM) framework that has been developed to achieve long term investments that are Equities 355.1 27% 486.5 40% cognisant of the obligations under the pension schemes. Within this framework, the Group’s ALM objective is to match a portion of Government bonds 64.5 5% 56.4 5% assets to the pension obligations by investing in long term fixed interest securities with maturities that match the benefit payments as Corporate bonds 128.7 10% 123.8 10% they fall due and in the appropriate currency. The Group and Trustees actively monitor how the duration and the expected yield of the Other quoted securities 1.9 0% 4.8 0% investments are matching the expected cash outflows arising from the pension obligations. The Group has not changed the processes Unquoted Financial Statements used to manage its risks from previous years. As part of these processes, the Group increased the proportion of assets in its UK liability Cash and cash equivalents 43.1 3% 66.8 5% driven investment portfolio during the year by 18.7% to leave approximately 85% of liabilities hedged against interest rate and inflation Real estate 66.8 5% 67.2 5% movements. Investments are well diversified, such that the failure of any single investment would not have a material impact on the Liability driven instruments 378.3 29% 179.6 15% overall level of assets. A large portion of assets in 2017 consist of equities and bonds, although the schemes also invest in property, Other 266.4 21% 244.3 20% cash and infrastructure funds. The Group believes that equities offer the best returns over the long term with an acceptable level of risk. 1,304.8 100% 1,229.4 100% Both the UK and Dutch schemes make use of a portfolio of derivative instruments to mitigate interest rate and inflation risk. Post-employment medical benefits The triennial valuation of the UK scheme was last completed as at 30 September 2014. The results showed that the actuarial scheme The Group operates an unfunded post-employment medical benefit scheme in the US. The method of accounting, significant deficit had been eliminated following the last deficit payment of £22m in January 2015. As a result, no deficit funding payments to this assumptions and the frequency of valuations are similar to those used for defined benefit pension schemes set out above with scheme were required prior to completion of the next triennial valuation (as at 30 September 2017) which is currently ongoing. The the addition of actuarial assumptions relating to the long term increase in health care costs of 7.6% a year (2016: 8.0%). funding review of our US scheme is undertaken annually. As at 1 December 2016 the scheme was 129% funded, with the funding level allowing for contributions to be received during 2017. The Group’s Dutch scheme is subject to a more rigorous regulatory environment The amounts recognised in the balance sheet in respect of this scheme are as follows: under the supervision of the Dutch National Bank (DNB). As at 31 December 2017 the scheme was 115% funded on an actuarial basis 2017 2016 £m £m relative to the DNB’s required level of 121% and a minimum funding requirement of 104%. Present value of unfunded obligations US scheme 13.4 16.2 The expected distribution of the timing of benefit payments is as follows: Less than Between Between Beyond a year 1–2 years 2–5 years 5 years Total 2017 2016 £m £m £m £m £m £m £m Movement in present value of retirement benefit obligations in the year: Pension benefits 34.8 34.9 117.1 1,135.1 1,321.9 Opening balance 16.2 16.0 Post-employment medical benefits 0.5 0.5 1.7 10.7 13.4 Current service cost 0.4 0.5 35.3 35.4 118.8 1,145.8 1,335.3 Interest cost 0.6 0.7 Defined contribution schemes Remeasurements 2017 2016 Change in demographic assumptions – (0.2) £m £m Change in financial assumptions (1.3) (2.0) Contributions paid charged to operating profit 4.0 3.7 Experience gains (0.7) (1.5) Benefits paid (0.3) (0.4) Exchange differences on overseas schemes (1.5) 3.1 13.4 16.2

Croda International Plc Croda International Plc 108 Annual Report and Accounts 2017 Annual Report and Accounts 2017 109 Financial Statements | Notes to the Group Accounts

12. Intangible assets Impairment testing for goodwill Other The goodwill relates predominantly to the value of commercial and other synergies arising from the combination of acquired Goodwill Software intangibles Total £m £m £m £m businesses, with Croda’s established global sales, marketing and R&D networks. This goodwill is allocated to the Group’s cash Cost generating units (CGUs) that are expected to benefit from that combination. The carrying amount of goodwill is allocated to CGUs as At 1 January 2016 293.2 13.7 39.4 346.3 follows: Exchange differences 12.5 2.5 6.8 21.8 2017 2016 Additions – 1.5 0.1 1.6 £m £m Uniqema (Personal Care and Life Sciences) 192.6 193.4 Acquisitions 1.4 – 0.4 1.8 Sipo 21.6 22.3 Reclassification from plant and equipment – 0.9 – 0.9 Incotec (Life Sciences) 71.4 69.0 At 31 December 2016 307.1 18.6 46.7 372.4 Other 34.6 22.4 At 1 January 2017 3 07.1 18.6 46.7 372.4 320.2 3 07.1 Exchange differences 1.1 (0.2) 1.7 2.6 Additions – 3.5 – 3.5 As discussed in the accounting policies note on page 95, goodwill is tested at each year end for impairment with reference to the Acquisitions 12.8 – 18.1 30.9 relevant CGUs’ recoverable amount compared to the unit’s carrying value including goodwill. Assets are grouped at the lowest level for Disposals and write-offs (0.8) (1.0) (0.1) (1.9) which there are separately identifiable cash flows relevant to the acquisition generating the goodwill. The recoverable amount is based Reclassification from plant and equipment – 1.5 – 1.5 on value-in-use calculations using pre-tax discounted cash flow projections based on the Group’s current year results and a long term future growth rate. At 31 December 2017 320.2 22.4 66.4 409.0 Unless the risk profile of a particular acquisition dictates otherwise, the cash flows are discounted using a rate derived from the Group’s Accumulated amortisation and impairment losses weighted average cost of capital, which for these purposes has been calculated to be approximately 6.6% pre-tax (2016: 7.3%). For the At 1 January 2016 – 8.4 0.1 8.5 purposes of the Sipo calculation, the pre-tax rate was increased to 8.4% (2016: 9.0%) because of the higher risk associated with this Exchange differences – 2.5 1.0 3.5 investment. A long term future growth rate of 3% has been used for all calculations. Charge for the year (note 3) – 2.0 3.1 5.1 The key assumptions underpinning the forecasts employed in the value-in-use calculation reflect a prudent view of past experience and At 31 December 2016 – 12.9 4.2 17.1 are that market share will not change significantly and that gross and operating margins will remain broadly constant. In respect of the At 1 January 2017 – 12.9 4.2 17.1 brought forward goodwill, the Directors believe there are no reasonably possible changes in assumptions which would give rise to an Exchange differences – (0.3) 0.2 (0.1) impairment charge in the year. Goodwill arising in the year will be subject to the same assumptions and review process commencing Charge for the year (note 3) – 1.7 3.7 5.4 the year after initial recognition. Disposals and write-offs – (1.0) 0.1 (0.9) Reclassification from plant and equipment – 1.2 – 1.2

At 31 December 2017 – 14.5 8.2 22.7 Financial Statements

Net carrying amount At 31 December 2017 320.2 7.9 58.2 386.3 At 31 December 2016 3 07.1 5.7 42.5 355.3 At 1 January 2016 293.2 5.3 39.3 337.8

Intangible asset amortisation is recorded in operating costs within the income statement on page 88.

Croda International Plc Croda International Plc 110 Annual Report and Accounts 2017 Annual Report and Accounts 2017 111 Financial Statements | Notes to the Group Accounts

13. Property, plant and equipment 14. Future commitments Land and Plant and 2017 2016 buildings equipment Total £m £m £m £m £m Group capital projects Cost At 31 December the Directors had authorised the following expenditure on capital projects: At 1 January 2016 151.5 595.7 747.2 Contracted, but not provided for Exchange differences 27.5 122.6 150.1 Property, plant and equipment 22.7 43.2 Additions 7.9 98.9 106.8 Intangible assets 0.5 0.7 Acquisitions – 0.1 0.1 Authorised, but not contracted for Other disposals and write-offs (0.8) ( 7.1) ( 7.9) Property, plant and equipment 83.8 76.8 Reclassifications 0.6 (1.5) (0.9) Intangible assets 1.0 4.0 At 31 December 2016 186.7 808.7 995.4 108.0 124.7 At 1 January 2017 186.7 808.7 995.4 Operating leases – minimum lease commitments At 31 December the Group’s future minimum lease commitments were due as follows: Exchange differences (4.6) (32.1) (36.7) Within one year 6.3 Additions 10.1 150.7 160.8 9.2 From one to five years 10.8 Acquisitions – 3.0 3.0 14.1 After five years 9.2 Other disposals and write-offs (5.7) (9.6) (15.3) 7.4 26.3 Reclassifications 0.1 (1.6) (1.5) 30.7 At 31 December 2017 186.6 919.1 1,105.7 The Group leases various buildings, vehicles and other plant and equipment under non-cancellable operating lease arrangements. Accumulated depreciation and impairment losses The leases have various terms typical of lease agreements for the particular class of asset. At 1 January 2016 49.5 237.1 286.6 15. Investments Exchange differences 12.0 60.8 72.8 The amounts recognised in the balance sheet are as follows: Charge for the year (note 3) 5.5 38.6 44.1 2017 2016 Other disposals and write-offs (0.4) (5.8) (6.2) £m £m At 31 December 2016 66.6 330.7 397.3 Associate 1.3 – Other investments 0.9 1.0 At 1 January 2017 66.6 330.7 397.3 2.2 1.0 Exchange differences (1.3) (8.5) (9.8) Charge for the year (note 3) 5.6 42.3 47.9 On 18 July 2017, the Group acquired a 24.9% shareholding in Cutitronics Limited. This investment is recognised as an associate

Other disposals and write-offs (3.8) (8.7) (12.5) on the Group’s balance sheet. Cutitronics is a multi-award winning company that has developed digital skin devices which assess Financial Statements Reclassifications – (1.2) (1.2) skin health and prepare it for the optimum delivery of skin care formulations. This investment will enable us to utilise the very latest At 31 December 2017 67.1 354.6 421.7 digital technology to gain greater insight of Personal Care consumer behaviour and the use of data for future product development.

Net book amount Other investments of £0.9m (2016: £1.0m) comprise equity securities classified as available-for-sale and are included at cost, as fair At 31 December 2017 119.5 564.5 684.0 value cannot be measured reliably, or, if quoted on an active market, at market value. At 31 December 2016 120.1 478.0 598.1 The Directors believe the carrying value of the investments is supported by their underlying net assets. At 1 January 2016 102.0 358.6 460.6 The amounts recognised in the income statement are as follows: 2017 2016 The net book amount of assets held by the Group under finance leases for plant and equipment at 31 December 2017 was £1.0m £m £m (2016: £1.1m). The leased equipment secures the lease obligations in note 19. No other property, plant or equipment have been Share of loss of associate 0.1 – pledged as security for liabilities. Other investments – – 0.1 –

16. Inventories 2017 2016 £m £m Raw materials 48.6 45.9 Work in progress 36.8 32.0 Finished goods 173.1 157.8 258.5 235.7

The Group consumed £741.9m (2016: £674.8m) of inventories during the year.

Croda International Plc Croda International Plc 112 Annual Report and Accounts 2017 Annual Report and Accounts 2017 113 Financial Statements | Notes to the Group Accounts

17. Trade and other receivables 18. Trade and other payables 2017 2016 2017 2016 £m £m £m £m Amounts falling due within one year Trade payables 69.8 62.2 Trade receivables 175.3 164.7 Taxation and social security 7.8 8.3 Less: provision for impairment of receivables (4.8) (4.4) Other payables 44.2 37.8 Trade receivables – net 170.5 160.3 Accruals and deferred income 79.6 77.9 Other receivables 26.1 25.0 201.4 186.2 Prepayments 5.6 7.1 202.2 192.4 All trade payables are payable within one year.

The ageing of the Group’s year end overdue receivables against which no provision has been made is as follows: 19. Borrowings, other financial liabilities and other financial assets 2017 2016 This note should be read in conjunction with the further liquidity disclosures in our accounting policies note and the Finance Review £m £m on pages 26 to 29. Not impaired 2017 2016 Less than three months 24.2 17.6 £m £m Three to six months – 0.1 Current assets Over six months 1.5 0.2 Investments 2.2 1.0 25.7 17.9 Trade and other receivables (excluding prepayments) 196.6 185.3 198.8 186.3 The individually impaired receivables relate to customers in unexpectedly difficult economic circumstances. The overdue receivables Current liabilities against which no provision has been made relate to a number of customers for whom there is no recent history of default, nor any other Trade and other payables (excluding taxation, social security, accruals and deferred income) 114.0 100.0 indication that settlement will not be forthcoming. The other classes within trade and other receivables do not contain impaired assets Unsecured bank loans and overdrafts due within one year or on demand 10.1 4.7 and are considered to be fully recoverable. Other loans 7.9 5.3 The carrying amounts of the Group’s receivables are denominated in the following currencies: Obligations under finance leases 0.4 0.4 132.4 110.4 2017 2016 £m £m Non-current liabilities Sterling 13.7 13.3 2014 Club facility due 2021 144.4 80.3 US Dollar 59.2 54.2 2016 Club facility due 2021 – 20.0 Euro 72.1 71.0 US$100m 5.94% fixed rate 10 year bond 73.9 81.8 Other 57.2 53.9 €30m 1.08% fixed rate 7 year bond 26.6 25.7 202.2 192.4 €70m 1.43% fixed rate 10 year bond 62.1 60.1 Financial Statements £30m 2.54% fixed rate 7 year bond 30.0 30.0 Movements on the Group’s provision for impairment of trade receivables are as follows: £70m 2.80% fixed rate 10 year bond 70.0 70.0 2017 2016 Other secured bank loans 0.7 – £m £m Other unsecured bank loans 18.3 46.3 At 1 January 4.4 2.9 Obligations under finance leases 0.4 0.5 Exchange differences (0.1) 0.4 426.4 414.7 Charged to income statement 0.8 1.8 Net write-off of uncollectible receivables (0.3) (0.7) The initial Club facility was put in place in June 2014 and falls due for repayment upon expiry of the agreement in July 2021. During the At 31 December 4.8 4.4 first half of 2016, a further facility was put in place and also falls due for repayment upon expiry of the agreement in July 2021. Interest is charged on both agreements at a floating rate based on ICE GBP LIBOR, ICE LIBOR or EURIBOR, depending upon the drawdown Amounts charged to the income statement are included within administrative expenses. The other classes of receivables do not currency, plus a variable margin. The margin the Group pays on its borrowings over and above standard rates is determined by the contain impaired assets. Group’s net debt to EBITDA ratio. In addition to the new Club facility in 2016, the Group also took out four new Sterling and Euro denominated bonds in the US private placement market. The bonds have an average maturity of 7.6 years and carry an average fixed rate of interest of 2.1% at the 31 December 2017.

Croda International Plc Croda International Plc 114 Annual Report and Accounts 2017 Annual Report and Accounts 2017 115 Financial Statements | Notes to the Group Accounts

19. Borrowings, other financial liabilities and other financial assets continued Interest rate and currency profile of Group financial liabilities 2017 2016 Fixed rate £m £m weighted average Maturity profile of financial liabilities Total Fixed Floating Interest Fixed period £m £m £m Rate % Years Repayments fall due as follows: Sterling 147.7 100.0 47.7 2.72 7.6 Within one year US Dollar 176.8 73.9 102.9 5.94 2.1 Bank loans and overdrafts 10.1 4.7 Euro 108.0 88.7 19.3 1.33 7.6 Other loans 7.9 5.3 Other 12.3 – 12.3 – – Obligations under finance leases 0.4 0.4 At 31 December 2017 444.8 262.6 182.2 3.16 6.0 18.4 10.4 After more than one year Sterling 159.6 100.0 59.6 2.72 8.6 Loans repayable US Dollar 141.3 81.8 59.5 5.94 3.1 Within one to two years 0.1 0.1 Euro 117.1 85.8 31.3 1.33 8.6 Within two to five years 237.2 228.3 Other 7.1 – 7.1 – – Five years and over 188.7 185.8 At 31 December 2016 425.1 267.6 157.5 3.26 6.9 Obligations under finance leases payable between years two and five 0.4 0.5 426.4 414.7 Fair values The table below details a comparison of the book and fair values of the Group’s financial assets and liabilities. Where there are The minimum lease payments under finance leases fall due as follows: no readily available market values to determine fair values, cash flows relating to the various instruments have been discounted Within one year 0.5 0.5 at prevailing interest and exchange rates to give an estimate of fair value. Within one to five years 0.4 0.5 Book Fair Book Fair value value value value 0.9 1.0 2017 2017 2016 2016 Future finance charges on finance leases (0.1) (0.1) £m £m £m £m Present value of finance lease liabilities 0.8 0.9 Cash deposits 63.3 63.3 61.0 61.0 Other investments 2.2 2.2 1.0 1.0 2017 2016 2014 Club facility due 2021 (144.4) (144.4) (80.3) (80.3) £m £m 2016 Club facility due 2021 – – (20.0) (20.0) Undiscounted maturity analysis of financial liabilities US$100m 5.94% fixed rate 10 year bond (73.9) (76.4) (81.8) (84.1) Within one year €30m 1.08% fixed rate 7 year bond (26.6) (27.0) (25.7) (25.5) Bank loans and overdrafts 14.0 5.4 €70m 1.43% fixed rate 10 year bond (62.1) (63.1) (60.1) (61.6) Other loans 4.8 5.0

£30m 2.54% fixed rate 7 year bond (30.0) (30.5) (30.0) (30.3) Financial Statements Obligations under finance leases 0.5 0.5 £70m 2.80% fixed rate 10 year bond (70.0) (71.4) (70.0) (70.0) 19.3 10.9 Other bank borrowings (29.1) (29.1) (51.0) (51.0) After more than one year Other loans (7.9) (7.9) (5.3) (5.3) Loans repayable Obligations under finance leases (0.8) (0.8) (0.9) (0.9) Within one to two years 0.1 0.1 Within two to five years 255.6 249.5 For financial instruments with a remaining life of greater than one year, fair values are based on cash flows discounted at prevailing Five years and over 219.4 220.5 interest rates. Accordingly, the fair value of cash deposits and short term borrowings approximates to the book value due to the Obligations under finance leases 0.4 0.5 short maturity of these instruments. The same applies to trade and other receivables and payables excluded from the above analysis. 475.5 470.6 Financial instruments The analysis above includes estimated interest payable to maturity on the underlying loans. For the loans due after more than one Effective 1 January 2013, the Group adopted the amendment to IFRS 13 for financial instruments that are measured in the balance year £11.1m (2016: £10.3m) of the interest falls due within one year of the balance sheet date, £11.1m (2016: £10.3m) within one to two sheet at fair value. This requires disclosure of fair value measurements by level of the following hierarchy: years, £16.2m (2016: £20.6m) within two to five years and £10.7m (2016: £14.7m) beyond five years. → Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) → Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2) → Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). All of the Group’s financial instruments are classified as level 3. Borrowing facilities As at 31 December 2017, the Group had undrawn committed facilities of £390.2m (2016: £410.6m). In addition, the Group had other undrawn facilities of £59.0m (2016: £65.0m) available. Of the Group’s total committed facilities of £814.4m, £688.7m expire after 2020.

Croda International Plc Croda International Plc 116 Annual Report and Accounts 2017 Annual Report and Accounts 2017 117 Financial Statements | Notes to the Group Accounts

19. Borrowings, other financial liabilities and other financial assets continued Capital risk management Financial risk factors The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to The Group’s activities expose it to a variety of financial risks: currency risk, interest rate risk, liquidity risk, and credit risk. The Group’s provide returns for shareholders and benefits for other stakeholders, as well as maintaining an optimal capital structure to reduce overall risk management strategy is approved by the Board and implemented and reviewed by the Risk Management Committee. overall cost of capital. Detailed financial risk management is then delegated to the Group Finance department which has a specific policy manual that sets In order to maintain this optimal structure, the Group may adjust the amount of dividends paid, issue new shares, return capital out guidelines to manage financial risk. Regular reports are received from all operating companies to enable prompt identification to shareholders or dispose of assets to reduce net debt. Given the Group’s strong balance sheet and sustained trading growth, of financial risks so that appropriate action may be taken. In the management and definition of capital the Group includes ordinary the Group announced a new dividend policy in 2011 of paying a dividend of between 40% and 50% of sustainable earnings. and preference share capital and net debt. Further details can be found in the Chairman’s Statement on pages 2 and 3. Currency risk Underlying growth coupled to Return on Invested Capital (ROIC) is the key perceived driver of shareholder value within the Group. The Group operates internationally and is exposed to currency risk arising from various currency exposures, primarily with respect The Group’s ROIC now stands at 19.2% against a post-tax WACC of 4.8%, thus hitting the Group’s target of maintaining ROIC at a to the US Dollar and the Euro. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities higher level than the WACC. In addition, the Group employs two widely used ratios to measure our ability to service our debt. Both and net investments in foreign operations. Entities in the Group use foreign currency bank balances to manage their foreign exchange net debt/EBITDA and EBITDA interest cover were well ahead of target in 2017. Further details can be found in the Finance Review risk arising from future commercial transactions, recognised assets and liabilities. The Group’s risk management policy is to manage on pages 26 to 29. The Group was in compliance with its covenant requirements throughout the year. Additional information on transactional risk up to three months forward. The Group has certain investments in foreign operations, whose net assets are exposed progress against Key Performance Indicators can be found on pages 24 and 25. to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is not specifically hedged but is reduced primarily through borrowings denominated in the relevant foreign currencies where it is efficient to do so. 20. Provisions

For 2017, had the Group’s basket of reporting currencies been 10% weaker/stronger than the actual rates experienced, post-tax Environmental Restructuring Other Total profit for the year would have been £17.4m (2016: £14.8m) lower/higher than reported, primarily as a result of the translation of the £m £m £m £m profits of the Group’s overseas entities, and equity would have been £56.6m (2016: £47.7m) lower/higher. At 1 January 2017 12.1 4.5 0.7 17.3 Interest rate risk Exchange differences (1.1) (0.3) 0.1 (1.3) The Group has both interest bearing assets and liabilities. In 2016, the Group had a policy of maintaining no more than 60% of its gross Released to the income statement – – (0.4) (0.4) borrowings at fixed interest rates in normal circumstances. During 2016, the Group increased its amount of fixed rate debt following Charged to the income statement 1.7 – – 1.7 payment of the £136m special dividend and consequent increase in core debt requirements. Bonds were issued in the amounts of Cash paid against provisions and utilised (2.5) (2.2) – (4.7) £100m and €100m with an average maturity of 9.1 years and interest rate of 2.08%. The Group also retained its US$100m loan note At 31 December 2017 10.2 2.0 0.4 12.6 repayable in 2020 carrying a fixed rate of 5.94%. During 2017, the policy formally increased the upper limit for fixed rate debt to 75% Analysis of total provisions of gross borrowings. At 31 December 2017, approximately 59% of Group borrowings were at fixed rates. 2017 2016 £m £m As at 31 December 2017, aside from the loan notes referred to above, all Group debt and cash was exposed to repricing within Current 5.2 8.1 12 months of the balance sheet date. Non-current 7.4 9.2 At 31 December 2017, the Group’s fixed rate debt was at a weighted average rate of 3.16% (2016: 3.26%). The Group’s floating rate 12.6 17.3 Financial Statements liabilities are predominantly based on LIBOR and its overseas equivalents. Based on the above, had interest rates moved by 10 basis points in the territories where the Group has substantial borrowings, post-tax Provisions are made where a constructive or legal obligation has arisen from a past event, can be quantified and where the timing profits would have moved by £0.2m (2016: £0.2m) due to increased interest expense on the Group’s floating rate borrowings. of the transfer of economic benefits relating to the provisions cannot be ascertained with any degree of certainty. Liquidity risk The environmental provision relates to soil and potential groundwater contamination on a number of sites, both currently in use The Group actively maintains a mixture of long term and short term committed facilities designed to ensure that the Group has and previously occupied, in Europe and the Americas. sufficient funds available for operations and planned investments. The Group also has a share buyback programme that is managed In relation to the environmental provision, the Directors consider that the balance will be utilised within ten years. Provisions for to ensure the efficiency of the Group’s funding structure. remediation costs are made when there is a present obligation, it is probable that expenditures for remediation work will be required On a regular basis, management monitors forecasts of the Group’s cash flows against both internal targets and those targets imposed and the cost can be estimated within a reasonable range of possible outcomes. The costs are based on currently available facts and by external lenders. The Group has substantial committed, unused facilities and the Directors are confident this situation will remain prior experience. Environmental liabilities are recorded at the estimated amount at which the liability could be settled at the balance the case for the foreseeable future. sheet date. Remediation of environmental damage typically takes a long time to complete due to the substantial amount of planning and regulatory approvals normally required before remediation activities can begin. In addition, increases in or releases of environmental Credit risk provisions may be necessary whenever new developments occur or additional information becomes available. Consequently, The Group has no significant concentrations of credit risk. It has policies in place to ensure that sales of products are made to environmental provisions can change significantly. The level of environmental provision is based on management’s best estimate of the customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high-credit quality most likely outcome for each individual exposure. The Group has also considered the impact of discounting on its provisions and has financial institutions. The Group has policies that limit the amount of credit exposure to any financial institution. concluded that, as a consequence of the significant utilisation expected in a relatively short timescale, the impact is not material. The restructuring provision primarily relates to the reorganisation of Incotec. Most of this provision is expected to be utilised within one year.

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21. Ordinary share capital Croda International Plc Sharesave Scheme (‘Sharesave’) 2017 2016 The Sharesave scheme, established in 1983 and renewed in 2013, grants options annually in September to employees of the Group Ordinary shares of 10.36p (2016: 10.36p) £m £m at a fixed exercise price, being the market price of the Company’s shares at the grant date discounted by up to 20%. Employees Authorised at 1 January and 31 December then enter into a savings contract over three to five years and, subject to continued employment, purchase options at the end of the 222,788,170 ordinary shares of 10.36p each (2016: 222,788,170 ordinary shares of 10.36p each) 23.1 23.1 period based on the amount saved. Options are then exercisable for a six month period following completion of the savings contract. Allotted, called up and fully paid at 1 January and 31 December For options granted in the year, the fair value per option granted and the assumptions used in the calculation of the value are as follows: 135,124,108 ordinary shares of 10.36p each (2016: 135,124,108 ordinary shares of 10.36p each) 14.0 14.0 Grant date 2017 2016 At the Annual General Meeting on 27 April 2016, shareholders approved a share consolidation which was completed on 9 May 2016. Share price at grant date 3777p 3328p As a result, shareholders held 28 new ordinary shares of 10.357143 pence each in exchange for every 29 ordinary shares of 10 pence Exercise price 3092p 2639p each held immediately prior to the share consolidation, which were cancelled by the Company. Number of employees 594 573 In 2017 options were granted to employees under the Croda International Plc Sharesave Scheme to subscribe for 84,674 ordinary shares Shares under option 84,674 117,3 48 at an option price of 3092p per share and under the Croda International Plc International Sharesave Plan to subscribe for 279,032 Vesting period Three years Three years ordinary shares at an option price of 3092p per share. Conditional awards over 233,280 ordinary shares were granted under the Expected volatility 20% 20% Performance Share Plan during the year. Also granted in the year were 94,908 ordinary shares under the Deferred Bonus Share Plan. Option life Six months Six months During the year consideration of £0.7m was received on the exercise of options over 73,266 shares. The options were satisfied with Expected life – – shares transferred from the Group’s employee share trusts. Since the year end a further 1,122 shares have been transferred from Risk free rate 0.3% 0.1% the trusts. Dividend yield 2.0% 2.2% Possibility of forfeiture 7.5% p.a. 7.5% p.a. There are outstanding options to subscribe for ordinary shares as follows: Fair value per option at grant date 765.3p 682.8p Year option Number Black Black granted of shares Price Options exercisable from Option pricing model Scholes Scholes Croda International Plc Sharesave Scheme 2014 5,490 1763p 1 November 2017 to 30 April 2018 2015 65,957 2232p 1 November 2018 to 30 April 2019 A reconciliation of option movements over the year is as follows: 2017 2016 2016 110,374 2639p 1 November 2019 to 30 April 2020 Weighted Weighted average exercise average exercise 2017 83,367 3092p 1 November 2020 to 30 April 2021 Number price (p) Number price (p) Croda International Plc International Sharesave Plan (2009) 2015 146,569 2232p 1 November 2018 to 30 November 2018 Outstanding at 1 January 267,091 2275 214,885 2025 2016 359,417 2639p 1 November 2019 to 30 November 2019 Granted 84,674 3092 117,3 48 2639 2017 275,685 3092p 1 November 2020 to 30 November 2020 Forfeited (12,018) 2469 (7,629) 2058 Croda International Plc Performance Share Plan (2014) 2015 290,726 Nil 4 March 2018 Exercised (73,266) 1791 (57,513) 2116

2016 272,168 Nil 4 March 2019 Outstanding at 31 December 266,481 2659 267,0 91 2275 Financial Statements 2016 5,125 Nil 31 October 2019 Exercisable at 31 December 6,510 1763 2,841 2141 2017 230,806 Nil 9 March 2020 For options exercised in year, weighted average share price at date of exercise 4156 3394 Croda International Plc Deferred Bonus Share Plan 2016 76,792 Nil 4 March 2019 Weighted average remaining life at 31 December (years) 2.3 2.5 2016 1,884 Nil 16 March 2019 2017 96,664 Nil 9 March 2020 Croda International Plc International Sharesave Plan (2009) (‘International’) Croda International Plc Deferred Bonus Discretionary The International scheme, established in 1999 and renewed in 2009, has the same option pricing model, savings contract and vesting Arrangement 2016 1,080 Nil 16 March 2019 period as the Sharesave scheme. At exercise, employees are paid a cash equivalent for each option purchased, being the difference between the exercise price and market price at the exercise date. For options granted in the year, the fair value per option granted and the assumptions used in the calculation of the value are as follows: 22. Share-based payments The impact of share-based payment transactions on the Group’s financial position is as follows: Grant date 2017 2016 2017 2016 Share price at grant date 3777p 3328p £m £m Exercise price 3092p 2639p Analysis of amounts recognised in the income statement: Number of employees 1,891 1,891 Charged in respect of equity settled share-based payment transactions 6.5 6.1 Shares under option 279,032 391,769 Charged in respect of cash settled share-based payment transactions 10.5 6.9 Vesting period Three years Three years 17.0 13.0 Expected volatility 20% 20% Analysis of amounts recognised in the balance sheet: Option life One month One month Liability in respect of cash settled share-based payment transactions 11.2 8.4 Expected life – – Risk free rate 0.4% 0.7% The key elements of each scheme along with the assumptions employed to arrive at the charge in the income statement are set out Dividend yield 1.7% 2.3% across. Where appropriate the expected volatility has been based on historical volatility considering daily share price movements over Possibility of forfeiture 7.5% p.a. 7.5% p.a. periods equal to the expected future life of the awards and the risk free rate is based on the Bank of England’s projected nominal Fair value per option at 31 December 1274.1p 613.6p yield curve with appropriate duration. Black Black Option pricing model Scholes Scholes

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22. Share-based payments continued Croda International Plc Deferred Bonus Share Plan (‘DBSP’) A reconciliation of option movements over the year is as follows: 2017 2016 The DBSP scheme was established in 2014. From 2014 one third of any annual bonuses due to certain senior executives are deferred Weighted Weighted under the DBSP. The size of award is determined by the amount of the total bonus divided by one third and converted into a number of average exercise average exercise Number price (p) Number price (p) Croda shares using the market value of shares at the time the award is granted. Awards are increased by the number of shares Outstanding at 1 January 804,182 2280 621,464 1999 equating to the equivalent value of any dividend paid during the option period. The awards vest on the third anniversary of the date of Granted 279,032 3092 391,769 2639 grant, unless the recipient has been dismissed for cause. There are no performance conditions applied to the award. The DBSP is also Forfeited (62,876) 2271 (51,205) 2056 discussed in the Directors’ Remuneration Report (pages 61 to 77). Exercised (237,922) 1779 (157,8 46) 2137 2017 2016 804,182 2280 Outstanding at 31 December 782,416 2723 9 March 16 March 4 March For options exercised in year, weighted average share price at date of exercise 4179 3477 Grant date 2017 2016 2016 Weighted average remaining life at 31 December (years) 2.1 2.1 Share price at grant date 3636p 2893.5p 3114p Number of employees 109 8 104 Croda International Plc Performance Share Plan 2014 (‘PSP’) Shares under conditional award 94,908 1,824 74,650 The PSP scheme was established in 2014 and replaces the Company’s previous Executive long term incentive plans (the Long Term Vesting period Three years Three years Three years Incentive Plan and the Bonus Co-Investment Plan). The PSP provides for awards of free shares (ie either conditional shares or nil-cost options) normally made annually which vest after three years dependent upon an EPS performance related sliding scale (non-market A reconciliation of option movements over the year is as follows: 2017 2016 condition), an NPP growth measure (non-market condition) and the Group’s total shareholder return (market condition). The PSP is Weighted Weighted average exercise average exercise discussed in detail in the Directors’ Remuneration Report (pages 61 to 77). Shares (on an after tax basis) are subject to a one year post Number price (p) Number price (p) vesting holding period for awards granted in 2014 and a two year post vesting holding period for awards granted in subsequent years. Outstanding at 1 January 74,828 – – – For options granted in the year, the fair value per option granted and the assumptions used in the calculation of the value are as follows: Granted 94,908 – 76,474 – Dividend enhancement 5,604 – – – 2017 2016 Market Non-market Market Non-market Market Non-market Forfeited – – (1,646) – condition condition condition condition condition condition Exercised – – – – 9 March 9 March 31 October 31 October 4 March 4 March Outstanding at 31 December 175,340 – 74,828 – Grant date 2017 2017 2016 2016 2016 2016 For options exercised in year, weighted average share price at date of exercise – – Share price at grant date 3636p 3636p 3498p 3498p 3114p 3114p Weighted average remaining life at 31 December (years) 1.7 2.2 Number of employees 94 94 56 56 101 101 Shares under conditional award 93,312 139,968 2,730 2,730 141,300 141,299 Croda International Plc Deferred Bonus Discretionary Arrangement Vesting period Three years Three years Three years Three years Three years Three years In addition to the awards under the DBSP, a no cost option over 1,061 shares was awarded in 2016 to similarly defer bonus entitlement Expected volatility 20% 20% 20% 20% 20% 20% where the DBSP could not be used due to employment having ceased before the grant date. These options will be deemed to be

Expected life – – – – – – exercised automatically on the date falling three years after the date of grant. As of 31 December 2017, 1.2 years of the vesting period Financial Statements Risk free rate – – – – – – remains outstanding. Dividend yield 2.0% 2.0% 2.1% 2.1% 2.3% 2.3% Possibility of forfeiture 3.45% 3.45% 3.45% 3.45% 3.45% 3.45% Croda International Long Term Investment Plan (‘LTIP’) Fair value per option at grant date 1767p 3423p 1732p 3260p 1532p 2902p The LTIP was established in 2005 and granted no cost options to senior employees which vest after three years dependent upon an Closed Closed Closed Closed Closed Closed EPS performance related sliding scale (non-market condition) and the Group’s total shareholder return (market condition). There were form form form form form form no options granted during the year or prior year and no further options will be granted or remain to be exercised under the Plan. Option pricing model valuation valuation valuation valuation valuation valuation A reconciliation of option movements over the year is as follows: 2017 2016 A reconciliation of option movements over the year is as follows: 2017 2016 Weighted Weighted Weighted Weighted average exercise average exercise average exercise average exercise Number price (p) Number price (p) Number price (p) Number price (p) Outstanding at 1 January – – 79,421 – Outstanding at 1 January 917,914 – 645,556 – Lapsed – – (79,421) – Granted 233,280 – 288,019 – Outstanding at 31 December – – – – Forfeited (235,164) – (15,661) – For options exercised in year, weighted average share price at date of exercise – – Exercised (117,205) – – – Weighted average remaining life at 31 December (years) – – Outstanding at 31 December 798,825 – 917,914 – For options exercised in year, weighted average share price at date of exercise 3924 – Bonus Co-Investment Plan (‘BCIP’) Weighted average remaining life at 31 December (years) 1.1 1.2 The BCIP was established in 2005 and granted no cost options to senior employees which vest after three years dependent upon an EPS performance related sliding scale. There were no options granted during the year or prior year and no further options will be granted or remain to be exercised under the Plan.

A reconciliation of option movements over the year is as follows: 2017 2016 Weighted Weighted average exercise average exercise Number price (p) Number price (p) Outstanding at 1 January – – 48,070 – Lapsed – – (48,070) – Outstanding at 31 December – – – – For options exercised in year, weighted average share price at date of exercise – – Weighted average remaining life at 31 December (years) – –

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22. Share-based payments continued 27. Business combinations Croda International Share Incentive Plan (‘SIP’) On 7 July 2017, the Group acquired Enza Biotech AB, a research enterprise established as a spin-out company from Lund University in The SIP was established in 2003 and has similar objectives to the Sharesave scheme in terms of increasing employee retention Sweden. Enza Biotech’s patented technology will enable us to create the next generation of renewable surfactants using carbohydrate- and share ownership. Under the SIP scheme, employees enter into an agreement to purchase shares in the Company each month. based chemistry, and enhance our well-established natural and renewable product portfolio to offer our customers, particularly in For each share purchased by an employee, the Company awards a matching share which passes to the employee after three years’ Personal Care and Life Sciences markets. service. The matching shares are allocated each month at market value with this fair value charge being recognised in the income On 8 December 2017, the Group acquired IonPhasE OY, an innovative technology provider of static electricity dissipation solutions for statement in full in the year of allocation. electronic and automotive applications, headquartered in Tampere, Finland. IonPhasE’s products are a natural extension to our existing product portfolio and by bringing together the expertise of both research and development teams, a broader and more diverse range 23. Preference share capital 2017 2016 will be made available to customers through our Smart Materials marketing and sales force (within our Performance Technologies £m £m sector). The authorised, issued and fully paid preference share capital comprises: The following table summarises the Directors’ provisional assessment of the consideration paid in respect of the acquisitions, 615,562 5.9% preference shares of £1 (2016: 615,562) 0.6 0.6 the fair value of assets acquired and liabilities assumed. 498,434 6.6% preference shares of £1 (2016: 498,434) 0.5 0.5 Enza Biotech IonPhasE 21,900 7.5% preference shares of £1 (2016: 21,900) – – £m £m 1.1 1.1 Consideration (inclusive of debt and deferred consideration) 10.7 20.9 Fair value of assets and liabilities acquired The preference shares have no redemption rights and carry no voting rights other than in certain circumstances affecting the rights Intangible assets 5.8 12.3 of the preference shareholders, details of which are set out in the Company’s Articles of Association. The three classes of preference Property, plant and equipment – 3.0 shares rank pari passu with each other but ahead of the ordinary shares on a winding up. Rights on a winding up are limited to Inventories – 0.8 repayment of capital and any arrears of dividends. Trade and other receivables – 1.1 24. Shareholders’ equity Trade and other payables – (0.8) Investments in own shares represent the Croda International Plc Qualifying Share Ownership Trust (QUEST), the Croda International Plc Taxation (1.0) (2.4) Employee Benefit Trust (CIPEBT) and the Croda International Plc AESOP Trust (AESOP), which each hold shares purchased on the Total identifiable net assets 4.8 14.0 open market or transferred from Treasury Shares to satisfy the future issue of shares under the Group’s share option schemes. As at Goodwill 5.9 6.9 31 December 2017 the QUEST had a net amount due from the Company of £6.9m (2016: £5.6m) and held 113,706 (2016: 41,938) shares Total consideration is inclusive of £2.6m deferred consideration not contingent upon any performance criteria. transferred at a nil cost (2016: nil cost) with a market value of £5.0m (2016: £1.3m). As at 31 December 2017 the CIPEBT was financed by a repayable on demand loan to the Company of £4.5m (2016: £3.9m) and held 43,167 (2016: 144,928) shares transferred at a nil cost The goodwill is attributable to the synergies expected to arise from the combination of the acquired technologies and the Group’s (2016: nil cost) with a market value of £1.9m (2016: £4.6m). global sales and marketing network. It will not be deductible for tax purposes. As at 31 December 2017 the AESOP had issued all its previously held shares, as financed by the Company, and thus had no residual Acquisition-related costs of £0.8m have been charged to administration expenses in the consolidated income statement for the year Financial Statements loan balance with the Company. All of the shares held by the QUEST and CIPEBT were under option at 31 December 2017 and, ended 31 December 2017. except for a nominal amount, the right to receive dividends has been waived. During 2017, the Group completed its fair value review of the 2016 acquisition of Inventiva Indústria e Inovação em Produtos Cosméticos Ltda. This review did not identify any changes to the asset base nor goodwill. 25. Non-controlling interests in equity 2017 2016 £m £m 28. Contingent liabilities At 1 January 8.2 6.5 The Group is subject to various claims which arise in the course of business. These contingent liabilities are reviewed on a regular Exchange differences (0.3) 0.8 basis and where possible an estimate is made of the potential financial impact on the Group. Income allocated to non-controlling interests (0.3) 0.9 The Group is also involved in certain legal and environmental actions and proceedings. Whilst the Group cannot predict the outcome At 31 December 7.6 8.2 of any current or future actions or proceedings with any certainty, it currently believes the likelihood of any material liabilities to be low, and that the liabilities, if any, will not have a material adverse effect on its consolidated income, financial position or cash flows. 26. Related party transactions The Group also considers it has insurance in place in relation to any significant contingent liabilities. The Group has no related party transactions, with the exception of remuneration paid to key management and Directors which is included in note 10.

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Parent Company Financial Statements Company Independent Auditors’ Report to the Members of Croda International Plc Pages 127 to 137 represent the separate financial Report on the audit of the Our audit approach statements of Croda International Plc as required Company financial Overview by the Companies Act 2006 (‘the Act’). statements Materiality → Overall materiality: £10.2 million (2016: £10.5 million), based on These financial statements have been prepared 0.5% of net assets. in accordance with the Act and United Kingdom Opinion Audit scope → We performed full scope audit procedures over Croda Accounting Standards (United Kingdom Generally In our opinion, Croda International Plc’s International Plc (the Parent Company of the Group). Accepted Accounting Practice), including FRS 101 Company financial statements ‘Reduced Disclosure Framework’. (the ‘financial statements’): Key audit → Carrying value of investments. → give a true and fair view of the state matters of the Company’s affairs as at 31 December 2017; Independence misstatement due to fraud is higher than → have been properly prepared in We remained independent of the Group in the risk of not detecting one resulting from accordance with United Kingdom accordance with the ethical requirements error, as fraud may involve deliberate Generally Accepted Accounting that are relevant to our audit of the financial concealment by, for example, forgery or Practice (United Kingdom Accounting statements in the UK, which includes the intentional misrepresentations, or through Standards, comprising FRS 101 FRC’s Ethical Standard, as applicable to collusion. We designed audit procedures ‘Reduced Disclosure Framework’, and listed public interest entities, and we have that focused on the risk of non-compliance applicable law); and fulfilled our other ethical responsibilities in related to financial conduct. Our tests → have been prepared in accordance accordance with these requirements. included review of legal correspondence with the requirements of the To the best of our knowledge and belief, we and discussion with management’s Companies Act 2006. declare that non-audit services prohibited experts. We did not identify any key audit matters relating to irregularities, including We have audited the financial statements, by the FRC’s Ethical Standard were not fraud. As in all of our audits we also included within the Annual Report and provided to the Group or the Company. addressed the risk of management Accounts (the ‘Annual Report’), which Other than those disclosed in the Directors’ override of internal controls, including comprise: the Company balance sheet as Report, we have provided no non-audit testing journals and evaluating whether at 31 December 2017; the Company services to the Group and its subsidiaries there was evidence of bias by the Directors statement of changes in equity for the year in the period from 1 January 2017 to that represented a risk of material then ended; the accounting policies; and Financial Statements 31 December 2017. misstatement due to fraud. the notes to the financial statements. The scope of our audit Key audit matters Our opinion is consistent with our reporting As part of designing our audit, we Key audit matters are those matters that, to the Audit Committee. determined materiality and assessed in the auditors’ professional judgement, the risks of material misstatement in the were of most significance in the audit of the Basis for opinion financial statements. In particular, we financial statements of the current period We conducted our audit in accordance looked at where the Directors made and include the most significant assessed with International Standards on Auditing subjective judgements, for example in risks of material misstatement (whether or (UK) (‘ISAs (UK)’) and applicable law. Our respect of significant accounting estimates not due to fraud) identified by the auditors, responsibilities under ISAs (UK) are further that involved making assumptions and including those which had the greatest described in the Auditors’ responsibilities considering future events that are effect on: the overall audit strategy; the for the audit of the financial statements inherently uncertain. allocation of resources in the audit; and section of our report. We believe that the We gained an understanding of the legal directing the efforts of the engagement audit evidence we have obtained is and regulatory framework applicable to the team. These matters, and any comments sufficient and appropriate to provide Company and the industry in which it we make on the results of our procedures a basis for our opinion. operates, and considered the risk of acts thereon, were addressed in the context of by the Company which were contrary to our audit of the financial statements as a applicable laws and regulations, including whole, and in forming our opinion thereon, fraud. We designed audit procedures to and we do not provide a separate opinion respond to the risk, recognising that the on these matters. This is not a complete list risk of not detecting a material of all risks identified by our audit.

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Reporting on other information whether the other information is materially With respect to the Strategic Report and Key audit matter How our audit addressed the key audit matter The other information comprises all of inconsistent with the financial statements Directors’ Report, we also considered or our knowledge obtained in the audit, whether the disclosures required by the UK Carrying value of investments To assess the impairment assessment performed by the Directors’ we have performed the information in the Annual Report other or otherwise appears to be materially Companies Act 2006 have been included. Refer to page 99 (Accounting Policies) and the following: than the financial statements and our misstated. If we identify an apparent page 134 (notes). Auditors’ Report thereon. The Directors are Based on the responsibilities described → we compared the carrying value of the investment to the net assets of the individual responsible for the other information. material inconsistency or material above and our work undertaken in the The investment balance of £492.5 million subsidiaries; Our opinion on the financial statements misstatement, we are required to perform course of the audit, the Companies relates to a number of subsidiary → we evaluated and assessed the reasonableness of the future cash flow forecasts, does not cover the other information and, procedures to conclude whether there Act 2006, (CA06), ISAs (UK) and the companies and is required to be tested and the process by which they were prepared, including comparing them to the accordingly, we do not express an audit is a material misstatement of the financial Listing Rules of the Financial Conduct annually for impairment. An impairment latest Board approved budgets, and testing the underlying calculations; opinion or, except to the extent otherwise statements or a material misstatement of Authority (FCA) require us also to report charge of £3.8 million has been explicitly stated in this report, any form of the other information. If, based on the work certain opinions and matters as described recognised against these balances in the → tested the Directors’ key assumptions for long-term growth rates outside the budget assurance thereon. we have performed, we conclude that below (required by ISAs (UK) unless current financial year. The risk we focused period, by comparing them to, and finding them broadly in line with, forecast inflation there is a material misstatement of this In connection with our audit of the financial otherwise stated). on is that the investment balances may be rates; other information, we are required to report statements, our responsibility is to read the overstated and that a further impairment → considered the discount rate by testing the inputs into the calculation, including the that fact. We have nothing to report based other information and, in doing so, consider charge may be required. Group WACC and the risk premium; and on these responsibilities. The large magnitude of the balance, and → we performed our own sensitivities over the key drivers of the cash flow forecasts, the numerous assumptions made, add to being revenue and margin growth, and the discount rate used. These sensitivities the judgemental nature of the balance. confirm that there would have to be significant changes in the underlying Strategic Report and Directors’ Report assumptions for the investments to be impaired. In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in Based on the results of our testing, we have not identified any issues in relation to the accordance with applicable legal requirements. (CA06) carrying value of investments. In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06) How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as The Directors’ assessment of the prospects of the Company and of the principal risks that would threaten the a whole, taking into account the structure of the Company, the accounting processes and controls, and the industry in which it operates. solvency or liquidity of the Company We have nothing material to add or draw attention to regarding: Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, → The Directors’ confirmation on page 35 of the Annual Report that they have carried out a robust assessment of the principal together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Financial Statements procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both → The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated. individually and in aggregate on the financial statements as a whole. → The Directors’ explanation on page 35 of the Annual Report as to how they have assessed the prospects of the Company, Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall Overall materiality £10.2 million (2016: £10.5 million). due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications How we determined it 0.5% of net assets. or assumptions. We have nothing to report having performed a review of the Directors’ statement that they have carried out a robust assessment Rationale for benchmark applied We believe that net assets is considered to be appropriate as it is not a profit oriented of the principal risks facing the Company and statement in relation to the longer term viability of the Company. Our review company. The Company holds the investments in subsidiaries and therefore net assets was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process is deemed a generally accepted auditing benchmark. supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the ‘Code’); and considering whether the statements are consistent with the knowledge and understanding We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.8 million (2016: of the Company and its environment obtained in the course of the audit. (Listing Rules) £0.7 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. Other Code Provisions Going concern We have nothing to report in respect of our responsibility to report when: In accordance with ISAs (UK) we report as follows: → The statement given by the Directors, on page 81, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and provides the information necessary for the members to assess the Company’s position and Reporting obligation Outcome performance, business model and strategy is materially inconsistent with our knowledge of the Company obtained in the We are required to report if we have anything material to add or draw attention to We have nothing material to add or to course of performing our audit. in respect of the Directors’ statement in the financial statements about whether the draw attention to. However, because → The section of the Annual Report on pages 51 to 57 describing the work of the Audit Committee does not appropriately Directors considered it appropriate to adopt the going concern basis of accounting not all future events or conditions address matters communicated by us to the Audit Committee. in preparing the financial statements and the Directors’ identification of any material can be predicted, this statement is uncertainties to the Company’s ability to continue as a going concern over a period not a guarantee as to the Company’s → The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from of at least twelve months from the date of approval of the financial statements. ability to continue as a going concern. a relevant provision of the Code specified, under the Listing Rules, for review by the auditors. Directors’ Remuneration We are required to report if the Directors’ statement relating to going concern in We have nothing to report. → In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge the Companies Act 2006. (CA06) obtained in the audit.

Croda International Plc Croda International Plc 128 Annual Report and Accounts 2017 Annual Report and Accounts 2017 129 Financial Statements | Company Independent Auditors’ Report to the Members of Croda International Plc

Company Financial Statements

Responsibilities for the financial A further description of our responsibilities Appointment statements and the audit for the audit of the financial statements Following the recommendation of the Company Balance Sheet is located on the FRC’s website at: Responsibilities of the Directors for Audit Committee, we were appointed by at 31 December 2017 www.frc.org.uk/auditorsresponsibilities. the financial statements the Directors in 1970 to audit the financial 2017 2016 As explained more fully in the Statement of This description forms part of our statements for the year ended December Note £m £m Directors’ Responsibilities set out on page Auditors’ Report. 1970 and subsequent financial periods. Fixed assets 81, the Directors are responsible for the Use of this report The period of total uninterrupted Intangible assets D – – preparation of the financial statements in This report, including the opinions, engagement is 48 years, covering the Tangible assets E 1.6 1.4 accordance with the applicable framework has been prepared for and only for the years ended December 1970 to Investments and for being satisfied that they give Company’s members as a body in December 2017. Shares in Group undertakings F 492.5 4 47.7 a true and fair view. The Directors are also accordance with Chapter 3 of Part 16 of Other investments other than loans G 0.6 0.6 responsible for such internal control as the Companies Act 2006 and for no other Other matter Retirement benefit assets L 0.9 – they determine is necessary to enable the purpose. We do not, in giving these We have reported separately on the Group 495.6 449.7 preparation of financial statements that are opinions, accept or assume responsibility financial statements of Croda International Current assets free from material misstatement, whether for any other purpose or to any other Plc for the year ended 31 December 2017. due to fraud or error. person to whom this report is shown Debtors H 1,853.7 1,930.8 Deferred tax asset I – 0.7 In preparing the financial statements, the or into whose hands it may come save Cash and cash equivalents 5.1 6.4 Directors are responsible for assessing the where expressly agreed by our prior consent in writing. 1,858.8 1,937.9 Company’s ability to continue as a going Ian Morrison concern, disclosing as applicable, matters Other required reporting (Senior Statutory Auditor) Current liabilities related to going concern and using the for and on behalf of Creditors: Amounts falling due within one year J (57.9) (59.3) going concern basis of accounting unless Companies Act 2006 exception PricewaterhouseCoopers LLP Borrowings K (8.3) (7.5) the Directors either intend to liquidate the reporting Chartered Accountants and Statutory (66.2) (66.8) Company or to cease operations, or have Under the Companies Act 2006 we are Auditors Net current assets 1,792.6 1,871.1 no realistic alternative but to do so. required to report to you if, in our opinion: Leeds Auditors’ responsibilities for the audit → we have not received all the information 27 February 2018 Total assets less current liabilities 2,288.2 2,320.8 of the financial statements and explanations we require for our Our objectives are to obtain reasonable audit; or Non-current liabilities assurance about whether the financial Deferred tax liability I (0.2) –

→ adequate accounting records have not Financial Statements statements as a whole are free from Borrowings K (248.2) (213.8) been kept by the Company, or returns material misstatement, whether due Retirement benefit liabilities L – (4.0) adequate for our audit have not been to fraud or error, and to issue an (248.4) (217.8) Auditors’ Report that includes our opinion. received from branches not visited by us; or Reasonable assurance is a high level Net assets 2,039.8 2,103.0 of assurance, but is not a guarantee → certain disclosures of Directors’ that an audit conducted in accordance remuneration specified by law are not Capital and reserves with ISAs (UK) will always detect a made; or Ordinary share capital 14.0 14.0 material misstatement when it exists. Preference share capital 1.1 1.1 → the financial statements and the part of Misstatements can arise from fraud or Called up share capital 15.1 15.1 the Directors’ Remuneration Report to error and are considered material if, be audited are not in agreement with Share premium account 93.3 93.3 individually or in aggregate, they could 1 the accounting records and returns. Reserves 1,931.4 1,994.6 reasonably be expected to influence Total shareholders’ funds 2,039.8 2,103.0 the economic decisions of users taken We have no exceptions to report arising on the basis of these financial statements. from this responsibility. 1 Included within Reserves is profit after tax of £28.2m (2016: £37.2m). The financial statements on pages 131 to 137 were approved by the Board of Directors on 27 February 2018 and signed on its behalf by

Anita Frew Jez Maiden Chairman Group Finance Director

Croda International Plc Croda International Plc 130 Annual Report and Accounts 2017 Annual Report and Accounts 2017 131 Financial Statements | Company Financial Statements

Notes to the Company Financial Statements

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been Company Statement of Changes in Equity applied consistently to all years presented, unless otherwise stated. for the year ended 31 December 2017 A. Accounting policies Share Capital Share premium redemption Revaluation Retained Basis of accounting capital account reserve reserve earnings Total The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial Note £m £m £m £m £m £m Reporting Council. Accordingly, the Company has adopted FRS 101 ‘Reduced Disclosure Framework’ and has ceased to apply all UK At 1 January 2016 15.1 93.3 0.9 2.1 2,184.1 2,295.5 Accounting Standards issued prior to FRS 100. Therefore the recognition and measurement requirements of EU-adopted IFRS have been applied, with amendments where necessary in order to comply with the requirements of the Companies Act 2006 (‘the Act’). Profit for the year attributable to equity The financial statements have been prepared under the historical cost convention, in compliance with the provisions of the Act and the shareholders – – – – 37.2 37.2 requirements of the Listing Rules of the Financial Conduct Authority. Other comprehensive expense – – – – (4.5) (4.5) Transactions with owners: As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under the standard in relation Dividends on equity shares – – – – (230.2) (230.2) to share-based payments, financial instruments, capital management, presentation of comparative information in respect of certain Share-based payments – – – – 3.8 3.8 assets, presentation of a cash flow statement, standards not yet effective, impairment of assets and related party transactions. Sale of own shares held in trust – – – – 1.2 1.2 Where required, equivalent disclosures are provided in the Group financial statements of Croda International Plc. Total transactions with owners – – – – (225.2) (225.2) Going concern The financial statements which appear on pages 131 to 137 have been prepared on a going concern basis as, after making Total equity at 31 December 2016 15.1 93.3 0.9 2.1 1,991.6 2,103.0 appropriate enquiries, including a review of forecasts, budgets and banking facilities, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence. At 1 January 2017 15.1 93.3 0.9 2.1 1,991.6 2,103.0 Principal accounting policies The accounting policies which have been applied by the Company when preparing the financial statements are in accordance with Profit for the year attributable to equity shareholders – – – – 28.2 28.2 FRS 101. FRS 101 is based on the recognition and measurement requirements of EU-adopted IFRS, under which the Group financial Other comprehensive income – – – – 3.2 3.2 statements have been prepared. As a result, the accounting policies of the Company are consistent with those used by the Group as Transactions with owners: presented on pages 93 to 99, except for those relating to the recognition and measurement of goodwill and the recognition of revenue, Dividends on equity shares – – – – (100.0) (100.0) which are not directly relevant to the Company financial statements. Share-based payments – – – – 4.7 4.7 The Group accounting policy for financial risk factors is also relevant to the preparation of the Company financial statements and is Sale of own shares held in trust – – – – 0.7 0.7 disclosed on pages 118 and 119. Total transactions with owners – – – – (94.6) (94.6) B. Profit and loss account Financial Statements Total equity at 31 December 2017 15.1 93.3 0.9 2.1 1,928.4 2,039.8 Of the Group’s profit for the year, £28.2m (2016: £37.2m) is included in the profit and loss account of the Company which was approved by the Board on 27 February 2018 but which is not presented as permitted by Section 408 Companies Act 2006. Of the retained earnings, £653.0m (2016: £556.3m) are realised and £1,275.4m (2016: £1,435.3m) are unrealised. Details of investments Included in the Company profit and loss account is a charge of £0.1m (2016: £0.1m) in respect of the Company’s audit fee. in own shares are disclosed in note 24 of the Group financial statements. C. Employees 2017 2016 £m £m Company employment costs including Directors Wages and salaries 9.6 9.3 Share-based payment charges (note M) 5.1 3.8 Social security costs 1.2 1.2 Post retirement costs 0.5 0.4 16.4 14.7

2017 2016 Number Number Average employee numbers by function Production 24 23 Administration 34 32 58 55

As required by the Companies Act 2006, the figures disclosed above are weighted averages based on the number of employees at each month end and include Executive Directors. At 31 December 2017, the Company had 57 (2016: 54) employees in total. Detailed information concerning Directors’ remuneration, interests and options is shown in the table within the Directors’ Remuneration Report which is subject to audit on pages 61 to 77 which forms part of the Annual Report and Accounts.

Croda International Plc Croda International Plc 132 Annual Report and Accounts 2017 Annual Report and Accounts 2017 133 Financial Statements | Notes to the Company Financial Statements

D. Intangible assets G. Other investments other than loans Other Intangibles Other investments £m £m Cost Cost or valuation of net equity At 1 January 2017 0.8 At 1 January 2017 and 31 December 2017 0.6 Additions – At 31 December 2017 0.8 Available for sale financial assets comprise unlisted investments included at Directors’ valuation based on appropriate attributable net assets. Accumulated amortisation H. Debtors At 1 January 2017 0.8 2017 2016 Charge for year – £m £m At 31 December 2017 0.8 Amounts owed by Group undertakings 1,809.1 1,912.9 Corporation tax 43.6 17.4 Net carrying amount Other receivables 0.8 0.3 At 31 December 2017 – Prepayments 0.2 0.2 At 31 December 2016 – 1,853.7 1,930.8

The amounts owed by Group undertakings are current and have no fixed date of repayment. Of the amount at 31 December 2017, E. Tangible assets Land and Plant and £1,808.0m will continue to attract interest from 1 January 2018 at a floating rate based on the main facility agreement. The remainder buildings equipment Total will continue to be interest free. £m £m £m Cost or valuation I. Deferred tax At 1 January 2017 1.7 1.8 3.5 The deferred tax balances included in the balance sheet are attributable to the following: Additions 0.3 0.2 0.5 2017 2016 Disposals – (0.3) (0.3) £m £m At 31 December 2017 2.0 1.7 3.7 Retirement benefit obligations (0.2) 0.7

Accumulated depreciation The movement on deferred tax balances during the year is summarised as follows: At 1 January 2017 1.2 0.9 2.1 At 1 January 0.7 0.2 Charge for year 0.1 0.2 0.3 Deferred tax charged through the profit and loss account – (0.1) Disposals – (0.3) (0.3) Deferred tax (charged)/credited directly to equity (0.9) 0.6

At 31 December 2017 1.3 0.8 2.1 At 31 December (0.2) 0.7 Financial Statements

Net book amount Deferred tax assets were recognised in all cases where such assets arose, as it was probable that the assets would be recovered. At 31 December 2017 0.7 0.9 1.6 J. Creditors: Amounts falling due within one year At 31 December 2016 0.5 0.9 1.4 2017 2016 £m £m F. Shares in Group undertakings Amounts falling due within one year Shares Loans Total Trade payables 0.3 0.1 £m £m £m Taxation and social security 1.2 1.1 Cost Amounts owed to Group undertakings 47.0 46.5 At 1 January 2017 326.2 146.8 473.0 Other payables 5.7 7.1 Exchange differences – 3.7 3.7 Accruals and deferred income 3.7 4.5 Additions 15.9 278.0 293.9 57.9 59.3 Amounts repaid – (249.0) (249.0) At 31 December 2017 342.1 179.5 521.6 The amounts owed to Group undertakings are interest free, unsecured and have no fixed date of repayment. Impairment At 1 January 2017 (25.3) – (25.3) Impairment in the year (2.5) (1.3) (3.8) At 31 December 2017 (27.8) (1.3) (29.1)

Net book value At 31 December 2017 314.3 178.2 492.5 At 31 December 2016 300.9 146.8 4 47.7

The undertakings which affect the financial statements are listed on pages 138 to 140. The Directors believe that the carrying value of the investments is supported by their underlying net assets.

Croda International Plc Croda International Plc 134 Annual Report and Accounts 2017 Annual Report and Accounts 2017 135 Financial Statements | Notes to the Company Financial Statements

K. Borrowings M. Share-based payments The Company’s objectives, policies and strategies in respect of financial instruments are outlined in the accounting policies note The total charge for the year in respect of share based remuneration schemes was £5.1m (2016: £3.8m). The grant by the Company on pages 97 and 98 which forms part of the Annual Report and Accounts. Short term receivables and payables have been excluded of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. from all of the following disclosures. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting 2017 2016 period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity. £m £m Maturity profile of financial liabilities The key elements of each scheme along with the assumptions employed to arrive at the charge in the profit and loss account 2014 Club facility due 2021 59.5 28.0 are set out in note 22 to the Group financial statements. €30m 1.08% fixed rate 7 year bond 26.6 25.7 N. Contingent liabilities €70m 1.43% fixed rate 10 year bond 62.1 60.1 The Company has guaranteed loan capital and bank overdrafts of subsidiary undertakings amounting to £91.2m (2016: £128.1m). £30m 2.54% fixed rate 7 year bond 30.0 30.0 £70m 2.80% fixed rate 10 year bond 70.0 70.0 O. Dividends Bank loans and overdrafts repayable on demand 8.3 7.5 Details of dividends are disclosed in note 8 of the Group financial statements. 256.5 221.3 Repayments fall due as follows: P. Related party transactions Within one year The Company has taken advantage of the exemption available under FRS 101 from disclosing transactions with other Group Bank loans and overdrafts 8.3 7.5 undertakings. There were no other related party transactions during the year. Information on the Group can be found in note 26 8.3 7.5 on page 124 of the Group financial statements. After more than one year Loans repayable Within one to five years 59.5 28.0 After five years 188.7 185.8 248.2 213.8

L. Post retirement benefits In line with the requirements of FRS 101, the Company now recognises its share of the UK pension fund assets and liabilities. A full reconciliation of the Group retirement benefit obligation can be found in note 11 of the Group financial statements on pages 106 to 109. The table below shows the movement in the obligation during the year. 2017 2016 £m £m

Opening balance: Financial Statements Assets 47.5 35.5 Liabilities (51.5) (36.3) Net opening retirement benefit liability (4.0) (0.8) Movements in the year: Service cost (0.5) (0.3) Interest cost – – Contributions 0.5 1.0 Actuarial movement 4.9 (3.9) Closing balance 0.9 (4.0)

Croda International Plc Croda International Plc 136 Annual Report and Accounts 2017 Annual Report and Accounts 2017 137 Other Information

Related Undertakings

Related undertakings of Croda International Plc Incorporated in the USA Hong Kong – Room 908, East Ocean Centre, No.9 Science Museum Road, Tsim Sha Tsui, East Kowloon All companies listed below are owned by the Group and all interests are in ordinary share capital, except where otherwise indicated. 300-A Columbus Circle, Edison, NJ 08837-3907 Croda Hong Kong Company Ltd (vii) All subsidiaries have been consolidated. All companies operate principally in their country of incorporation. Unless otherwise indicated, Croda Americas LLC (viii) all shareholdings represent 100% of the issued share capital of the subsidiary. Croda Finance Inc (viii) Hong Kong - Kreston CAC CPA Ltd, Rooms 2702-3, 27th Floor, Bank of Croda Inc (vii) East Asia Harbour View Centre, 56 Gloucester Road, Wan Chai Wholly owned subsidiaries: Croda Inks Corp (viii) IonPhaseE (H.K.) Limited (vii) Croda Investments Inc (ix) Incorporated in the UK Incorporated in China Hungary – 1117 Budapest XI, Bölcso utca 6. 1. emelet 4. Croda Storage Inc (viii) Croda Magyarorszag Kft (i) (vii) Cowick Hall, Snaith, Goole, East Yorkshire, DN14 9AA Unit BCD, 19 Floor, Urban City Center, No.45, Nanchang Road, Croda Synthetic Chemicals Inc (ix) Brookstone Chemicals Limited (viii) Shanghai (viii) Mona Industries Inc India – Plot No. 1/1 Part, TTC Industrial Area, Thane Belapur Road, (xi) Croda China Trading Company Ltd (vii) Cowick Hall Trustees Limited Sederma Inc (vii) Koparkhairne, Navi Mumbai 400710, Maharashtra Croda (Goole) Limited (viii) Rm207 Xin Xing Building, No.8 Jia Feng Road, Wai Gao Qiao Croda India Company Private Ltd (i) (v) (vii) Croda Application Chemicals Limited (viii) 1293 Harkins Road, Salinas, CA 93901 Free Trade Zone, Shanghai Croda Bakery Services Limited (viii) Incotec Integrated Coating and Seed Technology, Inc. (vii) India – 47, Mahagujarat Industrial Estate, Opp. Pharma Lab, Croda Trading (Shanghai) Co., Ltd (viii) Croda Bowmans Chemicals Limited (v) (viii) Sarkhej-Bavla Highway, At. Moraiya, Ta. Sanand, Croda CE Limited (viii) No. 1 Hongda Road, Xihuan Beikou, Changping Town, Incorporated in other overseas countries Ahmedabad-382213, Gujarat (vii) (viii) Integrated Coating and Seed Technology India Pvt. Ltd Croda Chemicals Limited Changpin District, Beijing Argentina – Dardo Rocha 2044, 1640, Martinez, Buenos Aires Croda Colloids Limited (viii) Incotec (Beijing) Agricultural Technology Co. Ltd (vii) (vii) Croda Argentina SA Indonesia – Kawasan Industri Jababeka, Jl. Jababeka IV Blok V (i) (v) (viii) Croda Cosmetics & Toiletries Limited Kav 74-75, Cikarang Bekasi 17530 (iii) (viii) No. 2 Plant, No. 1 QuanFeng Road, Wuqing Development Zone, Croda Cosmetics (Europe) Limited Argentina – Avenida del Libertador 498, Piso 12, Oficina 1220 (iii) (iv) (vii) Wuqing District, Tianjin PT Croda Indonesia Croda Distillates Limited (i) (x) Buenos Aires Incotec (Tianjin) Agricultural Technology Co. Ltd (vii) (vii) Croda Enterprises Limited (viii) Incotec Argentina S.A Iran – Apt. 305, 3rd Floor, No 14 Golestan Avenue, Alikhani Avenue, Croda Europe Limited (i) (v) (vii) Southern Shiraz Street, Tehran Incorporated in France Australia – Suite 102, 447 Victoria Street, Wetherill Park, NSW 2164 (viii) Croda Pars Trading Co (vii) Croda Fire Fighting Chemicals Limited Croda Australia (ii) (vii) Croda Food Services Limited (viii) 1, rue de Lapugnoy, 62920 Chocques (vii) Italy – Via P. Grocco 915, 27036 Mortara (viii) Croda Chocques SAS Australia – 18 Doveton Street North, Ballarat, Victoria 3350 Croda Hydrocarbons Limited (vii) (vii) Croda Italiana S.p.A. Croda Investments Limited (ix) Kriset Pty. Ltd Route Nationale 10, Immoparc, 78190 Trappes Croda Investments No 2 Limited (ix) Croda France SAS (vii) Belgium – “Corporate Village”, Da Vincilaan 9/E6 Elsionor, Italy – Via Viazzolo Scala 936, 41038 San Felice sul Panaro (MO) Croda Investments No 3 Limited (ix) (viii) Croda Holdings France SAS (ix) 1930 Zaventem Incotec Mediterranean Srl (viii) Croda JDH Limited Croda Belgium BVBA (vii) Croda Leek Limited (viii) Zone artisanale, 48230 Chanac Japan – 4-3 Hitotsubashi 2-chome, Chiyoda-ku, Tokyo 101-0003 (i) (vii) Croda Limited (viii) Crodarom SAS (vii) Brazil – Rua Croda, 580, Distrito Industrial, Campinas, Croda Japan KK Croda Overseas Holdings Limited (i) (ix) São Paulo, CEP 13.074-710 Malaysia – Unit no. 203, 2nd floor, block C, Damansara Intan no. 1, Croda Pension Trustees Limited (viii) 4 rue Fernand Forest, 49000 Angers Croda do Brasil Ltda (vii) (viii) Jalan SS20/27, Petaling Jaya, Selangor Croda Polymers International Limited (i) (ix) Incotec France SARL Brazil – Rua Pirajú, nº 255, Santa Maria Goretti, CEP 91030-190, Incotec Malaysia Sdn. Bhd (vii) Croda Resins Limited (viii) 29 rue du Chemin Vert, 78610, Le Perray en Yvelines Porto Alegre – Rio Grande de Sul Croda Solvents Limited (iii) (iv) (viii) (vii) Sederma SAS Inventiva Indústria e Inovação em Produtos Cosméticos Ltda. ME (vii) Mexico – Hamburgo 213, Piso 10, Colonia Juárez, Croda Trustees Limited (viii) Delegacion Cuauhtémoc, D.F., C.P. 06600 Croda Universal Limited (viii) Incorporated in the Netherlands Canada – 1700 Langstaff Road, Suite 1000, Vaughan, Ontario, L4K 3S3 Croda México SA de CV (vii) Croda World Traders Limited (i) (v) (viii) Croda Canada Ltd (vii) Buurtje 1, 2802 BE Gouda Peru – Avenida La Encalada 1388 Oficina 801, Polo Hunt 1, Surco John L Seaton & Co Limited (viii) AM Coatings BV (v) (viii Croda Peruana S.A.C (vii) Southerton Investments Limited (i) (viii) Chile – Santa Beatriz 100, 12th Floor, Office 1205, Providencia Croda Nederland B.V. (vii) Santiago Sowerby & Co Limited (viii) (viii) (vi) (vii) Poland – 31-131 Kraków, ul. Karmelicka 27/3 (i) (viii) Unicorn Power BV Croda Chile Ltda (i) (vii) Technical and Analytical Services Limited (ix) Croda Poland Sp. z o.o. (i) (viii) Uniqema BV Uniqema Limited Colombia – Calle 90 # 19-41 Office 601, Bogotá (i) (viii) Uniqema UK Limited (ii) (vii) Republic of Korea – Rm. 1201, 12th Floor, 42, Hwang Sae UI-Ro 360 Westeinde 107, 1601 BL Enkhuizen Croda Colombia Other Information Beon-Gil, Bun Dang-Gu, Seong Nam-Si, Gyeong Gi-Do, 13591 Incotec Europe B.V. (vii) c/o Thorntons Law LLP, 13 Melville Street (ii) (vii) (i) (ix) Czech Republic – Praha 5, Pekarˇská 603/12, 150 00 Croda Korea Edinburgh, EH3 7PE Incotec Group B.V. (vii) (ix) Croda Spol. s.r.o Croda (CPI) Limited (ix) Incotec Holding B.V. Russian Federation – Office 1333, 16 Raketnyi bulvar, Moscow, Finland - Hepolamminkatu 29, 33720 Tampere 129164 (vii) IonPhaseE Oy (vii) Croda RUS LLC

Germany – Herrenpfad Süd 33, 41334 Nettetal Singapore – 30 Seraya Avenue, Singapore 627884 (i) (v) (vii) Croda GmbH (vii) Croda Singapore Pte Ltd Sederma GmbH (vii) South Africa – Clearwater Estate Office Park, Block G, Corner of Atlas & Park Road, Parkhaven Ext 8, Boksburg 1459 Guernsey – Maison Trinity, Trinity Square, St Peter Port, GY1 4AT Croda (SA) (Pty) Ltd (vii) Cowick Insurance Services Ltd (i) (xii)

Croda International Plc Croda International Plc 138 Annual Report and Accounts 2017 Annual Report and Accounts 2017 139 Other Information | Related Undertakings

Shareholder Information

Incorporated in other overseas countries continued Non-wholly owned subsidiaries and associates: Corporate Calendar Overseas shareholders – South Africa – 4 Shortts Retreat Road, Mkondeni, Pietermaritzburg, Incorporated in the UK choose to receive your next KwaZulu-Natal, 3201 2018 Annual General Meeting 25 April 2018 dividend in your local currency Torus Building, Rankine Avenue, East Kilbride, Incotec South Africa (Pty.) Ltd (vii) 2017 Final ordinary dividend payment 31 May 2018 If you live outside the UK, Link has Scotland, G75 0QF 2018 Half year results announcement 25 July 2018 partnered with Deutsche Bank to provide Spain – Plaza. Francesc Macià, 7, 7ºB , 08029 Barcelona Cutitronics Ltd 24.90% 2018 Interim ordinary dividend payment 3 October 2018 you with a service that will convert Sterling Croda Ibérica SA (vii)s Incorporated in other overseas countries 2018 Preference dividend payments 30 June 2018 dividends into your local currency at Sweden – Geijersgatan 2B, 216 18 Limhamn 31 December 2018 a competitive rate. You can choose to Brazil – Rua das Sementes nr. 291, Holambra, (vii) receive payment directly to your local bank Croda Nordica AB State of São Paulo 2018 Full year results announcement 26 February 2019 account or alternatively you can be sent Incotec America do Sul Tecnologia em Sementes Ltda. (vii) 99.90% Thailand – 319 Chamchuri Square Building, 16th Floor, Unit 13-14, a currency draft. Payathai Road, Patumwan, Bangkok 10330 Investor relations Dividend reinvestment plan (‘DRIP’) Japan – No. 5-23, Nobitome 8-chome, Niiza-shi, You can sign up to this service on Signal Croda (Thailand) Co., Ltd (i) (vii) Shareholders can now get up to Ordinary shareholders may wish to know Saitama-ken Shares (www.signalshares.com by Incotec Japan Co. Ltd (viii) 97.50% date information on Stock Exchange about this plan, which allows you to use Turkey – Nidakule Göztepe Is¸ Merkezi, Merdivenköy Mahallesi, your dividends to buy further shares clicking on ‘your dividend options’ and Bora Sokak, No: 1 Kat:2/5 Kadıköy 34732, Istanbul announcements, key dates in the corporate Malaysia – Unit no. 203, 2nd floor, block C, in Croda. The DRIP is provided by Link following the on-screen instructions) or by (vii) calendar, the Croda share price and Croda Kimya Ticaret Limited S¸irketi contacting the Customer Support Centre. Damansara Intan no. 1, Jalan SS20/27, brokers’ estimates by visiting our corporate Asset Services, a trading name of Link Petaling Jaya, Selangor For further information contact Link: United Arab Emirates – P. O. BOX 17916, Office 2112, 2113, 21st Floor, website at www.croda.com and clicking Market Services Trustees Ltd which is Incotec Kedah (M) Sdn. Bhd (vii) 51.00% Jafza One, Jebel Ali Free Zone, Dubai on the section called ‘Investors’. authorised and regulated by the Financial By phone – UK 0871 664 0300, from Croda Middle East FZE (vii) Conduct Authority. overseas +44 (0)371 664 0300 (calls cost Sweden - Scheelevägen 22, 22363 Lund Shareholders can receive shareholder 12p per minute plus your phone company’s Enza Biotech AB (xiii) 87.9 9% communications electronically by For information and an application pack Zimbabwe – 4a Knightsbridge Crescent, Highlands, Harare access charge. Calls outside the United (viii) registering on the Registrars’ website, please call 0371 664 0381 (calls are Croda Chemicals Zimbabwe Pvt Ltd Kingdom will be charged at the applicable Croda Zimbabwe (Pvt) Ltd (viii) Joint venture: www.signalshares.com and following the charged at the standard geographic rate international rate). Lines are open instructions. To register, shareholders will and will vary by provider. Calls outside the Incorporated in China 9.00am to 5.30pm, Monday to Friday, require their investor code (IVC): this is an United Kingdom will be charged at the Classifications Key China – No 656 East Tangxun Road Economic and excluding public holidays in England 11 digit number starting with five or six zeros applicable international rate. Lines are (i) Companies owned directly by Croda International Plc Technological Development Zone Miangyang Sichuan open 9.00am to 5.30pm, Monday to and Wales. (ii) Branch office Croda Sipo (Sichuan) Co., Ltd (vii) 65.00% and can be found on your dividend tax (iii) A Ordinary voucher or your share certificate. Receiving Friday, excluding public holidays in England By email – [email protected] (iv) B Ordinary and Wales. From outside the UK dial (v) Preference including cumulative, non-cumulative and redeemable shares corporate communications by email has (vi) No share capital, share of profits a number of benefits including being +44 (0)208 639 3402). Alternatively you can Share dealing (vii) Manufacture, sales or distribution of speciality chemicals, or of seed treatment more environmentally friendly, reducing email [email protected] or log on to A simple and competitive service to buy services and products www.signalshares.com . (viii) Dormant unnecessary waste, faster notification of and sell shares is provided by Link (ix) Holding company information to shareholders and eventually Asset Services. (x) Property holding company Payment of dividends (xi) Trustee leading to a reduction in company costs. There is no need to pre-register and there You can arrange to have your dividends (xii) Captive insurance company Shareholders who register on the above are no complicated application forms to (xiii) Research enterprise paid direct to your bank account. This fill in. Visit www.linksharedeal.com to website can also check their shareholding, means that: view their dividend history, elect for the access a wealth of stock market news dividend reinvestment plan, register changes → your dividend reaches your bank and information free of charge. For further of address and dividend mandate instructions. account on the payment date; information on this service, or to buy and → it is more secure - cheques can sell shares, visit www.linksharedeal.com Share price information sometimes get lost in the post; or call 0371 664 0445 (calls are charged The latest ordinary share price is available at the standard geographic rate and will → you don’t have the inconvenience of on our website at www.croda.com. vary by provider. Calls outside the United deposting a cheque; and Kingdom will be charged at the applicable The middle market values of the listed

→ helps reduce cheque fraud. international rate. Lines are open 9.00am to Other Information share capital at 31 December 2017, 4.30pm, Monday to Friday, excluding public or last date traded*, were as follows: If you have a UK bank account you can sign up to this service on Signal Shares holidays in England and Wales). Ordinary shares 4413p (www.signalshares.com by clicking on 5.9% preference shares 105p* ‘your dividend options’ and following the 6.6% preference shares 118p* on-screen instructions) or by contacting the Customer Support Centre.

Croda International Plc Croda International Plc 140 Annual Report and Accounts 2017 Annual Report and Accounts 2017 141 Other Information | Shareholder Information

Five Year Record

Share dealing continued The Financial Conduct Authority (‘FCA’) Secretary and Registered Office This is not a recommendation to buy or sell has found most share fraud victims are Tom Brophy (Company Secretary) Earnings experienced investors who lose an average 2017 2016 2015 2014 2013 shares and this service may not be suitable Cowick Hall, Snaith, Goole, £m £m £m £m £m of £20,000, with around £200m lost in the for all shareholders. The price of shares East Yorkshire DN14 9AA Turnover 1,373.1 1,243.6 1,081.7 1,046.6 1,077.0 UK each year. can go down as well as up, and you are Tel: +44 (0)1405 860551 Adjusted operating profit¹ 332.2 298.2 264.2 248.4 264.6 not guaranteed to get back the amount Protect yourself Fax: +44 (0)1405 861767 Adjusted profit before tax¹ 320.3 288.3 254.7 235.4 251.4 that you originally invested. Terms, If you are offered unsolicited investment Website: www.croda.com Profit after tax 236.7 197.6 181.1 165.2 177.9 conditions and risks apply. Link Asset Registered in England number 206132 advice, discounted shares, a premium Profit attributable to owners of the parent 237.0 196.7 180.7 165.3 177.5 Services is a trading name of Link Market price for shares you own, or free company Registrars Services Trustees Limited which is or research reports, you should take these % % % % % authorised and regulated by the Financial steps before handing over any money: Link Asset Services Adjusted operating profit as a % of turnover1 24.2 24.0 24.4 23.7 24.6 Conduct Authority. The service is only The Registry, 34 Beckenham Road, 1 → Treat all unexpected calls, emails and Adjusted Return on Invested Capital (ROIC) 19.2 19.3 20.1 21.2 23.8 available to private shareholders resident in Beckenham, Kent, BR3 4TU text messages with caution. Don’t Effective tax rate 26.8 28.0 28.0 28.0 28.9 the European Economic Area, the Channel assume they’re genuine, even if the Tel: 0871 664 0300 (from UK) +44 Islands or the Isle of Man. person seems to know some basic (0)371 664 0300 (from overseas) pence pence pence pence pence 1 Link Asset Services is a trading name information about you – calls cost 12p per minute plus Adjusted earnings per share 179.0 155.8 135.0 125.2 132.2 of Link Market Services Limited and Link your phone company’s access Ordinary dividends per share 81.0 74.0 69.0 65.5 64.5 → Don’t be pressured into acting quickly. Market Services Trustees Limited. Share charge. Calls outside the United A genuine bank or financial services registration and associated services are Kingdom will be charged at the times times times times times firm won’t mind waiting if you want time 1 provided by Link Market Services Limited applicable international rate; lines Net debt/EBITDA 1.0 1.1 0.9 0.6 0.7 to think 1 (registered in England and Wales, No. are open 9.00am to 5.30pm, EBITDA interest cover * 28.7 33.1 43.2 33.2 35.5 2605568). Regulated services are → Get the name of the person and Monday to Friday excluding public 1 Before exceptional items, acquisition costs, amortisation of intangible assets arising on acquisition and the tax thereon where applicable provided by Link Market Services Trustees organisation contacting you holidays in England and Wales. * Interest excludes pension scheme net financial expense and capitalised interest Limited (registered in England and → Check the Financial Services Register Fax: + 44 (0)1484 601512 Wales, No. 2729260), which is authorised at www.fca.org.uk to ensure they are Website: www.linkassetservices.com and regulated by the Financial authorised Conduct Authority. Email: [email protected] Summarised Balance Sheet 2017 2016 2015 2014 2013 → Use the details on the FCA Register £m £m £m £m £m Relating to beneficial owners of to contact the firm Independent Auditors Intangible assets, property plant and equipment and investments 1,072.5 954.4 799.4 633.5 602.9 shares with ‘information rights’ → Call the FCA Consumer Helpline on PricewaterhouseCoopers LLP, Inventories 258.5 235.7 221.6 201.0 192.8 Please note that beneficial owners of 0800 111 6768 if there are no contact Central Square, 29 Wellington Street, Trade and other receivables 202.2 192.4 156.1 145.0 136.7 shares who have been nominated by the details on the Register or you are told Leeds, LS1 4DL Trade and other payables (202.5) (188.8) (161.7) (129.4) (129.1) registered holder of those shares to receive they are out of date Capital employed 1,330.7 1,193.7 1,015.4 850.1 803.3 information rights under section 146 of the Principal Financial Advisers Tax, provisions and other (88.8) (74.3) (70.0) (54.2) (45.9) → Search the list of unauthorised firms Companies Act 2006 are required to direct Morgan Stanley & Co. International plc and individuals to avoid doing business Retirement benefit liabilities (30.5) (146.5) (78.8) (126.7) (135.8) all communications to the registered holder with. If the firm isn’t on the list, don’t 1,211.4 972.9 866.6 669.2 621.6 of their shares rather than to the Company’s assume it’s legitimate, it may not have Principal Solicitors Shareholders’ funds 822.3 600.6 600.8 482.9 413.1 registrar, Capita Asset Services, or to the Non-controlling interests 8.2 6.5 6.1 6.3 been reported yet. Freshfields Bruckhaus Deringer LLP 7.6 Company directly. 829.9 608.8 6 07.3 489.0 419.4 Remember: if it sounds too good to be Stockbrokers Net debt 381.5 364.1 259.3 180.2 202.2 Share fraud warning true, it probably is! 1,211.4 972.9 866.6 669.2 621.6 Share fraud includes scams where Morgan Stanley & Co. International plc If you use an unauthorised firm to buy J P Morgan Cazenove investors are called out of the blue and or sell shares or other investments, Gearing (%) 46.0 59.8 42.7 36.9 48.2 offered shares that often turn out to be you will not have access to the Financial Financial PR Advisers worthless or non-existent, or an inflated Ombudsman Service or Financial Services Other Information Teneo Blue Rubicon price for shares they own. These calls Compensation Scheme (FSCS) if things come from fraudsters operating in ‘boiler go wrong. rooms’ that are mostly based abroad. Report a scam While high profits are promised, those who If you are approached about a share scam buy or sell shares in this way usually lose you should tell the FCA using the share fraud their money. reporting form at www.fca.org.uk/scams, where you can find out about the latest investment scams. You can also call the Consumer Helpline on 0800 111 6768. If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040.

Croda International Plc Croda International Plc 142 Annual Report and Accounts 2017 Annual Report and Accounts 2017 143 Other Information

Glossary of Terms

12 Principles Set of principles that when used in the design, IFRS International Financial Reporting Standards of Green development and implementation of chemical IFRSIC International Financial Reporting Standards Chemistry products and processes, enables scientists to protect Interpretation Committee and benefit the economy, people and the planet ILO International Labour Organization Adjusted Before exceptional items, acquisition costs, IP Intellectual Property amortisation of intangible assets arising on acquisition and the tax thereon where applicable ISA International Standards on Auditing AGM Annual General Meeting ISO International Organization for Standardization AIM Alternative Investment Market IT Information Technology ALM Asset-Liability Matching KPI Key Performance Indicator API Active Pharmaceutical Ingredient LCA Life Cycle Assessment BCIP Bonus Co-Investment Plan LTI Lost Time Injury Business Areas Personal Care, Health Care, Crop Protection, Seed LTIP Long Term Incentive Plan Enhancement, Smart Materials, Energy Technologies, M&A Mergers & Acquisitions Home Care and Water Treatment, Industrial Chemicals Market sectors Personal Care, Life Sciences, Performance CARE Career Average Revalued Earnings Technologies, Industrial Chemicals CEO Chief Executive Officer Material Areas Our ten most important sustainability areas CGP Chemical Growth Partnership Net debt Borrowings and other financial liabilities less CGU Cash Generating Unit cash and cash equivalents CIPEBT Croda International Plc Employee Benefit Trust NPP New and Protected Products OHSAS Occupational Health and Safety Advisory Series CO2 Carbon Dioxide Code Financial Reporting Council’s Corporate Code PSP Performance Share Plan Constant Current year results for existing business translated at QUEST Croda International Plc Qualifying Share Currency the prior year’s average exchange rates Ownership Trust Core Business Personal Care, Life Sciences and Performance R&D Research and Development Technologies RCG Remuneration Consulting Group CPI Consumer Price Index Return on sales Adjusted operating profit divided by revenue CPS Croda Pension Scheme ROIC Adjusted operating profit after tax divided by the DRIP Dividend Reinvestment Plan average invested capital for the year for the Group. Invested capital represents the net assets of the DBSP Deferred Bonus Share Plan Group, adjusted for earlier goodwill written off to EBITDA Earnings Before Interest, Taxation, Depreciation reserves, net debt, retirement benefit liabilities, and Amortisation provisions and deferred taxes EBT Employee Benefit Trust RPI Retail Price Index EPS Earnings Per Share RSPO Roundtable on Sustainable Palm Oil FCA Financial Conduct Authority SAP EHS Safety, Health and Environment module in the FRC Financial Reporting Council SAP reporting system FRS Financial Reporting Standard SHE Safety, Health, Environment FSCS Financial Services Compensation Scheme SHEQ Safety, Health, Environment, Quality FTSE Financial Times Stock Exchange SIP Share Investment Plan GDPR General Data Protection Regulation SMEs Small and Medium Enterprises GHG Greenhouse Gas Te Tonnes GHG emissions Greenhouse Gas emissions from sources that TSR Total Shareholder Return – scope 1 we own or control Underlying Current year results in local currency translated to GHG emissions Greenhouse Gas emissions that are a consequence Sterling at the prior year average foreign exchange – scope 2 of our activities, but occur at sources owned or rate excluding acquisitions controlled by another entity WACC Weighted Average Cost of Capital GMP Good Manufacturing Practice GRI Global Reporting Initiative HMRC HM Revenue & Customs Cautionary Statement Designed by HR Human Resources The information in this publication is believed to be accurate IAS International Accounting Standards at the date of its publication and is given in good faith but no IASB International Accounting Standards Board representation or warranty as to its completeness or accuracy is made. Suggestions in this publication are merely opinions. Some statements and in particular forward-looking statements, This Report is printed on UPM Fine by their nature, involve risks and uncertainties because they relate Offset which has been independently certified according to the rules of the to events and depend on circumstances that will or may occur Forest Stewardship Council® (FSC). in the future and actual results may differ from those expressed Printed in the UK by Pureprint, in such statements as they depend on a variety of factors outside a CarbonNeutral® company. the control of Croda International Plc. No part of this publication Both manufacturing paper mill and the should be treated as an invitation or inducement to invest in printer are registered to the Environmental Management System ISO 14001:2004 the shares of Croda International Plc and should not be relied and are Forest Stewardship Council® (FSC) upon when making investment decisions. chain-of-custody certified.

Croda International Plc 144 Annual Report and Accounts 2017 Annual Report and Accounts 2017

+44 (0)1405 860551 +44 (0)1405 861767

www.croda.com F T England DN14 9AA East Yorkshire Goole Snaith Cowick Hall Croda International Plc Croda Registered Office