### Annual Report and Accounts 2021 ### Annual Report and Accounts 2021 ## www.croda.com ## Purpose ## Sustainability ### At Croda our ### Purpose is to use ### Smart science to ### We have made a bold ### improve lives™ ### Commitment to be Climate, ### Landand People Positive ### by 2030. By being the most ### sustainable supplier of ## Mission ### innovative ingredients, we will ### Our mission is to be ### provide solutions to some of the ### the world’s most ### world’s biggest challenges while ### sustainable supplier of ### helping our customers achieve ### innovative ingredients ### their sustainability goals. ## Commitment See Pursuing our Commitment ### We are committed to P2 ### being Climate, Land and ### People Positive by 2030 ## See Sustainability Innovation P30 ### Innovation is the lifeblood of ### ourbusiness and our success ### is dependent on our ability to ### deliver innovative solutions to ### customers. Our approach to ## Strategy ### innovation combines our own ### We combine sustainability ### internal R&D with customer ### with innovation to ### collaboration and open ### deliver growth ### innovation partnerships to ### accelerate the development See Our strategy ### P20 of new technologies and ### disruptive solutions. See Identifying unmet needs P4 ## Markets ### We are focused on ## Growth ### Consumer Care and ### Life Sciences markets ### Our ambition is to deliver ### consistent top and bottom-line ### growth. Through our transition ### to high growth markets and by ### investing in sustainability and ### innovation we are able to ## Values ### leverage the ‘Croda difference’ ### Our shared values of ### to deliver attractive returns ### ‘Responsible’, ‘Innovative’ ### for shareholders. ### and ‘Together’ ensure ### our smart science ### improves lives See Delivering for our shareholders P6 Introduction # Guided by our Purpose, sustainability together with innovation will drive our future growth. 2021 has been an excellent year for Croda. We delivered a record financial performance, made progress against our sustainability commitments, and concluded our strategic review, refocusing the business on fast growth markets of the future. # Highlights Sales £1,889.6m 2020: £1,309.3m Sales growth (constant currency) +43.2% 2020: +1.1% IFRS profit before tax (PBT) £411.5m 2020: £269.5m Adjusted PBT growth (constant currency) +56.2% 2020: -4.8% Ordinary dividend (proposed full year) +9.9% 2020: +1.1% NPP % Group sales (constant currency) 36.6% 2020: 27.4% Scope 1 & 2 emissions intensity (TeCO₂e/£m) 193 2020: 264 Safety (Total Recordable Injury Rate)* 0.73 2020: 0.58 * TRIR excludes COVID-19 cases and includes acquisition impact. See page 44 for detail. # Contents Strategic report | Sustainability: Pursuing our Commitment | 2 | | --- | --- | | Innovation: Identifying unmet needs | 4 | | Growth: Delivering for our shareholders | 6 | | Chair's statement | 8 | | Chief Executive's review | 10 | | Market themes | 14 | | Business model | 16 | | Stakeholder engagement | 18 | | Section 172(1) statement | 18 | | Our strategy | 20 | | Investment case | 22 | | Sector reviews | 24 | | Sustainability | 30 | | Non-financial information statement | 38 | | Task Force on Climate-related Financial Disclosures | 40 | | Key Performance Indicators | 44 | | Finance review | 46 | | Risk management | 50 | | Long-term viability statement | 56 | Directors' report | Corporate governance | 58 | | --- | --- | | Remuneration Report | 84 | | Directors' report | 109 | Financial statements | Independent auditor's report | 112 | | --- | --- | | Group consolidated statements | 120 | | Group accounting policies | 125 | | Notes to the Group accounts | 132 | | Company financial statements | 162 | | Notes to the Company financial statements | 164 | Other information | Related undertakings | 168 | | --- | --- | | Shareholder information | 171 | | Five year record | 173 | | Glossary | 174 | ![img-0.jpeg](img-0.jpeg) www.croda.com Croda International Plc Annual Report and Accounts 2021 1 ### Pursuing our Commitment ## Phil Ruxton and Tracy Sheedy discuss ## executing on our Commitment and how ## our people and culture are playing a key role Croda has a unique culture which combines our TS heritage with a diverse and global footprint. Our values are a manifestation of this; we encourage our people to be ‘responsible’ and ‘innovative’ and to work ‘together’. We are responsible and ‘do what we say we will do’; delivering on our promises is something which is evident in our financial and non-financial performance this year. This year we have reached our target of ensuring all employees earn a Living Wage globally and continue Phil Ruxton is Chief Sustainability Officer to enjoy largely positive scores in our employee engagement surveys. Since launching our Commitment to be Climate, As a leading innovator we encourage the broad range of PR thinking made possible in a company that values diversity, Land and People Positive by 2030, positioning us as the world’s most sustainable supplier of innovative enhancing the solutions that we deliver for customers and ingredients, we have been working hard on the plans and the communities that we serve. We are pleased to have roadmaps to make this a reality. exceeded both the Board gender and ethnic diversity ambitions of the Hampton-Alexander and Parker Reviews In line with this mission, we have committed to climate for the start of 2022 and we also increased the proportion science-based targets (SBTs), becoming only the third major of leadership positions held by women to 36% this year. chemical company in the world to have an officially verified plan to reduce carbon emissions in line with the 1.5˚C At Croda, we share a clear sense of Purpose to use our TM scenario on our way to becoming net zero by 2050. Smart science to improve lives that ensures everyone pulls together to achieve our goals. Read more about our With immediate action required to mitigate the worst-case culture and diversity and inclusion on page 36. scenarios associated with climate change, leadership and differentiation are now all about execution. Our focus is therefore on delivery, working in partnership with all stakeholders particularly suppliers and customers. Our strategy is much more broad-based than climate alone, as the United Nations Sustainable Development Goals (SDGs) demand. We are already land net zero, with our crop science ingredients saving more land than is used to grow our bio-based raw materials. We recognise that our strategy will need to adapt in response to the latest science and needs of planet and society. For example, we are investigating our impacts and dependencies on biodiversity and the development of a science-based target for nature. Tracy Sheedy is Group Human Resources Director This year we have engaged all our stakeholders in reviewing See Delivering value through our culture P36 our material impacts. The insight gained has focused our attention and encouraged us to continue our ambitious journey to become Climate, Land and People Positive by 2030. ## Combining science and sustainability at Alban Muller Through our Sederma business we are the leading innovator in the skin care market and the number one supplier of anti-ageing ingredients. We are also a leader in natural extracts sourced from plants, under our Crodarom brand. This year we acquired Alban Muller, a privately owned company that combines science and natural extracts, broadening the natural ingredients offering in our Beauty Actives business. Alban Muller’s natural active and functional ingredients create a significant growth opportunity to meet changing consumer requirements in a skin care market that is growing 9% per year. The acquisition is also a good example of where we expect to continue to allocate capital in consumer markets. TM Alban Muller product Cytokalmine is a natural concentrate for sensitive skin with proven soothing and antioxidant effects. This new product, launched in 2021, is 100% naturally derived from by-products of pomegranate food production. The production of natural active ingredients using locally sourced by-products is a good example of how Alban Muller delivers beauty ingredients that are more sustainable than alternative products. Christiano Lubrano, Research & Development Director at Alban Muller, said: “The integration with Croda presents the perfect opportunity to combine our scientific botanical knowledge with Croda’s existing expertise to create new natural ingredients for customers; both more innovative and natural.” Croda International Plc ## 2 Annual Report and Accounts 2021 ### Strategic report u n d a m e n t a l F s ## Climate Positive: Land Positive: We will continue to reduce Our products will enable more ### our carbon footprint and L land to be saved than is used e a ### v n ### increase our use of bio-based i d to grow our bio-based raw i t s P raw materials, whilst the materials. Our innovation will ### o o ### P s ### benefits in use of our i help customers to protect ### e t ### t i v ingredients will enable more biodiversity and to mitigate the ### a e carbon to be saved than we m impact of climate change and i l ### emit through our operations Smart science land degradation, increasing ### C TM ### and supply chain. to improve lives the availability of land suitable for growing crops. ## People Positive: ## Fundamentals: We will apply our innovation to increase our positive impact Our social licence to operate on society. We are improving is built on trust and is the P e o v e the lives of our own employees p l e s i t i foundation of everything P o and people around the world we do. We consider all by developing ingredients to stakeholders in our improve health and wellbeing ecosystem and strive to as well as encouraging and adopt best practices in promoting diversity. environment, labour and human rights, safety, ethics and sustainable procurement. See Sustainability P30 Croda International Plc ## Annual Report and Accounts 2021 3 ### Identifying unmet needs ## Nick Challoner provides insight ## into how our dynamic innovation model ## creates disruptive technologies ## Driving innovation in the ## crop care market Agriculture is responsible for approximately 20% of carbon emissions globally, so it is not surprising that the environmental impact of the agricultural industry is becoming a high-profile issue. While the industry has traditionally relied on chemical fertilisers and pesticides, the potential of biologics in crop care is now better understood. Therole of predators to control insects in greenhouses is well established but micro-organisms and naturally occurring compounds also have potential as biostimulants and biopesticides. Through Croda’s acquisition of the Incotec Seed Enhancement business in 2015 and the Plant Impact Biostimulants business in 2018, we are well placed to address some of the challenges in the Nick Challoner is Group Chief Scientific Officer adoption of biologics. These include the survival of micro-organisms before use, compatibility with application methods and variations inenvironment. We are the leading innovator in the markets in which NC we operate, growing by creating new market and We have developed new technology, which when applied to soybean technology niches with our novel product and service seeds results in stimulation of shoot and root growth, and increased offerings. yields. We are now evaluating this biostimulant in different seed application technologies. In collaboration with Royal Holloway By selling direct to customers and collaborating with them University of London, we are also further developing seed at our innovation centres around the globe, which are enhancement as the optimal method of microbial application. We are located close to customers, we gain a detailed insight into also using Artificial Intelligence (AI) to address the big data challenge of their current and future challenges, enabling us to identify optimising biologics for specific environments. new opportunities for growth. Carola Peters (pictured, right-hand page), a research scientist at our Our innovation ecosystem is unique with our R&D advances Incotec Seed Enhancement business in the Netherlands, said: “Over increasingly driven by our partnerships. These partnerships time a larger proportion of seeds will be treated before they are sown with leading scientists in universities and SMEs enable us to and crops will be sprayed less.” access specialist, world class expertise and facilities. We now have more than 500 open innovation partners working See Sector review: Life Sciences with us on over 100 active projects at any one time. P26 Our partners contribute to the high proportion of New and Protected Products (NPP) we sell as well as the continued differentiation of our portfolio. Through our strategy, we are becoming a more knowledge-intensive company, with recent acquisitions contributing to the strong increase in NPP that we have seen this year. Together with our partners, we are developing novel ingredients that deliver better results for our customers with a reduced impact on the planet. Each project aims to either improve the sustainability of our products, raw materials and manufacturing processes, or create new ingredients that deliver sustainability benefits in use to our customers and their consumers. Even better if they achieve both. For example, we work with partners to help access the latest thinking in biotechnology, drawing on recent advances in the ability to harness the biological world. Biotechnology can help meet growing consumer demand for more sustainable and personalised products, and so has the potential to transform chemical industries. One challenge is that innovation often happens in pockets, ## Over time a larger proportion of seeds disconnected from the real-world impact. Croda’s cross ## sector expertise and ability to look across industries provides will be treated before they are sown us with a unique opportunity to connect disruptive innovation ## and crops will be sprayed less. in areas such as biotech with tangible business benefits. Carola Peters, Research Scientist, Incotec Seed Enhancement See Key Performance Indicators for NPP metric P45 Croda International Plc ## 4 Annual Report and Accounts 2021 ### Strategic report We increased innovation spend in 2021 by over No of partners No of projects initiated 579 600 531 498 ## 50% 500 455 Open innovation partners and initiated projects 400 372 324 288 300 265 254 226 191 188 200 136 ## 88% 129 of new products 75 100 directly contribute 40 to our priority SDGs 0 Croda International Plc ## Annual Report and Accounts 2021 5 2010-2014 2016 2017 2018 2019 2020 20212015 ### Delivering for our shareholders ## Anthony Fitzpatrick and Mark Robinson discuss ## inorganic opportunities and organic investment ## to deliver our strategy We complement organic investment with innovation- AF rich acquisitions capable of delivering higher, profitable growth under Croda’s ownership. The strength of our performance in 2021 reflects this consistent strategy with the prior year acquisitions of Avanti and Iberchem making a significant contribution. Avanti has enabled us to play an important role in the roll out of COVID-19 drugs and vaccines, something that we are very proud of. This platform opens up significant opportunities in next generation areas such as mRNA and gene therapy. Mark Robinson is President Global Operations Iberchem’s focus on higher-growth emerging markets will drive significant value in the coming years. Integration is progressing well and we are on track to realise the With a focus on flexible manufacturing processes, MR expected revenue synergies by 2025, further enhanced by Croda’s operations differ from most of our peers, ensuring our add-on acquisition of Parfex, a premium fragrance that our business remains profitable and cash generative business. In 2021 we also acquired Alban Muller, boosting even in the most challenging economic conditions. In the more our natural ingredients portfolio in Beauty Actives. favourable environment we have seen this year, we have delivered a record performance, benefitting from significant In May, we announced a strategic review of our Performance investment in previous years, notably in sustainability. Technologies and Industrial Chemicals (PTIC) businesses to determine the best future ownership structure. The sale we The demands of this rapid recovery combined with the ongoing announced in December 2021 for the majority of PTIC challenges of managing through COVID-19 created added provides a strong new supportive owner for its future growth challenges to our operational teams. To our employees, thank and is also a significant milestone in Croda’s transition to a you for stepping up to the challenges and making a significant dedicated life science and consumer business. contribution to our results and delivering for our customers. We will continue to target exciting innovation-led acquisitions We are reinvesting for growth, particularly disciplined organic to continue our journey as a knowledge-based business, with investment in new capacity, product innovation and attractive a selective focus on Life Sciences and at the top end of geographic markets such as Asia. We are focused on Consumer Care. consumer and life science markets which provide the opportunity to deliver stronger and more profitable growth. At an operational level, this means building on our position as a sustainability leader including executing against the decarbonisation road maps we will have in place for all of our major sites by the end of 2022. In addition, the top priority in Life Sciences is to scale our world-leading delivery systems for patient health. COVID-19 has demonstrated the benefits of local manufacturing, and we have identified new projects to build operational flexibility and resilience in key countries such as China. See Business model Anthony Fitzpatrick is President Corporate P16 Development and Performance Technologies & Industrial Chemicals ## Investing in mRNA | As the core of our lipid systems capability | innovation augmented by £60m of capital | were able to meet the challenges associated | | --- | --- | --- | | within the Health Care business, Avanti is | investment since we acquired Avanti in | with large-scale commercial manufacture of | | primarily focused on developing innovative | August 2020. This investment expands our | novel lipid components critical to the | | lipid-based products of unparalleled purity to | GMP manufacturing and quality assessment | formulation of life-saving COVID-19 vaccines. | | address specific medical challenges that are | facilities, increasing production capacity for | With the onset of widespread use of lipid | | not resolved by current technology. | existing projects and also enhancing our | system technology in future therapeutics, I am | | | innovation pipeline for new projects. | thrilled to see what the future holds for lipids in | The lipid systems and synthesis expertise we worldwide health care.” | bolstered with the Avanti acquisition has | The scale of the opportunity in future mRNA | | --- | --- | | contributed approximately US$200m of sales | and gene therapy applications is reflected in | | in 2021, primarily for our principal vaccine | the market size which has grown rapidly since | | customers. Withover 200 lipid-based | the onset of COVID-19. We are investing to | | vaccines and drugs in clinical trials, and a | maintain and enhance our first mover | | similar number in research, there is a huge | advantage. Justin Martin, Development | | opportunity for us to move to the forefront of | Scientist at Avanti (pictured, right-hand page), | | the biologics delivery market. | said: “Backedby our extensive history of | supplying high quality lipids for clinical research We have reinforced our market leading and small-scale commercial applications, we position through R&D investment and Croda International Plc ## 6 Annual Report and Accounts 2021 ### Strategic report (excluding lipid systems) 25 23.6% 20 Underlying sales growth versus 2019 17.3% 15 ### Investing for future growth Annual organic capital 10 investment increased by 31% in 2021 to almost | 5 | | | | £160m | | | --- | --- | --- | --- | --- | --- | | | | | £1.2bn | | £70m | | | | | invested in acquisitions | | invested in 2021 to scale | | | | | and capacity expansion | | up manufacturing capacity | | 0 | | | in the last two years | | for our three patient | | | Consumer | Life | | | health care platforms | Underlying sales growth (%) Croda International Plc ## Annual Report and Accounts 2021 7 Care Sciences ### Chair’s statement Sustainability as a strategic priority In line with our Purpose, we have made a bold Commitment to be the world’s most sustainable supplier of innovative ingredients. Our focus is now on execution, working with our suppliers and customers to ensure we are Climate, Land and People Positive by 2030. Only by working in partnership can we achieve our goals, and we recognise that the strength of our relationships with others helps drive our success and our positive impact on the world around us. During 2021, our communities also benefited from our longstanding volunteering programme and educational outreach. In addition we established the Croda Foundation, which is already helping over 50 million people by supporting vaccine infrastructure projects globally, extending the positive impact we are making. Sustainability has been a strategic priority for Croda over more than a decade, influencing how we develop our business and product portfolio and our priorities for investment. Climate change, biodiversity loss and rising inequality are now changing consumer demands, making Anita Frew sustainability as important to consumer choice Chair as performance. This is providing us with ## A record opportunities to leverage our leadership position After what has continued to be another in sustainability, to help our customers meet ## year driven these changing consumer needs. challenging year for businesses around the world, I am pleased to report that Croda has Board members engage regularly with our delivered a record performance. This reflects Sustainability Committee to track progress and ## by the | | strong growth in our existing business, | were represented at the Executive review of our | | --- | --- | --- | | | significant benefits from recent acquisitions | sustainability strategy in October (see page 65). | | commitment | and our Health Care business performing | | When reviewing progress, I am particularly exceptionally well. struck by the level of our employees’ The Croda team has met the demands of a engagement around this topic and the ## of our people | rapid global recovery, combined with ongoing | ownership across Croda which will ensure we | | --- | --- | | challenges presented by COVID-19. Customer | continue to achieve our goals. | | demand and cost inflation have been at levels | A culture where we put people first | we have not seen for a decade; at the same Croda has always had a unique culture, built time COVID-19 restrictions have remained in on customer intimacy and innovation with an place in many countries around the world. This entrepreneurial spirit. Promoting this ‘One has presented many challenges for our people, Croda’ culture is important to our long-term carefully managing both employee wellbeing success, as it enables us to operate a and customer expectations. decentralised model where decisions are taken As always, our clarity of Purpose has been our as close to the customer as possible, ensuring ## Croda has guide, ensuring we deliver for our customers, that we are more agile than our competitors, whilst always looking after our business whilst delivering the governance and ## always had a partners and one another. Our success is made consistency we expect across Croda. Our possible by our people, who have risen to the values, which we have worked hard to ## unique culture, challenges the year has presented. Their hard articulate over the last two years, are to be work, dedication and customer focus have ‘responsible’, ‘innovative’ and to work ## built on customer been exceptional, and I want to thank all of ‘together’. We expect managers to put people our employees for their contribution to a first, irrespective of whether they are colleagues ## intimacy and successful year. or partners, and all of our people to look after A Purpose-driven company one another. ## innovation with | | Our strategy will continue to evolve but our | | In 2021 we implemented an eight-point plan to | | --- | --- | --- | --- | | | | TM | support the wellbeing of our employees facing | | an entrepreneurial | Purpose – Smart science to improve lives | – | | | | will remain constant, guiding the choices we | | the combined challenges of COVID-19 and a | | | make. Our Purpose is illustrated by the | | rapid recovery in demand. The wellbeing and | ## spirit.” contribution we are making to COVID-19 engagement of all employees is a cornerstone of vaccination programmes around the world, our success, and I am delighted that we have Anita Frew supporting over 150 COVID-19 projects in been able to adopt the Living Wage in 2021 for Chair | more than 30 countries. This support has often | all employees. Employee share ownership | | --- | --- | | involved considerable commitment from our | remains at impressive levels, at over 80% in the | | people, not least from colleagues on our | UK and 60% internationally. We have | | graduate programme who put personal lives on | augmented this with a new ‘Free Share Plan’, | | hold to travel to Alabama and help produce | under which employees who do not participate | | lipid systems that continue to play such a key | in other bonus schemes were awarded ten | | role in the fight against the pandemic. | shares in 2021 and will continue to receive free | shares when those schemes pay out. Croda International Plc ## 8 Annual Report and Accounts 2021 ## Putting lives on hold to meet the COVID-19 vaccine challenge | Through our contribution to various COVID-19 | who put their lives on hold and travelled to | | | --- | --- | --- | | vaccination programmes we have been able | Alabama for five months. Many of these | | | to play our part in helping the world emerge | seconded employees were graduates, with a | Strategic report | | from the COVID-19 crisis. Our contribution | rotation added to our graduate programmes. | | | required the rapid ramp-up of lipid production | Our people worked tirelessly, exemplifying the | | | capacity in Alabama and a project to expand | Croda values, to deliver for our customers. | | | production volumes that would typically take | The immediate impact of this work is obvious, | | | two years was completed in a matter of | but beyond this the experience and | | | months. While it was Avanti’s deep knowledge | knowledge gained will aid their development | | | of lipid drug delivery combined with Croda’s | as they progress in their careers. | | expertise in operational scale-up that made Ashlea Taylor-Hughes, pictured, a Croda the project possible, it was our people who research scientist from Cheshire, UK, who made it happen. Our teams worked around postponed her wedding due to the COVID-19 the clock running three shifts a day to produce pandemic and spent time on secondment in the required quantities of lipids. The project Alabama, said: “It was scary to come out here involved diverting resources from around the for five months but, just thinking of all the good business to support lipid production, including that it would do, Iwas completely up for it.” employees from Croda sites in the US and UK Promoting executive and workforce diversity In September 2021, Julie Kim was appointed company, markets in which we can deliver on At the beginning of the 2021, we published a as a Non-Executive Director (NED), bringing 25 our Purpose of using Smart science to improve TM | Board diversity and inclusion (D&I) policy and | years’ experience of health care markets across | lives | . As Steve Foots, our Group Chief | | --- | --- | --- | --- | | communicated our commitment to greater | Europe, Asia and Latin America. Julie is | Executive, outlines further in his review on page | | | diversity within our business. We believe that | President Plasma-Derived Therapies at | 10, this focus on Consumer Care and Life | | | the diversity of our people – in terms of ideas, | Takeda Pharmaceutical, a global, R&D driven | Sciences will enable us to deliver consistent | | | skills, knowledge, experience, ethnicity, gender | biopharmaceuticals company. In early 2022, we | sales growth and an even stronger profit margin. | | | or any other characteristic – is very important | welcomed Nawal Ouzren, CEO of | | | We committed to communicating openly with for the continuing long-term success of the biopharmaceutical company Sensorion, to the the employees of our Performance Company. We will report annually on the Board as a NED, adding further health care Technologies and Industrial Chemicals progress we are making. See pages 37 and 61 expertise through her first-hand experience of businesses during the strategic review, for further details. biologics and novel gene therapies. recognising that it was a period of uncertainty. | The Board recognises the importance of | Both appointments add relevant experience as | Cargill is a company with a distinguished history | | --- | --- | --- | | developing diversity in senior management | we look to access higher growth markets in | and I am confident that our employees can look | | roles and oversees the objective of achieving | health care, and in regions beyond Europe and | forward to a bright future under its ownership. | | gender balance in all leadership roles by 2030 | North America, such as Asia. They also bring | | Committed to generating value for all and the doubling of the number of women in even greater diversity to the Board in terms of stakeholders leadership positions. In this year’s submission gender, ethnicity, nationality and tenure. The divestment will allow us to focus our to the Alexander Hampton review, we were Overall, I am pleased to have fulfilled our resources on delivering sustainable solutions pleased to report that 36% of leadership commitment to meeting the requirements of the and scaling our consumer, health and crop positions were held by women. We will also Parker Review on ethnic diversity and to care technologies. We have a clear capital develop a target aligned to increasing the achieving full gender balance on the Board. allocation policy, with a focus on organic number of ethnically diverse employees in I am confident that the diversity of thought and investment, given the exciting growth executive roles by the end of 2022 and in experience we have around the boardroom table opportunities we see in the future in these leadership positions by the end of 2024. will ensure we are able to provide effective markets. We will also provide regular returns to | Croda has not historically collected company- | support and guidance as Croda continues to | shareholders, invest in complementary | | --- | --- | --- | | wide information about employee ethnicity. | focus on the fast-growth markets of the future. | acquisitions and retain our balance sheet | | However, we understand the importance of | Despite the challenges presented by COVID-19, | strength. The Board is proposing a full year | | having sufficient data to make good decisions | as a Board we have been able to continue our | dividend for 2021 of 100 pence per share, | | about D&I and how this will enable us to track | programme of engagement with employees | representing growth of 10% over 2020, a year | | our progress. This year we conducted our first | across Croda, including virtual visits to Avanti and | in which we were one of the few companies to | | global diversity survey and are using the results | Iberchem, the businesses that we acquired in | continue to increase the dividend as we | | to develop an action plan to drive improvements. | 2020. I would like to thank all Board members for | managed the impact of COVID-19. | | The results are reported in the Culture section of | their support and hard work throughout 2021. | | 2021 has been an excellent year for Croda in this report on page 37, where you can read Accelerated strategic progress in a which we have delivered a record financial more about our approach to D&I and the work of transformational year performance and strong progress against our our global steering committee. We expect to be Our agile approach and resilient business non-financial targets. We are becoming a able to implement routine monitoring and model have allowed us to look beyond the dedicated Consumer Care and Life Sciences disclosure of employee ethnicity from 2023 for immediate COVID-19 pandemic, with the Board company where our leadership in sustainability the UK and globally from 2024. and Executive Committee working together on and innovation will deliver further profitable Evolved Board composition to reflect our our strategy driving sustainability and innovation growth. With our clear Purpose, strong culture ambition to deliver growth. and committed workforce, we look forward to This commitment to diversity applies to the the future with confidence. In December 2021, we announced the sale of | makeup of the Board, ensuring it is well | the majority of our Performance Technologies | | | --- | --- | --- | | equipped to lead the business effectively, | and Industrial Chemicals businesses to Cargill, | | | embraces new ideas and makes good use of | the largest private company in the United States. | | | differences in experiences, backgrounds and | This divestment, due to complete in Summer | | | perspectives to satisfy all the different | 2022, will progress Croda’s transition to a | | | stakeholders we have as a global organisation. | pure-play Consumer Care and Life Sciences | Anita Frew | Chair Croda International Plc ## Annual Report and Accounts 2021 9 Chief Executive's review ![img-1.jpeg](img-1.jpeg) # Record financial performance – strategy executed with agility 1 Record financial performance 2 Significant benefit from recent acquisitions – £58m additional operating profit and stronger growth platform 3 Strategic transition to pure-play Consumer Care and Life Sciences company with accelerated investment Steve Foots Group Chief Executive Creating a pure-play Consumer Care and Life Sciences company 2021 has been an outstanding year for Croda, with record financial results and excellent strategic progress. This has been enabled through the accelerated implementation of our strategic priorities, increased investment in innovation and growth, and a broader global recovery in demand. Our excellent strategic progress during the COVID-19 pandemic has included progressing our transition to a pure-play Consumer Care and Life Sciences company. Our 2020 acquisitions of Avanti and Iberchem, which created new growth platforms in our target markets, have been followed by our recent agreement to divest the majority of our Performance Technologies and Industrial Chemicals businesses (PTIC). This will release more capital to reinvest in faster growth, higher return markets, positioning us to deliver more consistent sales growth and an even stronger profit margin. This strategic progress is consistent with our Purpose of using Smart science to improve lives™. The importance of our sustainability Commitment, made in 2020, has come to the fore, with consumers everywhere seeking more sustainable products and customers needing Croda to help decarbonise their supply chains. Our part in helping produce COVID-19 vaccines is a proud example of our smart science in action. Our capabilities in sustainability and innovation will drive our future growth. Croda is becoming a more knowledge intensive business, investing more in commercialising R&D, expanding emerging market exposure and increasing the value captured from our products. We are focused on the fast growth markets of the future, making bigger and bolder bets to expand our leadership positions and drive significant value creation. The results of this strategic action can be seen in 2021's performance. It was a record year for sales and profit, with every part of the Group performing well. The strength of the 'existing' Croda business was clearly demonstrated, with underlying sales growing by 26% and underlying growth in adjusted operating profit of £116m over 2020. Consumer Care led the way, with a strong recovery in Personal Care. Alongside this, we realised significant benefits from recent acquisitions in Consumer Care and Life Sciences, delivering £58m of additional adjusted operating profit within the first year post-acquisition. Our 2020 acquisition of Avanti has helped to establish the lipid systems platform in Health Care, with approximately US$200m of sales in 2021, primarily to our principal vaccine customers. We deployed more capital and resources to scale our consumer, health and crop care technologies. We increased innovation spend by over 50% on 2020 and the proportion of New and Protected Products (NPP) from 27% to 37% of total sales. We increased annual organic capital investment by 31% to almost £160m; reflecting our successful 'buy and build' approach. This has allowed us to unlock the potential of Avanti and Iberchem, acquiring adjacent technology platforms and then scaling them through organic investment. To deliver these record results, our colleagues have risen to the dual challenges of responding to a rapid recovery in customer demand whilst managing ongoing COVID-19 restrictions. Combined with global disruption affecting many industries, supply chain management has been challenging but, thanks to the efforts of our global team, we have managed to supply the increased demand whilst limiting the impact on customer service. I am proud that we have continued to support our stakeholders and keep our colleagues safe, and I would like to thank everyone at Croda for their commitment. Record financial results In 2021, reported sales grew by 36% to £1,889.6m (2020: £1,390.3m). Underlying sales were up 26% and acquisitions added 17% (both at constant currency), while stronger Sterling saw an adverse impact from currency translation of 7%. Notably, underlying sales were 18% ahead of 2019 (excluding sales of lipid systems introduced since 2019, for better comparability), demonstrating significant growth against pre-pandemic levels. 2021 also saw the most significant period of raw material cost increases in over a decade, up by 17% in the underlying business. With full cost recovery achieved through Croda's powerful operating model, alongside a strengthening product mix, this helped drive underlying sales price/mix 17% higher year-on-year. Despite higher prices, most markets globally saw strong demand recovery, and underlying sales volume rose 9%. Strong demand and the faster growth of higher value-add technology platforms across Life Sciences and Consumer Care resulted in a record profit margin for the Group. Return on sales rose 180 basis points to 24.8% (2020: 23.0%). In Life Sciences, the highest growth was in the patient health care platforms, which increasingly focus on producing high value products. Personal Care returned to good growth within the Consumer Care sector and a recovery in Performance Technologies markets benefited operating leverage. The combination of sales growth, acquisition and improved margin saw reported profit before tax (on an IFRS basis) increase by 53% to £411.5m (2020: £269.5m), while adjusted profit before tax increased by 48% to a record full year result of £445.2m (2020: £300.6m) and was 38% higher than 2019. With adjusted earnings per share 43% higher, the Board has proposed a rise of 10% in the full year ordinary dividend, completing a 30-year record of consistently increasing the annual ordinary dividend. Cash generation in 2021 supported an increase in working capital, reflecting the higher costs of raw materials and a tactical increase in inventory to 10 Croda International Plc Annual Report and Appendix 2021 Reported sales (2021) +36% See Finance review P46 support customer service levels, and an increased allocation of capital investment to the strategic growth markets of Consumer Care and Life Sciences, as part of the divestment of the majority of PTIC. Health Care is a key investment focus for us, with over £70m invested to expand our three patient health care platforms, including new capacity for specialty excipients in therapeutic drug delivery, further build out of the lipid systems platform and expansion of the fast growing vaccine adjuvant platform. We also committed funding to create a new combined fragrance and Beauty Active facility for Consumer Care, to accelerate sales growth in China, and a new proteins capability in Home Care. In R&D, we invested £5m in expanding innovation centres and in disruptive process technologies. We supplemented this organic investment with the acquisition of adjacent technologies, acquiring two businesses in Consumer Care which are accelerating our transition to natural raw materials. In March, we acquired natural Beauty Actives specialist Alban Muller for €25m and in June we completed on Parfex for €45m, strengthening Iberchem's position in fine and natural fragrances. # Growth across all regions and sectors All geographic regions delivered good sales and profit growth. Consumer recovery was strongest in North America, with Asia and Europe also seeing double digit percentage growth in underlying Consumer Care sales. Latin America saw excellent Crop Care sales and all regional markets saw good progress in Performance Technologies. Health Care sales grew across the globe, with Europe and North America benefitting from the lipid systems platform. # A stronger Consumer Care business 2021 saw the creation of the Consumer Care sector, comprising Croda's leading global position in Personal Care, the recently acquired Iberchem fragrances and flavours (F&F) business and Home Care. Consumer Care delivered an excellent sales performance in 2021, up 45% in reported terms, with underlying sales 18% higher. This was supplemented by 35% growth from acquisitions and partly offset by adverse currency translation of 8%. Adjusted operating profit increased by 29% (and by 26% on an IFRS basis), with return on sales of 24.7% (2020: 27.8%); the latter reduction reflected dilution from the acquisition of Iberchem, with F&F industry margins structurally lower than those of Personal Care. A strengthening product mix overall saw profit margin improve in the second half year. After a steady recovery in the second half of 2020 from the negative impact of COVID-19 on 'going out' sales of actives and cosmetics, Personal Care performance improved markedly in 2021. This was led by a resurgence in consumer demand for our innovative, high value Beauty Actives products. In previous years, Personal Care performance has been held back by softer growth in our heritage Beauty Care formulation ingredients, particularly in North America and Asia. Beauty Care enjoyed a return to growth in 2021, benefitting from customer restocking and innovative sustainability-driven ingredients, including bio-based surfactants from the US plant, which was fully operational from the end of the first quarter. Improved demand continued through the year, resulting in 2021 Personal Care underlying sales 15% above 2019 pre-pandemic levels and a return on sales of 30%. Growth continued in Home Care, reflecting customer interest for sustainable products from our US ECO plant and excellent demand for Croda's innovative fabric care offering. In Consumer Care, we are already recognised as the leading innovator in ingredients for the personal care and home care markets. Our acquisition of Iberchem has given us a similar platform in F&F, with innovation at the heart of its business, offering customers on-trend fragrances, particularly for emerging markets. We are delivering the first cross-selling synergies from Croda's global presence, including the launch of Iberchem fragrances into the large Brazil market, leveraging Croda's local operation. With lower vaccination rates, emerging markets have seen softer demand due to COVID-19, which has constrained sales in the short term, but the F&F business still delivered double-digit percentage growth in 2021, including the mid-year acquisition of Parfex. # Rapid expansion in Life Sciences With an excellent 2021 performance, Life Sciences now rivals Consumer Care in scale. Sales grew 46% in reported terms in 2021, with underlying sales over 40% higher. This was supplemented by over 13% growth from acquisition in the first year of ownership and was partly offset by adverse currency translation of 8%. Adjusted operating profit increased by 67% (and by 79% on an IFRS basis), with return on sales reaching 36.4% (2020: 31.7%). As noted at the half year, achieving this level of growth and profit improvement in such a short period placed significant demands on the business and, as anticipated, the margin level moderated in the second half of the year, as we invested in additional people and brought new capacity on-stream to future-proof this growth. Life Sciences is leveraging in-house developed and acquired technologies, building further scale to deliver customers' drug, vaccine and crop science products. It is moving into faster growth, higher value/lower volume niches. In 2021, the strongest growth was seen in the Health Care business, with reported sales up 80% year-on-year. This was driven by our focus on patient health care platforms. Whilst much of this growth was delivered by Avanti and the scale-up of its exciting lipid systems platform by Croda's UK Health Care site, resulting in around US$200m (£145m) of sales to COVID-19 mRNA vaccines, specialty excipients and vaccine adjuvants also grew by over 40%. With continued investment in these platforms, double digit percentage organic sales growth is expected to continue into the medium term. Our Health Care business has had outstanding early success with its involvement in COVID-19 vaccines, but even more importantly, we have built a foundation for Croda in biopharma drug delivery. Whilst the majority of lipid system sales in 2021 were to our principal COVID-19 vaccine customers, opportunities in other drug and vaccine customer projects continue to develop. Across our three patient health platforms, we secured 130 new customers and 250 new programmes, two thirds of which were for non-COVID applications, including nucleic acid therapeutic drugs and vaccines (such as mRNA). We expect to see an ongoing expansion in the range of applications for lipid systems in vaccines and therapeutic drugs, as this exciting Health Care technology develops through clinical trials to commercial customer product launches in the medium term. Crop Protection delivered double-digit percentage sales growth, reflecting strong demand across crop science customers, particularly in the second half of the year. This included significant growth in sales to non-tier one customers who now represent more than 50% of revenue. By contrast, Seed Enhancement growth was subdued, with slower sales in Europe and China. # A new future for Performance Technologies The recovery of Performance Technologies strengthened during 2021, with sales growth reflecting a recovery in industrial and markets and sustainability-driven demand across our innovative product applications. Sales grew 18% in reported terms, with underlying sales 24% higher, partly offset by adverse currency translation of 6%. Adjusted operating profit increased by 32% (and by 38% on an IFRS basis), with return on sales improving to 14.7% (2020: 13.1%), as higher sales volume positively impacted operating leverage. Second half margin was notably stronger than the prior year. In December 2021, we agreed to sell the majority of the PTIC businesses to Cargill Inc., for an enterprise value of €915m (approximately £778m). The business to be divested accounted for 77% of PTIC's 2021 reported sales and comprises five manufacturing facilities, together with associated laboratory facilities and sales operations. We are currently working on the process to separate the two businesses, with completion expected in summer 2022. The consideration includes the sale of 100% of Croda Sipo in China, a joint venture which Croda currently manages and in which it has a 65% shareholding. If Croda's 100% ownership of Sipo cannot be realised, Sipo will be excluded from the PTIC sale, reducing the consideration by €140m. The overall divestment is subject to customary regulatory approvals but is not subject to shareholder approval. Under Cargill's ownership, the divested business and its talented workforce can look forward to a bright future. Croda's retained business within PTIC, which accounted for 23% of 2021 sales, will form a new Industrial Specialties sector. This will play a key role supporting the Consumer Care and Life Sciences sectors. The divestment is a key step in delivering Croda's transition to a pure-play Consumer Care and Life Sciences company. We use a number of Alternative Performance Measures (APMs) to assist in presenting information in an easily analysable and comparable form. We use such measures consistently at the half year and full year and reconcile them as appropriate. Adjusted results are stated before exceptional items and amortisation of intangible assets arising on acquisition, and tax thereon. Constant currency results reflect current year performance for existing business translated at the prior year's average exchange rates and include the impact of acquisitions. Underlying results reflect constant currency values adjusted to exclude the impact of acquisitions and disposals in the first year of ownership. All comparators are full year 2020 unless otherwise stated. Sector results for full year 2020 have been restated to reflect a 2021 change to the Group's reporting structure. Croda International Plc Annual Report and Accounts 2021 11 Strategic report Chief Executive's review (continued) # Strategy: driving growth through sustainability and innovation As a result of the strategic moves that we have made over the last 18 months, including the acquisitions of Avanti and Iberchem, and the agreement to divest the majority of our industrial businesses, Croda is now becoming a pure-play business, focused on life science and consumer markets. These markets have reduced cyclicality, are faster growth, deliver high margins, are capital and carbon light, and leverage innovation, IP and new technologies. In focusing on these markets, Croda is combining leadership in sustainability with market-leading innovation to deliver profitable growth. Sustainability trends are developing rapidly in these markets, driven by consumer demand for products which do not harm the planet and meet growing trends for clean, bio-based solutions. In addition, our customers have set their own sustainability goals and need Croda, as part of their supply chains, to deliver products created through sustainable ingredients, ethical sourcing, greater ingredient transparency and lower-carbon manufacturing. Regulatory change is also driving companies to move to net zero and Croda has responded by developing clear manufacturing decarbonisation plans during 2021. Our innovation ecosystem sees R&D driven by increased organic investment and highly productive external innovation partnerships. We are increasing the proportion of NPP that we sell and formulate into customer products. This dynamic innovation engine enables us to both create new market niches through our novel product offerings and win business in existing markets by providing sustainable alternatives to incumbent petrochemical supply. Through innovation, we deliver our strategic objective of consistent top and bottom line growth, with profit growing ahead of sales, ahead of volume. # Delivering our sustainability Commitment Croda was built on a heritage of using science to turn renewable raw materials into innovative ingredients. Today, our Purpose is to use Smart science to improve lives™. We have made a bold Commitment to be the world's most sustainable supplier of innovative ingredients. This is both the right thing to do and also what our customers and consumers are seeking. Accelerating the transition to sustainable ingredients makes clear commercial, as well as ethical, sense. Our focus is now on “ # Croda is combining leadership in sustainability with market-leading innovation to deliver profitable growth.” execution, working in partnership with our suppliers and customers to achieve our Commitment to be Climate, Land and People Positive by 2030. On our journey to becoming Climate Positive, in 2021 we became only the third chemical company globally to have our 1.5°C target verified by the Science Based Targets initiative (SBTi). This commits us to delivering improvements in line with the objective to limit global temperature rises to no more than 1.5°C above pre-industrial levels, the most ambitious SBTi pathway. We are supporting our site decarbonisation roadmaps through investment within our existing capital budget and by considering opportunities to decarbonise with every capital investment decision. The divestment of the majority of PTIC will make Croda less carbon intensive and we will re-baseline our Climate targets to maintain the challenge we have set. PTIC has significant use of bio-based organic raw materials and the divestment will reduce the Group's proportion of bio-based organic raw materials from 69% in 2021 (2020: 67%) to around 52% post-divestment, but we will retain our bio-based target of 75% by 2030. In becoming Land Positive, the land saved using our crop care technologies will exceed any increase in the land used to grow our raw materials by at least double. We are also developing Nature Positive targets ready for when the future science-based target for nature is published. In our People Positive objective, we focus on using our smart science to improve lives globally, support our communities and improve the experience of the people we employ. 2021 saw the Health Care business contribute to the development of 15 of the 24 vaccines prioritised by the World Health Organisation, including new projects for HIV and Ebola vaccines. To help our communities, in 2021 we established the Croda Foundation, providing £1m of annual funding. In addition, to reflect the progress made in our Health Care business, we made an extra funding award of £2m in 2021, to improve vaccine and health infrastructure. The first projects funded will help deliver vaccinations to over 50 million people by supporting infrastructure and training in India, Brazil and Uganda. Finally, in delivering our employee objectives, we are focused on improving inclusion and diversity, achieving both the Board gender and ethnic diversity targets of the Hampton-Alexander and Parker Reviews by the start of 2022, whilst making good progress in improving diversity and inclusion within the business. Supporting our Climate, Land and People Positive strategy are our Fundamental objectives. We are committed to being a safe company for our employees and communities. With the inclusion of recent acquisitions into Group metrics, the Total Recordable Injury Rate (TRIR) rose to 0.73, excluding COVID-19 cases (2020 full year: 0.58). 83 of our 105 locations had no recordable injuries during 2021 and we are working on the remainder to deliver our targeted improvement to 0.3 by 2025, which would place us towards the leading performance in our industry. During the year we also adopted an enhanced approach to process safety aligned with SASB standards for our industry, targeting a 20% reduction in the incident rate by 2025. # Driving innovation In line with repositioning as a more knowledge-intensive company, NPP as a percentage of sales increased from 27% in 2020 to 28% in 2021 organically and 37% including lipid systems and the Iberchem and Avanti acquisitions. This significant step forward will support higher growth, improved product mix and better margins. The divestment of the majority of PTIC will further enhance our knowledge intensity. Our innovation strategy combines internal R&D with external technology investments and partnerships, augmenting Croda's innovation centres globally with a network of over 500 academic and SME partners, working on more than 100 innovation projects. In 2021, we commenced a multi-million pound project to introduce artificial intelligence and data mining across our global R&D knowledge base and improve collaboration within our innovation ecosystem. Innovation is focused on sustainability and, in particular, biotechnology, which will enhance the sustainability of our processes, contributing to the achievement of our target for bio-based raw materials whilst developing disruptive technologies. Our Beauty Actives business has augmented its product synthesis with 50 biotech product launches. Our biotech expertise also leverages previous technology acquisitions, such as Enza and Nautilus, and 2021 saw investment in a new centre for biotech process design and optimisation in the UK. With innovation operating expenditure up over 50% in 2021, we are expanding the pipeline of new opportunities. # Sector strategies to deliver growth and even stronger profit margins With the divestment of the majority of PTIC, Croda will be a Purpose-driven company focused on two attractive sectors that will deliver consistent sales growth and even stronger profit margin. Each of the two sectors comprises four businesses, all offering superior sales growth, at least one and a half times GDP. Each can deliver margins above 20% and return on invested capital (ROIC) of at least twice our cost of capital. We will target an expanded organic capital investment programme to access faster growth, supported by selective acquisitions of adjacent technologies. Consumer Care is already recognised as the leading innovator in ingredients and fragrances for the personal care and home care markets. Our future vision is to be the global leader in sustainable solutions in these premium markets. This will be achieved by delivering sustainable ingredients, supported by performance data and ingredient transparency, and by being the leader in product formulation and application technologies. Consumer Care is focused on high value niches in the faster growing markets of skin care, hair care, solar protection, fabric and surface care, and fragrances. Our strategy is to Strengthen to Grow Consumer Care, to deliver mid-single digit percentage sales growth at strong margins. This will be delivered by developing more sustainable ingredients; leveraging our capability to deliver formulation solutions; by driving innovation in premium markets, with Croda providing a 'one stop shop' to 'indie' customers; and by expanding our presence in high growth regions, with increased investment in China, expected to drive 70% of Asian growth between 2021 and 2025. Within Consumer Care's four businesses, this strategy is being achieved by: - Scaling our market leadership in Beauty Actives in peptides, botanicals and biotechnology, expanding our geographic footprint and leveraging selective acquisitions; 12 Croda International Plc Annual Report and Accounts 2021 ## Amplifying our positive impact by funding the Croda Foundation This year we have taken a big step towards achieving our ambition of expanding the reach of our smart science to permanently improve more lives by funding the Croda Foundation. ### Strategic report As part of its charitable remit, the independent Foundation issues grants for critical projects to support livelihoods and communities. Initial projects funded by the Foundation are benefitting people in the US facing food insecurity, supporting vulnerable mothers in Kenya, and unemployed, blind and partially sighted people in South Africa, who are being trained as food tasters to enable them to participate in the local economy. The Foundation also distributed grants specifically focused on health infrastructure projects, improving access to vaccines, and tackling vaccine hesitancy in India, Uganda and Brazil. By funding the Croda Foundation, we are making a bigger impact on communities across the world. Rommel Moseley, Executive Director Croda Foundation, said: “The Foundation has been established on Croda’s firm commitment to be People Positive by 2030. Our priority areas approved by our trustees are to improve health and wellbeing, reduce hunger and poverty, and protect and restore forest and ecosystems.” To read more about the Croda Foundation see our 2021 Sustainability Report P33 • Strengthening Beauty Care, with sustainable the next decade. Our strategy is to identify future capital expenditure to reinforce our leading effect ingredients and a full service and acquire new platforms, and grow them position in drug and vaccine systems. This formulation capability, supported by organically with rapid, agile investment; investment programme will include expanding our ingredient data to underpin our customers’ lipid systems capability in the US and UK. • Continuing to grow in Consumer and product claims; Veterinary Health, through oral care, topical In Consumer Care, our investment focuses on • Unlocking the potential of F&F, by driving the application and animal health solutions; expanding sustainable technologies, such as mild benefits of integration synergies through surfactants and innovative proteins for clothes care, • Innovating in Crop Protection. We are expanding Croda’s presence in emerging to meet developing customer demand. We will also developing an industry-leading range of low markets and providing Iberchem with access invest in increasing geographic coverage, carbon, bio-based and biodegradable to Croda’s developed market presence, such particularly in fast growth markets, such as Asia. delivery systems, alongside systems for next as the US and Brazil, while supporting The sector will also benefit from investment in generation biopesticide delivery and crop one-stop-shop formulations which combine biotechnology and decarbonisation. This will nutrition, as the world reduces its high performance Croda ingredients with continue to be supplemented by careful acquisition dependence on chemical solutions; and Iberchem’s on-trend fragrances and of adjacent technology bolt-ons, particularly those • Creating long-term partnerships in Seed developing more natural fragrances; and which can accelerate our transition to greater use of Enhancement. This includes providing seed • Accelerating Home Care in sustainable natural raw materials, an important differentiator in coatings and pellets that are free from cleaning, fabric care technologies and consumer markets. micro-plastics and developing technologies to sensory benefits . stimulate plant growth. Outlook Life Sciences is today well established as a leading Deploying capital Growth is expected to continue in 2022 in line supplier of delivery systems to pharmaceutical and with our medium-term expectations. This should Our transition to a pure-play Consumer Care and crop science customers through high quality be supported by robust consumer demand, Life Sciences company will allow us to deploy ingredients and unique purification and synthesis inflation cost recovery and the benefit of our recent capital into the rich seam of growth opportunities in know-how. Our future vision is to become the investments more than offsetting moderation in these markets, whilst maintaining our discipline of global leader in biopharma drug delivery in Health customer restocking. Lipid systems sales are careful capital allocation to projects which generate Care, alongside our leadership in sustainable expected to be at a similar level to 2021. With an superior returns on capital. This will allow us to delivery systems for Crop Care. This will be increasing proportion of sales coming from higher continue to scale our consumer, health and crop achieved by delivering solutions and systems to value add solutions, profit margins in Consumer care technologies and deliver consistent sales customers; leveraging our leadership in synthesis, Care and Life Sciences are expected to growth and an even stronger profit margin. Our formulation and application technology know-how; remain strong. priority is organic capital expenditure to take expanding sustainable technology platforms; advantage of the significant growth opportunities The combination of our differentiated business and increasing our expertise in complex available in higher returning life science and model, healthy innovation pipeline and current formulation systems. consumer markets. This will be supplemented by investment programme are expected to underpin Our strategy is to Expand to Grow Life Sciences to selective acquisition of disruptive technologies in performance and continue to generate value for all deliver high single digit percentage sales growth existing and adjacent markets to accelerate our stakeholders. with a strong return on sales. Within the four Life strategic delivery. Sciences businesses, this strategy is being We are unlocking the value of £1.2bn of investment achieved by: in the last two years in acquisitions and capacity | • Expanding our platforms in Patient Health. | expansion. Our preferred approach is to ‘buy and | | | --- | --- | --- | | Our established speciality excipient platform | build’, as exemplified by our investment in Life | | | provides high purity delivery systems for | Sciences since 2015, where we have secured new | Steve Foots | | therapeutic drug applications, such as | technology platforms and know-how through | Group Chief Executive | | oncology, and is growing rapidly, providing | modest acquisition spends, such as Incotec seed | | enhancement, Biosector vaccine adjuvants and the excipients of choice for the newest The Strategic Report was approved by the Avanti lipid systems, then built scale through biologic drug innovations. To this we have Board on 28 February 2022 and signed on organic investment. added two new platforms – vaccine its behalf by Steve Foots. | adjuvants in 2018, providing the important | In Life Sciences, drug delivery offers a significant | | --- | --- | | accelerator to a range of new global | growth opportunity, much of which can now be | | vaccines; and lipid systems in 2020, the | delivered through organic investment, although we | will continue to look for additional delivery preferred solution for the developing science technologies to complement our three successful of nucleic acid delivery (e.g. mRNA), which is platforms. In addition to over £70m invested in expected to revolutionise medical delivery in 2021, we have committed a similar amount in Croda International Plc ## Annual Report and Accounts 2021 13 ### Market themes ## The megatrends shaping our markets ## Of the megatrends which will drive growth across Croda, ## three common themes are sustainability, emerging markets ## and digital. ### Industry trends Opportunity for Croda • Climate change, biodiversity loss and rising • Leverage our leadership positions in renewable ## Sustainability inequality are changing consumer demands, raw materials and biotechnology, as well as our making sustainability as big a driver of consumer asset-light operations and investment in choice as performance. sustainability over many decades, to meet • This is reflected in broader and stricter regulations, changing consumer demands. increasing barriers to entry. • Create new market niches through novel and • The chemicals industry is acknowledged to be sustainable product offerings. ‘hard to decarbonise’, with its reliance on • Win market share by providing sustainable petrochemical raw materials and heat-intensive alternatives to ingredients manufactured by operations. incumbent suppliers. | | • Growing consumption and an expanding middle | • Focus investment on faster growth markets | | --- | --- | --- | | Emerging | class in emerging markets is increasing demand | outside of North America and Europe, such | | | for consumer goods and health care. | as China which is forecast to be the fastest | | markets | | growing consumer market 2021-2025. | • Three quarters of the world’s food is also produced by developing countries, with crop land • Leverage our global footprint and direct selling area increasing quickly, putting more pressure on model to help smaller, regional customers get resources. to market quickly. • Market structures are still developing in many of • Put a particular emphasis on governance, these countries. sustainability and business ethics in developing markets. | | • 60% of the world’s population is connected to the | • Leverage our position as a responsible, | | --- | --- | --- | | Digital | internet and regularly use social media, disrupting | purpose-driven company by being transparent | | | many industries. | with the information that we share. | | | • Digital is accelerating the speed at which new | • Capitalise on the opportunities digital creates | | | trends are adopted and lowering the barriers to | to be a more sustainable, innovative and | | | entry for our customers. | customer-driven company. | | | • Consumers want to know more about the | • Engage directly with people anywhere, | | | products they use and the companies they | particularly new, digitally enabled customers. | purchase from. See Our strategy P20 Croda International Plc ## 14 Annual Report and Accounts 2021 ## Leveraging expertise in sunscreens for Asian markets There are over three million cases of skin cancer globally each year, responsible for tens of thousands of deaths. Our range of sunscreens meet a clear need and are an important pillar of our sustainability Commitment to be People Positive by 2030. Our capability is in mineral inorganic sunscreen filters that are the natural choice, certified by regulators, and are coral safe – a key concern with organic sunscreens that currently Strategic report dominate the market and can be destructive to coral reefs in the oceans. To meet the needs of consumers in different regions of the world we are adapting our formulations for different skin types, skin tones and consumer preferences. For example, R&D teams across Asia worked collaboratively to optimise our sunscreen ingredients for consumers in the Asian market. Detailed market evaluation identified demand for a sunscreen offering a high level of protection with a translucent-to-transparent finish and no white smearing. The sensory evaluation and data analysis undertaken provided insights that enabled our R&D teams to develop ingredients that have seen high levels of interest from customers across Asian markets. Dr. Jasmine Leong, Technology Development Manager, said: “Croda has its own group of sensory experts who can characterise cosmetics products with precision and reproducibility. Our expertise within sun care has allowed us to understand the sensory behaviour and consumer expectations, thereby helping the formulators in optimising the product.” ### Consumer Care response Life Sciences response • We have established Consumer • We are the leading innovator for delivery Care as a sustainability-driven systems in Life Sciences, providing targeted sector to meet consumer demands solutions that help customers meet their for products that are ‘green’, sustainability challenges. ‘clean’ and ‘conscious’. • We have added seed enhancement and • We are differentiated by science biostimulants to our crop care capabilities, in ## and sustainability, providing recognition that in future, more seeds will be Sandra Breene, ingredients that are the most treated before they are sown and fewer ## effective and the most sustainable. chemicals will be applied to growing crops. President Regional • To improve the health and wellbeing of ## Delivery: consumers, we are expanding our technology platforms, enabling the effective Our focus in 2021 has been to listen more delivery of vaccines and next-generation closely to the voice of our customer; we therapeutics. developed a comprehensive survey which has been rolled out globally to understand the things that are of most importance to our customers and how we are performing against them. • We ‘think global’ and ‘act local’. • We are growing our Crop Care business in Latin America, Asia and the Middle East, and Sustainability makes strong commercial sense • We are enhancing our people, expanding our reach to smaller customers for our customers. As consumers become technical, and manufacturing beyond the major crop science companies. more educated about the impact of their capabilities in China and other behaviour on the wider environment, they are countries in North Asia. • Asia is a priority for our Health Care business looking to make choices in the products that • We are leveraging Iberchem’s with new product registrations in China they buy so that they can make a positive network of 3,000 customers, more complemented by strengthened regulatory contribution to living more sustainably. | than 80% of whom are outside | support to accelerate approvals; Japan, | | | --- | --- | --- | | Europe and North America. | Korea and India are also a focus for | Consumer requirements differ country-by- | | | investment. | country and whilst emerging markets are | recovering more slowly from COVID-19, they are increasingly setting new trends. They offer higher growth rates over the medium term, particularly in Asia where China’s personal care market is growing 9% a year. • Our R&D teams are adopting digital knowledge management, enabling enhanced use of We tailor our offering to those differing needs data science and faster innovation. by listening to our customers wherever • Our operations teams are adopting AI; for example, our Seed Enhancement business has they are. used AI to improve the quality of high-value tomato seeds. Almost all customers have experienced huge • Our sales and marketing teams are utilising digital communication tools, such as Live Chat growth in digital sales during the COVID-19 and new websites specifically written for Chinese customers, to connect directly with pandemic, accelerating trends we were customers in particular market segments, such as pharmaceutical researchers and already seeing in our markets. Digital is a huge independent brands. disruptor and our digital strategy focuses on R&D and production as well as sales & marketing, helping us bring innovation to market faster and in a more targeted way. Croda International Plc ## Annual Report and Accounts 2021 15 ### Business model ## Our business model ## Using smart science to create high performance ## ingredients and technologies that improve lives. ## 1 2 ## Who we rely on What we do ### Innovation partners We use smart science to create high performance ingredients and technologies that improve lives. Our Our innovation model combines internal R&D with ## 37% ingredients deliver vital functionality to customers at external technology investments and partnerships, NPP as a low inclusion levels, giving us strong pricing power providing opportunities to collaborate with %of total sales and allowing us to prioritise profit growth, ahead of universities and SMEs. This innovation ecosystem (2020: 27%) sales, ahead of volume. We operate globally and are is unique, with R&D advances increasingly driven focused on high-value niches in life science and by these partnerships. Our partners contribute to consumer markets. the high proportion of NPP we sell and the | 36 | continued differentiation of our portfolio. In return, | | --- | --- | | new open innovation | our shared knowledge helps them to advance | | projects initiated | science, secure funding and make breakthroughs | that benefit society. ### Create Engage ### Employees | | | Leveraging our position as the | By building direct relationships | | --- | --- | --- | --- | | 84% | We have a growing global employee base with | leading innovator in our selected | with customers, rather than using | | | more than a quarter of employees now located in | markets, we meet consumer | distributors, and collaborating | UK employee share Asia serving faster-growth markets. Recent needs by continuously expanding with them at Croda innovation scheme participation acquisitions have increased the proportion of our portfolio of 6,000 sustainable centres around the world, we gain (2020: 85%) people in science-based roles. Improving and innovative ingredients, a detailed understanding of their workforce diversity is benefitting innovation by supported by claims validation, needs helping us to identify expanding the range of thinking in our company. quality testing, sustainability data new opportunities. ## 60% Our model is decentralised, facilitating faster and regulatory insight. Non-UK employee decision-making delegated to colleagues who are share scheme close to customers. Our clear sense of Purpose participation and sustainability Commitment, underpinned by (2020: 63%) high levels of employee share ownership, ensures that everyone pulls together to achieve our goals. This is reflected in strong engagement and high ## 8% employee retention rates. ### Make Sell Voluntary employee | turnover | | We use resources safely and | | We have a unique direct selling | | | --- | --- | --- | --- | --- | --- | | (2020: 5%) | | responsibly at our manufacturing | | model encompassing local sales, | | | | | sites around the globe, running | | | technical resource and | | | | flexible operations that have a | | warehousing, selling ingredients to | | | | | lower capital intensity than most | | around 17,000 customers ranging | | | | | | chemical sector peers. | from multinational companies to | | | | Suppliers | | | regional and independent brands. | | | Suppliers | Most of Croda’s organic raw materials are | | | | | | representing | bio-based (originating primarily from palm | | | | | derivatives, corn, castor, rapeseed, coconut and ## 65% sunflower oils), enabling us to provide alternatives of our spend have to fossil-based ingredients. Using natural Priority SDGs been evaluated for resources brings with it responsibility to ensure their responsible there are no negative societal or environmental practices impacts as well as ensuring security of supply. We (2020: 50%) partner with suppliers to improve sustainability practices in supply chains and commit to sharing the benefits equitably. Croda International Plc ## 16 Annual Report and Accounts 2021 • Strong sense of Purpose • Flexible, capital-light operations ## Why • Agile, decentralised operating model; ‘One Croda’ culture • Direct-to-customer selling model rather than • High proportion of renewable raw materials using distributors ## we are • Long-standing leadership and investment in sustainability • Broad customer base, large and small • Long-term sustainability strategy in place • Compete on value rather than price ### Strategic report ## different • Focused on high-value niches • Global footprint with local sales, R&D and warehousing • Collaborative, open innovation model • Top returning FTSE 350 company over the last 20 years ## 3 ## Who we create value for See Stakeholder engagement P18 SocietyCommunitiesEmployees | We have 6,135 (2020: 5,684) employees globally, | Our employees donated 2,750 hours (2020: 2,559 | We use our smart science to | | --- | --- | --- | | all of whom received a Living Wage in 2021. We | hours) via our 1% Club, volunteering in their local | improve the lives of people all around | | increased the proportion of women in leadership roles to | communities and delivering tailored support in | the world (see People Positive | | 36% in 2021, in line with our commitment to achieving full | response to COVID-19. We are providing access | below). In every country in which we | | gender balance in leadership positions. | to our smart science through the Croda Foundation | operate we pay all required taxes | | | which achieved charitable status and began | and have a fair taxation policy. | funding programmes to improve more lives. ### Customers Consumers Shareholders | Customer demand | Consumer requirements | | | --- | --- | --- | | Our customers seek innovative and sustainable | Climate change, biodiversity loss, widening | Croda is the top-returning | | ingredients to differentiate their products and | inequality, changing demographics, and innovations | FTSE 350 company over the | | meet changing consumer requirements. | in digital technologies are transforming consumer | last 20 years. We delivered a | | | demands. See our Market themes on page 14. | record financial performance | in 2021 and made significant progress on our non-financial performance as we execute ## ~6,000 ~17,000 +100% our sustainability strategy. speciality ingredients customers worldwide increase in sustainable products launches since 2019 ## 24% effective annual return over Customer product Consumer benefit 20 years Customers use our ingredients at low inclusion levels in Through our customers’ products, our their products to deliver vital functionality, while helping ingredients improve consumers’ lives by to meet their sustainability commitments, regulatory addressing their needs in sustainable ways. requirements, and consumer needs. Delivering our Commitment Climate Positive Land Positive People Positive We are reducing our emissions in line with our verified We are already land net zero with our Our ingredients improve health and wellbeing, for Science Based Target, aligned with limiting global warming crop and seed technologies saving more example in 2021 protecting 55 million people from to the 1.5˚C scenario. The majority of our raw materials are land than is used to grow our bio-based skin cancer, and contributing to vaccine renewable rather than petrochemical-based, delivering raw materials. development projects targeting 15of the WHO’s product carbon footprint reductions to our customers. 24 priority diseases. Croda International Plc ## Annual Report and Accounts 2021 17 ### Stakeholder engagement ## Our stakeholder ecosystem ## We continue to benefit from working closely with our stakeholders. ## The strength of our relationships helps drive our success and our ## positive impact on the world around us. Section 172(1) statement The Board of Directors confirms that during the year under review, it has acted to promote the long-term success of the Company for the benefit of shareholders, whilst having due regard to the matters set out in section 172(1)(a) to (f) of the Companies Act 2006, being: a. the likely consequences of any decision in the long-term; b. the interests of the Company’s employees; c. the need to foster the Company’s business relationships with suppliers, customers and others; d. the impact of the Company’s operations on the community and the environment; e. the desirability of the Company maintaining a reputation for high standards of business conduct; and f. the need to act fairly between members of the Company. The information on pages 16 to 19 in the Strategic report should be read in conjunction with the information provided in the Corporate governance report on pages 68 to 71. The content on these pages constitutes our s.172 statement, as required under the Companies (Miscellaneous Reporting) Regulations 2018. See how the Board engage with our stakeholders P68 ## Engaging with our stakeholders ### Our Our innovation Our Our ### people partners suppliers customers | We employ over 6,000 people | We engage with universities, | Suppliers play a critical role in | With customers ranging from | | --- | --- | --- | --- | | across 105 locations in 39 | SMEs, research institutes and | ensuring we can deliver | large multi-nationals to regional | | countries around the world. We | our customers through our work | innovative ingredients to | and independent brands, we | | engage with them through pulse | with them on R&D projects. We | customers. With the appointment | engage with them via our direct | | surveys and listening groups as | added another 48 partners to | of a Head of Sustainable | selling model and at local | | well as regular team meetings. | our open innovation network in | Sourcing we are engaging with | innovation centres around the | | In 2021 we implemented an | 2021 and ran more than 100 | suppliers so they understand our | world. In 2021 we enhanced this | | eight-point plan to support the | active projects during the year. | expectations and align their | engagement with personalised | | wellbeing of our employees. | Our R&D advances are | practices with our values and | digital communications, and | | With the strategic review of our | increasingly driven by innovation | standards. We have also | listened more closely to the | | industrial businesses also | partnerships and a growing | partnered with EcoVadis as our | voice of the customer through a | | underway, a key priority has | focus of these partnerships is | framework for sustainability | comprehensive global survey. | | been communicating openly | biotechnology, with access to | monitoring. As most of our | This engagement develops | | with our employees, recognising | external facilities and specialist | carbon emissions are associated | unique customer intimacy and | | that the engagement and | expertise complementing | with our supply chain, we | enables us to gain significant | | wellbeing of all employees is a | continued investment internally. | conducted lifecycle assessments | insight into customer challenges, | | cornerstone of our success. | | for more than three quarters of | helping to drive our innovation | | | | our raw materials, significantly | pipeline. | enhancing our understanding of our scope 3 carbon emissions. Voice of the customer Wellbeing activities Innovation partners Suppliers representing programme | >100 | 579 | 65% | 3,000 | | --- | --- | --- | --- | | wellbeing activities were held in | partners complement internal R&D | of spend have been assessed by | customer responses across | | 2021 | investments | EcoVadis for responsible practices | 49 countries | | See Delivering value through | See Identifying unmet needs | Read more on our supplier | See ’Customer insights’ | | --- | --- | --- | --- | | our culture | P4 | partnerships in our 2021 | case study in our 2021 | | P36 | | Sustainability Report | Sustainability Report | | | | P41 | P39 | Croda International Plc ## 18 Annual Report and Accounts 2021 ### Strategic report ## Investor engagement on sustainability Over 8% of Croda’s shares are owned by Legal & General Investment Management (LGIM) specialist ESG investors compared with an who actively participated in the event. average of 2% for the chemicals sector, LGIM provided an overview of their investment reflecting our leadership position on process which includes an assessment of sustainability. companies based on their purpose and impact We are pleased that the growth in ESG investors using the UN SDGs as the framework, so is well has been accompanied by increased two-way aligned with Croda’s approach. They outlined engagement with shareholders as they look to their requirements from companies and specific understand broader non-financial aspects of strengths and areas of improvement for Croda. our business. Matthew Courtnell (pictured right) of Legal & In November, the Executive Committee General Investment Management, said: “As supported by our Plc Board undertook a investors we are keen to support and encourage detailed annual review of our sustainability companies on the ESG journey and are always strategy. The review was also supported by open to engagement on all areas of the business.” ### Non-governmental Our communities Our shareholdersRegulators and ### tradeassociations organisations (NGOs) | We engage and share expertise | NGOs perform a valuable | Engaging with our local | We maintain open dialogue | | --- | --- | --- | --- | | with regulators and trade | function, engaging with | communities to maintain positive | with shareholders as the | | associations, contributing best | businesses to encourage them | relationships and acting | owners of our Company and | | practice, helping set minimum | to take responsibility for their | responsibly, safely and | main source of long-term | | industry standards, and ensuring | impacts and guiding effective | sustainably are critical to our | funding. Digital communication | | our own compliance. During | disclosure. We value the insight | success. Our employees are | is facilitating more regular | | 2021 we participated in COP26 | we gain from our engagement | active members of their | investor engagement with | | and contributed to due diligence | with NGOs which helps us | communities. During 2021, our | meetings conducted with over | | for impending legislation. | maximise our positive impact | communities benefitted from our | 500 investors in 2021. We are | | We also joined Together | and drive the industry towards | long-standing volunteering | also engaging with | | for Sustainability, a chemical | more sustainable practices. | programme, educational | shareholders on a broader | | industry collaboration, through | During 2021 we supported a | outreach and tailored support in | range of non-financial topics. | | which we are working to set | resolution proposed by WWF | response to COVID-19. In | In 2021 we hosted a virtual | | industry-wide standards for data | and other members of Action | addition, the Croda Foundation | event to launch our | | sharing to promote supply chain | for Sustainable Derivatives to | received Charity Commission | Sustainability Report, helping | | transparency. | enhance the robustness of the | approval enabling it to | investors understand our | | | sustainable palm oil supply | commence supporting projects | non-financial performance. | | | chain that was successfully | aligned with the UN SDGs. | | endorsed by RSPO, the global standards body. Number of members of Manufacturing sites Number of investors Together for Sustainability processing Croda Foundation met in 2021 | 33 | 99% | 6 | >500 | | --- | --- | --- | --- | | members working together | of our palm oil derivatives are | initial projects supported through | across virtual and physical | | to promote supply chain | RSPO supply chain certified | £3m of funding | meetings | transparency | See Driving growth through an | See Strategy in action | Read more on our community | See Investor engagement | | --- | --- | --- | --- | | embedded strategy | P32 | engagement in our 2021 | P71 | | P34 | | Sustainability Report | | P33 Croda International Plc ## Annual Report and Accounts 2021 19 ### Our strategy ## Sustainability + Innovation = Growth ## Over the last 18 months we have accelerated key elements of ## our strategy to progress our transition to a dedicated Consumer Care ## and Life Sciences company. Across these markets, sustainability together with ## innovation will drive our future growth. We are focused on implementation, ## working in partnership with our customers and suppliers, to deliver on our TM ## Purpose of using Smart science to improve lives . | Group strategic objective | KPIs Risks | | | | --- | --- | --- | --- | | | | See Key Performance Indicators | See Risk management | | | | P44 | P53-55 | • Total Recordable Injury Rate • Delivering sustainable solutions ## Sustainability | | | • Absolute scope 1 and 2 emissions | • Product quality | | --- | --- | --- | --- | | | Aligning our business | and intensity | • Loss of significant manufacturing site | | TM | | • Land area saved | | | | with ourPurpose and | | • Ethics and compliance | | | accelerating our | • Health and wellbeing | | • Climate, Land and People Positive ### customers’ transition to KPIs are used for executive ### sustainable ingredients. remuneration (see page 88) • NPP as % of Group sales • Product and technology ## Innovation | | • An NPP metric is used for | innovation and protection | | --- | --- | --- | | The lifeblood of our | executive remuneration (see | • Digital technology innovation | | | page 88) | • Our people — culture, wellbeing, | ### business, we seek to talent development and retention ### increase the proportion ### of NPP (NewandProtected ### Products) that wesell. • Sales growth (%) • Revenue generation ## Growth • Return on sales (%) • Management of business change ### Consistent top and • Adjusted basic earnings per • Our people — culture, wellbeing, ### bottom-line growth, with share (EPS) talent development and retention ### Our Purpose guides the strategic choices we make ### profit growing ahead of • Operating profit, earnings per ## Smart science to improve lives share growth as well as relative ### sales, aheadof volume. Total Shareholder Return are metrics used for executive remuneration (see page 88) Croda International Plc ## 20 Annual Report and Accounts 2021 ## Investing in natural fragrances In June 2021 we built on the foundation that Iberchem The new R&D centre will provide more than 2,000 has provided in the fragrances and flavours market with square metres of laboratory and office space. the acquisition of Parfex, a fine fragrance business Sustainability and the customer experience were at the ### Strategic report based in Grasse in the South of France. Grasse has heart of the design of the new centre. The centre been the centre of the world’s perfume industry since incorporates a ‘green’ roof with fragrance vegetation th the 18 century. It is blessed with abundant natural and the space has been designed to enable fragrance sources, producing two thirds of the natural collaboration with our customers, perfumers and R&D raw materials used by the French perfume industry. specialists. This investment in natural fragrances for premium personal care and fine perfumery is a potential Parfex employs a dedicated team of perfumers working differentiator in the fragrance markets. on natural fragrances and has recently launched a new renewable range. We are creating a new R&D facility Alexandre Levet, Sales Director at Parfex, said: “The which will become the creation centre for natural, launch of our new renewable range of fragrances has sustainable, biodegradable and fine fragrances been well received by customers and the new, within Croda. cutting-edge R&D facility will spur the creation of new natural fragrances and sustainable products.” ### 2021 progress and ongoing priorities ### Croda Consumer Care Life Sciences | | See Chief Executive’s review | | See Sector review: Consumer Care | | See Sector review: Life Sciences | | --- | --- | --- | --- | --- | --- | | | P10 | | P24 | | P26 | | We are committed to being the world’s | | We are Strengthening to Grow Consumer | | We are Expanding to Grow Life Sciences | | | most sustainable supplier of innovative | | Care to deliver mid-single digit percentage | | to deliver high single digit percentage | | | ingredients. | | sales growth at strong margins. | | sales growth with a return on sales similar | | to current levels. | • 1.5°C Science Based Target verified | • Established Consumer Care as a new | • Meeting the sustainability challenges of | | --- | --- | --- | | • Implementing decarbonisation roadmaps | sustainability solutions provider in | Crop Care customers with low carbon, | | for our sites; quantified capex required | premium markets | bio-based and biodegradable delivery | | | • Acquired Alban Muller to accelerate our | systems | • Completed periodic reassessment of our material issues and climate related risks transition to more natural raw materials • More than doubled number of World and opportunities • Selling our ECO range of bio-based Health Organisation (WHO) vaccine products to replace petrochemical- projects we are working on, to support • Croda Foundation established to based surfactants in Home and vaccines for 15 of the WHO’s 24 permanently improve more lives Personal Care products priority diseases | • Enhancing our own innovation centres and | • Embracing biotechnology, as well as | • Developing next generation sustainable crop | | --- | --- | --- | | network of open innovation partners | chemistry, to develop more sustainable | care delivery systems based on biologics | | • Established new centre for biotechnology | ingredients | • Working on over 150 COVID-19 applications | | process design and optimisation | • Strengthened our Plant Cell Culture | • Secured 130 new customers and 250 new | | • Investing in digital across all areas of our | capability in Beauty Actives | programmes, two thirds for non-COVID | | business model including AI and data | • Becoming more knowledge-intensive; | applications | | mining for knowledge management | 44% NPP as % total sales (2020: 38%) | • Becoming more knowledge-intensive; | 48% NPP as % total sales (2020: 27%) | • Agreed divestment of the majority of our | • Built our presence in the fragrances and | • Realised significant benefits from Avanti | | --- | --- | --- | | industrials business | flavours market following the Iberchem | acquisition | | • Increasing our sales, innovation and | acquisition in 2020; synergy and | • Building a drug delivery business of | | select manufacturing capabilities in | integration plans on track | global scale to unlock future | | North Asia | • Acquired Parfex, leader in fine and | opportunities in mRNA and gene | | | natural fragrances | therapy applications | | | • Expanded our French-based botanical | • Doubled capacity in three key patient | | | ingredients in China | health care technologies | | 2022 strategic priorities | 2022 strategic priorities | 2022 strategic priorities | | --- | --- | --- | | • Further proactive M&A | • Expand full formulation service in | • Expand range of applications for patient | | • Deliver fast growth in China | premium markets | health technologies | | • Scale biotechnology | • Invest to build on strong sales in China | • Continue to scale-up operations | | • Do the basics brilliantly | • Deliver planned Iberchem revenue synergies | • Invest in resource in higher growth regions | | | • Grow sales of ECO to personal and home | • Accelerate development of biopesticide | | | care customers | delivery systems | Croda International Plc ## Annual Report and Accounts 2021 21 Investment case # A unique proposition with exciting growth potential ## 1. Focused on high growth niches - Progressing our transition to a pure-play Consumer Care and Life Sciences company - Improved organic sales growth - Sector leading margins Underlying sales growth versus 2019 (excluding lipid systems) (%) ![img-2.jpeg](img-2.jpeg) Sector-leading return on sales (%) ![img-3.jpeg](img-3.jpeg) See Chief Executive's review P10 Consumer Care sector peers are Chr. Hansen, DSM, Givaudan, IFF and Symrise. Life Sciences sector peers are Kerry, Lonza, Novozymes, WestPharma and Zoetis. * Average competitor EBIT margins are adjusted operating profit (before interest and tax) divided by sales, as reported by the company. Numbers are based on full year 2021 reported results. ## 2. A highly differentiated approach - Unrivalled customer intimacy through direct-to-customer selling model - Dynamic innovation engine with increasing sales from New and Protected Products - A sustainability leader enabling customers to meet consumer and regulatory requirements Increasing proportion of sales from NPP ![img-4.jpeg](img-4.jpeg) Recognised for sustainability leadership ![img-5.jpeg](img-5.jpeg) See Business model P10 22 Croda International Plc Annual Report and Accounts 2021 ## Jez Maiden, Group Finance Director: Croda is a unique business. Our Purpose-led culture, direct selling model, sustainability leadership and collaborative approach to innovation all differentiate us from our peers. This has ### helped drive excellent returns with Croda delivering top quartile shareholder returns over 5, 10 Strategic report and 20-year time horizons. The agreement to sell the majority of our industrials businesses progresses our transition to a pure-play Consumer Care and Life Sciences company with leading positions in high growth niches. In line with our capital allocation policy, we will focus our resources on delivering sustainable solutions and scaling our consumer, crop and health care technologies. This will lead to consistent sales growth at even stronger profit margins, and higher returns for our shareholders. ## 3. Compelling financial characteristics Capital allocation policy • Strong balance sheet • Capital light and highly cash generative operations • Clear capital allocation policy prioritising investment in sustainability and innovation for growth | 1 | 2 | 3 | 4 | | --- | --- | --- | --- | | Reinvest for organic | Provide regular | Acquire | Maintain appropriate | | growth – 1.5x | returns to | complementary | balance sheet / | | depreciation | shareholders – | and adjacent | return excess capital | | | 40-50% of adjusted | technologies | – 1-2x leverage | | | EPS | | target | See Finance review P46 ## 4. Delivering consistent shareholder returns • High returns on capital – 2-3x cost of capital • 30-year track record of dividend progression • Top quartile TSR performance over 5, 10 and 20-year time horizons Croda TSR Croda share price FTSE 350 TSR 20,000 18,000 16,000 14,000 12,000 10,000 Top returning FTSE 350 company 2001-2021 (Total Shareholder Return) 8,000 6,000 4,000 2,000 0 2001 2002 2003 2004 2005 20072006 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Note: Chart covers 31 December 2001 to 31 December 2021. * Rebased to Croda’s initial share price of 241p at 31 December 2001. Shareholder return* Croda International Plc ## Annual Report and Accounts 2021 23 2021 Market sectors ### Sector review Beauty Actives Beauty Care F&F Home Care ## Consumer Care ### Sector strategy ## Building a stronger ## Consumer Care Strengthening to Grow David Shannon ### Consumer Care President Consumer Care Sustainability • Established Consumer Care as a new sustainability solutions provider in premium markets • Acquired Alban Muller to accelerate our transition to more natural raw materials • Selling our ECO range of bio-based products to replace petrochemical-based 2021 was a year of significant growth, portfolio and formulation expertise that surfactants in Home and Personal Care even compared with pre-pandemic trading, accelerates customers’ speed to market. products particularly at the premium end of the market We are leveraging this business model Innovation which will continue to grow as a proportion by providing total solutions tailored to of our sales. local needs. • Embracing biotechnology, as well as chemistry, to develop more sustainable This year we’ve added higher growth We are also leveraging our leadership ingredients businesses to the Consumer Care portfolio. position in sustainability, built on our heritage • Strengthened our Plant Cell Culture The Home Care business has an impressive of using renewable raw materials and capability in Beauty Actives | growth profile based on sustainable | significant investment over more than a | | | --- | --- | --- | | technology platforms. Iberchem, our | decade. This sustainability leadership is | • Becoming more knowledge-intensive; | | Fragrances and Flavours (F&F) business | now bringing clear commercial benefits. | 44% NPP as % total sales (2020: 38%) | | acquired in November 2020, also has an | | Growth | In addition, our ingredients deliver proven admirable track record of growth augmented efficacy underpinned by science and • Built our presence in the fragrances and by revenue synergies made possible by innovation. We will deliver higher and more flavours market following the Iberchem our ownership. | | consistent growth as the leading sustainable | acquisition in 2020; synergy and integration | | --- | --- | --- | | Within F&F and across Croda we are well | and science-driven solution provider | plans on track | | placed to meet the requirements of regional | in consumer care markets. | • Acquired Parfex, leader in fine and natural | | and independent customers, due to a broad | | fragrances | • Expanded our French-based botanical See Our strategy ingredients in China P20 | Consumer Care comprises Croda’s leading | Consumer Care delivered an excellent sales | | --- | --- | | global position in Personal Care, F&F and | performance, up 45% in reported terms to | | Home Care. After a challenging period for the | £763.0m (2020: £527.8m). Underlying sales | ### Sales top-line in 2019 and a COVID-impacted 2020, were 18% higher, supplemented by 35% the Personal Care business returned to good growth from acquisitions and partly offset by ## £763.0m | | sales growth in 2021, delivered with a strong | adverse currency translation of 8%. Within | | --- | --- | --- | | (2020: £527.8m) | margin. This was led by our innovative, high | underlying growth, price/mix was 13% higher, | | | value Beauty Actives business, supported by a | reflecting growth in higher value products and | | | resurgence in consumer demand in the heritage | recovery of raw material price increases, with | | | Beauty Care division, with total Personal Care | volume 5% higher. | underlying sales 15% above 2019’s pre- IFRS operating profit increased by 26% to pandemic level and return on sales of 30%. £168.0m (2020: £133.0m). Adjusted operating ### Adjusted Alongside Personal Care, the Home Care profit increased by 29% to £188.5m ### operating profit business saw excellent demand for its (2020: £146.5m). Return on sales declined to innovative fabric care ingredients. Iberchem 24.7% (2020: 27.8%), reflecting the dilution has proven to be an excellent acquisition, with ## £188.5m impact from F&F, which operates at structurally innovation at the heart of its business, offering lower margins than Personal Care. (2020: £146.5m) customers in personal and household care applications on-trend fragrances, particularly for emerging markets. Croda International Plc ## 24 Annual Report and Accounts 2021 ## Doubling the lifetime of clothes The garment industry is responsible for 3% of global carbon Yong Chuan Lew (pictured), Global Business Director for Home Care emissions. What’s more, over half the clothes we wear end up in at Croda, said: “Croda continues to lead sustainable innovation landfill. Extending fabric life can therefore deliver significant benefits through our novel protein technology, delivering unique solutions to Strategic report for the planet. help our clients to achieve their sustainability goals and meet consumer demands. At the same time we are making a positive Croda has developed a range of fabric care proteins that replace contribution to the environment, demonstrating our Purpose of using silicones and double the lifetime of clothes. Our ingredients protect TM Smart science to improve lives .” individual fibres helping our customers meet consumer demand for renewable ingredients, sensory benefits and ‘care for clothes’. These proteins were critical to Unilever’s relaunch of their Comfort fabric conditioner. We are backing this technology with £30m of investment and expect sales of tens of millions pounds a year. Most importantly, our fabric care technology is reducing the impact of this industry on the environment through lower carbon emissions, reduced water use and a significant reduction in clothes disposed in landfill. | 2021 business performance | Strengthen to grow in Consumer Care | successful French botanical ingredients to | | --- | --- | --- | | After recovering in the second half of 2020 from | Consumer Care is focused on high value niches | China, where consumers have a long-standing | | the impacts of the first COVID-19 global | in faster growing markets, where sustainability | preference for plant-based beauty products. | | lockdown, demand from Personal Care | and innovation are key differentiators. NPP as a | We will continue to invest in China, building on | | customers strengthened during the first half | percentage of sales grew to 44% (2020: 38%). | excellent sales in 2021, enabled by investment | | year, particularly in luxury and premium | Our strategy is to Strengthen to Grow | in sales, innovation and leveraging tighter | | markets. This was driven by resurgent | Consumer Care to deliver mid-single digit | regulation of active ingredient claims. | | consumer demand, which continued through | percentage growth (before raw material cost | Growth in Beauty Care is being driven by | | the balance of the year. Customers also | recovery) at strong margins. We are achieving | sustainability, with technologies such as | | increased their short-term stockholding. This | this by embracing biotechnology, in addition to | vegan-friendly hair care ingredients and | | growth benefitted our Beauty Actives business, | chemistry, to develop more sustainable | bio-based surfactants displacing petrochemical | | the leading innovator in the global skin care | ingredients, by leveraging our world class | alternatives from competitors. We are | | market. Beauty Care also saw good growth in | reputation for formulation expertise to become | developing the highly differentiated parts of the | | its ingredients for sun care, cosmetics and hair | a full solution provider in premium markets, and | portfolio, such as our inorganic UV filters for | | care markets, alongside continued demand for | by expanding our presence in key technology | sun protection. We have invested in additional | | ‘at home’ use products. Innovation is focused | adjacencies and in high growth regions, | capacity to deliver sulfate-free surfactants to | | on natural ingredients and biotechnology to | particularly Asia. | meet consumer demand for ‘clean beauty’ | | meet growing consumer demand, with Beauty | | products. | Organic investment in Consumer Care is TM Actives launching Ameyezing , a focused on expanding sustainable In F&F, we are targeting to continue delivering biodegradable product with its origins in wild technologies, such as mild surfactants and faster growth from emerging market exposure, ginger that improves the appearance of dark innovative proteins for clothes care, to meet supplemented by significant integration eye circles. Beauty Care and Home Care accelerating customer demand. The sector is synergies and servicing the needs of smaller leveraged sustainability through the bio-based benefitting from investment in biotechnology customers with a one-stop-shop approach, ECO surfactants plant in the US, which enables and decarbonisation, both of which help reduce combining Croda’s critical ingredients with delivery of sustainable ingredients that deliver ‘scope 3’ carbon emissions in our customers’ Iberchem’s on-trend fragrances. We will identical performance to petrochemical peers. | | supply chains. We supplemented organic | continue to invest in Fragrances, with a new | | --- | --- | --- | | Iberchem and Parfex have proven to be | investment with the acquisition of two | creation centre for fine perfumery and natural | | excellent acquisitions. The integration of | businesses which accelerate our transition to | fragrances at Parfex in France, by using | | Iberchem, which has more than 80% of sales in | more natural raw materials, an important | bio-based solvents in production processes | | emerging markets, is on track to deliver nearly | differentiator in consumer markets. In March, | and through an R&D programme to develop | | €50m of annualised revenue synergies by | we acquired natural actives specialist Alban | next generation fragrances through | | 2025, principally through leveraging the | Muller for €25m, expanding our portfolio of | biotechnology. | | combined global sales network. Integration has | natural ingredients in our global leading Beauty | | We are unlocking the growth potential of our focused on realising these revenue synergies Actives business. In June, we completed the Home Care business in fabric care and hygiene and helping to transition raw materials onto a acquisition of Parfex for €45m. This acquisition applications, with technologies that are highly more sustainable basis. Ten target countries increases Iberchem’s sustainable fragrance differentiated by their sustainability credentials. have been identified for revenue synergies, offerings and reinforces Iberchem’s superior The business delivered a 50% increase in sales including the United States and countries in growth profile with greater access to fine of ECO surfactants to Home Care customers. Asia, leveraging Croda’s sales team presence. fragrances. We also commissioned additional capacity to In Brazil, a new Iberchem business and R&D The four Consumer Care businesses each have deliver Coltide Radiance to a multinational laboratory have been established at the Croda a clear growth strategy. Beauty Actives is the customer for the relaunch of its fabric site. Iberchem has launched new product lines leader in premium skin active markets, conditioner brand, together with protein that are Ecocert-accredited as environmentally developing critical ingredients based on its technologies to other customers to extend the friendly and socially conscious, as well as expertise in peptides, botanicals and life of clothes. biodegradable. Overall F&F sales grew double biotechnology. We have introduced our digit percentage, despite the impacts of COVID being more pronounced in emerging markets, with their lower vaccination protection rates. Croda International Plc ## Annual Report and Accounts 2021 25 Market sectors ### Sector review Patient Health Consumer & Veterinary Health Crop Protection Seed Enhancement ## Life Sciences ### Sector strategy ## Rapid expansion in ## Life Sciences Expand to Grow Life Daniele Piergentili ### Sciences President Life Sciences Sustainability • Meeting the sustainability challenges of Crop Care customers with low carbon, bio-based and biodegradable delivery systems • More than doubled number of World Health Organisation (WHO) vaccine projects we are working on, to support vaccines for 15 of the WHO’s 24 priority diseases Innovation The Life Sciences team had a successful platforms with an improved biodegradability • Developing next generation sustainable crop year, in which we have truly lived Croda’s and carbon footprint – a clear commitment care delivery systems based on biologics | Purpose to use Smart science to improve | | to our partners’ sustainability roadmaps. An | | | --- | --- | --- | --- | | | TM | | • Working on over 150 COVID-19 applications | | lives | and, at the same time, captured value | example is our microplastic-free range of | | • Secured 130 new customers and 250 new in the fast-growing markets we supported. seed coatings which have seen uptake programmes, two thirds for non-COVID across both field crop and vegetable In Health Care, we have strengthened our applications applications this year. capabilities in drug delivery technologies. Our • Becoming more knowledge-intensive; role in the fast development and supply of The move we are making in Health Care from 48% NPP as % total sales (2020: 27%) lipid systems for the mRNA vaccines is an ingredients for consumer applications to example of our innovation and flexibility in delivery systems for biologics, and the Growth action. We also stepped up our research into commitment in Crop Care to develop delivery • Realised significant benefits from Avanti novel vaccine adjuvants, and continue to systems with a drastically improved acquisition work closely with our partners to target next sustainability profile are at the core of our • Building a drug delivery business of global generation vaccines, many for target desire to be ‘future ready’. scale to unlock future opportunities in mRNA diseases which do not have effective and gene therapy applications immunisation programmes today. • Doubled capacity in three key patient health In Crop Care, the majority of our investment care technologies See Our strategy has been focused on building technology P20 | | Life Sciences delivered significant sales, profit | achieving this level of growth and profit | | --- | --- | --- | | | and margin growth in 2021. It is leveraging | improvement in such a short period has placed | | | in-house developed and acquired technologies, | significant demands on the business and, as | | | building scale for the delivery of customers’ | anticipated, the margin level moderated in the | | | drug, vaccine and crop science products. It is | second half of the year as we invested in | | Sales | moving into faster growth, higher value/lower | additional people and brought new capacity on | | | volume niches. The highest growth in 2021 was | stream to future-proof this growth, in addition | | | seen in Health Care, with reported sales up 80% | to a mix impact from increased Crop Protection | ## £572.3m year-on-year, driven by our focus on patient sales in the period. (2020: £392.5m) health platforms. Crop Protection delivered 2021 business performance double digit percentage growth, reflecting strong Health Care benefitted from the first full year of demand from crop science customers. By ownership of Avanti. This has exceeded contrast, the overall performance of Seed expectations since its acquisition in August Enhancement was subdued. 2020 with its sales more than doubling over its Sales grew 46% in reported terms to £572.3m full year 2020 performance. It has grown sales ### Adjusted (2020: £392.5m). Underlying sales were over for clinical research delivery systems with its ### operating profit 40% higher, supplemented by over 13% pharmaceutical R&D customer base. In | | growth from acquisition and partly offset by | addition, its in-house production of lipid | | --- | --- | --- | | £208.5m | adverse currency translation of 8%. Within | systems components for COVID-19 vaccine | | | underlying growth, price/mix was 35% higher, | applications has been supported by sales from | (2020: £124.5m) | reflecting growth in higher value products, with | Croda’s UK lipid facility, which worked with | | --- | --- | | volume 5% higher. | Avanti in 2020 to support the world’s first | | IFRS operating profit increased by 79% to | COVID vaccines. Croda’s total lipid systems | | £201.0m (2020: £112.3m). Adjusted operating | sales in 2021 were approximately US$200m, | | profit increased by 67% to £208.5m | primarily to our principal vaccine customers, | | (2020: £124.5m). Return on sales increased to | accompanied by a rapidly building future sales | | 36.4% (2020: 31.7%). As noted at the half year, | pipeline of other nucleic acid applications. | Croda International Plc ## 26 Annual Report and Accounts 2021 ### Strategic report Health Care’s established patient health care we have committed a similar amount in further platforms in speciality excipients and vaccine investment in these platforms. Whilst we are ## Supporting WHO | adjuvants also enjoyed strong growth in 2021, | currently serving strong demand for emergency | | | --- | --- | --- | | with underlying sales up over 40%. Alongside | COVID-19 applications, this new capacity will | priority vaccine | | COVID-driven demand for therapeutic drugs | increasingly unlock future opportunities in new | | | and vaccines, this reflected strong demand for | mRNA and gene editing applications. | development | speciality excipients in biologic drugs, and for Across our three patient health technologies, ## aroundthe world adjuvants for new vaccines and global we secured 130 new customers and 250 new expansion of existing protection, particularly in programmes, two thirds of which were for the developing world. As part of our People Positive strategy, we non-COVID applications. We started working on are committed to using our smart science Within Crop Care, Crop Protection delivered 90 new COVID-19 projects, bringing the total to to promote healthy lives. By the end of robust sales growth as a result of strong more than 150 in over 30 countries. 160 new 2024, we want our technology to be part demand, inflation recovery and continued non-COVID programmes included delivery of of 10 phase three clinical trials across at diversification of its customer base. Seed speciality excipients for oncology and least a quarter of the priority pipeline Enhancement delivered a good performance in immunosuppressant applications, support to the vaccines listed by the World Health Latin America driven by continued good sales development of HIV and Ebola vaccines Organisation. growth for field crops, but demand was prioritised by the World Health Organisation, and constrained for vegetables. the development of lipid systems for new mRNA vaccines such as influenza. We expect to see an Expand to grow in Life Sciences ongoing expansion in the range of lipid systems We have established Life Sciences as a high for vaccines and therapeutic drugs, moving to a value solution provider to pharmaceutical and broader portfolio of customers and applications crop customers. Our strategy is to Expand to in the medium term. Grow Life Sciences to deliver high single digit | percentage organic sales growth with a return | In Consumer and Veterinary Health, we are | | --- | --- | | on sales well above 30%. We are deploying | continuing to grow in oral care, topical | | more capital into Life Sciences to develop | application and animal health solutions. | | sustainable solutions in our crop care | Our Crop Protection business is expanding its | | businesses and to build a broad-based drug | leading position in formulation ingredients to | | delivery business of global scale. We are also | provide sustainable delivery systems for our | We are currently working on more than 150 strengthening innovation, through technology crop customers. It is established as a key COVID-19 projects in over 30 countries, acquisition and organic development. In 2021, innovation partner to the major crop science the majority of which utilise our vaccine NPP as a percentage of Life Sciences sales companies and is increasing sales to medium- adjuvant technologies acquired with was 48% (2020: 27%), driven by the Avanti sized and smaller customers who now account Biosector in 2018, as well as our expertise acquisition and the growing proportion of sales for more than 50% of revenue. Crop Protection in speciality excipients and lipid systems. from higher value add technologies. already provides low carbon, bio-based and We worked with countries around the world Within Life Sciences, the four businesses – biodegradable delivery systems, and is to support their vaccination programmes as Patient Health, Consumer and Veterinary developing systems for next generation vaccine development and production Health, Crop Protection, and Seed biopesticides and biostimulants that use globalised. For example, our team in Enhancement – each have a clear growth microbials and RNA. Similarly, sustainability Indonesia worked with authorities to strategy. Patient Health offers the most trends are driving Seed Enhancement, where fast-track import of Croda ingredients as significant global opportunity for growth, much we have secured our first commercial well as providing technical support to of which can be delivered through organic customers for seed coatings that are free from produce vaccines locally in response to investment. We are leveraging our unique micro-plastics. It is also developing seed escalating cases. purification and synthesis know-how by enhancement technologies that stimulate Laura Ciccardi, Sales Manager in Health investing in people resource, R&D and plant growth. Care at Croda, said: “We are incredibly operational scale up to become a leader in proud to be supporting the development biopharma drug delivery across nucleic acids, of sovereign vaccine programmes around proteins and vaccine adjuvancy. This builds on the world, helping to improve the supply our significant progress to date, including and accessibility of COVID-19 treatments meaningful sales of novel technologies, such as in both developed and developing non-aluminium vaccine adjuvants and lipids for nations.” non-COVID-19 nucleic acid applications. Looking beyond COVID-19 we are In 2021, we invested over £70m to scale up investing in next generation adjuvant manufacturing capacity for our three patient technologies to become more involved health care platforms, reinforcing our leading with the fight against 24 other WHO-listed positions in drug and vaccine delivery systems. diseases such as malaria, HIV and Through recent investment, we have doubled tuberculosis. We are also increasing the our capacity for vaccine adjuvants at our GMP collaboration across our patient health facility in Denmark, for speciality excipients at portfolio, recognising the benefits of Avanti our US site and for lipid systems capacity in the and Biosector working together. Avanti, US and Croda, UK facilities. In addition, Croda International Plc ## Annual Report and Accounts 2021 27 Market sectors ### Sector review Smart Materials Energy Technologies ## Performance Technologies Sales grew by 18% in reported terms to Materials continued to benefit from good sales ## Performance | | £439.5m (2020: £373.6m). Underlying sales | for packaging, circular plastic and other | | --- | --- | --- | | Technologies continued | were 24% higher, partly offset by adverse | polymer applications, delivering a 22% increase | | | currency translation of 6%. Within underlying | in underlying sales over 2020 and well ahead of | ## to strengthen during | | growth, price/mix was 11% higher, reflecting | pre-pandemic levels. The progressive recovery | | --- | --- | --- | | 2021 against a backdrop | recovery of raw material cost increases and | in industrial and automotive markets saw | | | greater contribution from higher value products, | Energy Technologies grow underlying sales by | | of rapid recovery in | with volume 13% higher as sales recovered | 26%, to recover to pre-pandemic levels. Overall | | | post-pandemic. | NPP sales grew in absolute terms and were | ## industrial and technology broadly stable as a proportion of total IFRS operating profit increased by 38% to ## markets. Performance Technologies sales, at 18% £62.7m (2020: £45.3m). Adjusted operating (2020: 19%). profit increased by 32% to £64.5m (2020: £48.9m). Return on sales increased to Performance Technologies continued to 14.7% (2020: 13.1%). Second half margin strengthen throughout 2021. Sales growth performance was notably stronger than prior reflected increased demand across automotive, ### year, reflecting the benefit of operating leverage Sales packaging and industrial end markets. Margin and growth in higher value-add niche markets. also improved through improved product mix ## Against the backdrop of a rapid recovery in £439.5m and the benefit of increased volume on operating | leverage within the sector. Smart Materials | industrial and technology markets, as well as | (2020: £373.6m) | | | --- | --- | --- | --- | | delivered strong sales across its broad range of | rising raw material costs, demand grew strongly | | | | | across both businesses, accentuated by | | Adjusted | application markets, including markets which | benefitted during COVID lockdowns, such as | customer inventory build in the first half year. | operating profit | | --- | --- | --- | | packaging. 2021 also saw a rapid recovery in | Croda’s demand outpaced the broader market | | | Energy Technologies markets. Significant raw | recovery, due to greater exposure to higher | £64.5m | | material cost inflation was fully recovered | growth niche markets and next-generation | | (2020: £48.9m) through selling prices. applications, such as electric vehicles. Smart Market sectors ## Industrial Chemicals Industrial Chemicals traditionally been sold by this sector, the ## Industrial Chemicals product portfolio was stable and sales grew ## activities have continued with the upsurge in global industrial demand, ### Sales together with robust pricing management. ## to support the overall Sales grew by 19% in reported terms to ## £114.8m ## efficiency of Croda’s £114.8m (2020: £96.4m). Underlying sales were 25% higher, partly offset by adverse (2020: £96.4m) ## three principal sectors. currency translation of 6%. Within underlying growth, price/mix was 15% higher, reflecting higher commodity prices, with volume 10% Industrial Chemicals has continued to support higher. IFRS operating profit increased to the overall performance of Croda’s three ### £6.5m (2020: £0.6m loss). Adjusted operating Adjusted principal sectors. After a period of lower sales ### profit increased to £7.1m (2020: £0.3m loss). operating profit reflecting re-engineering of a number of Return on sales increased to 6.2% reflecting products and processes to reduce the volume ## the benefit of operating leverage, improved £7.1m of by-products produced, which have then product mix and higher commodity prices. (2020: £-0.3m) Croda International Plc ## 28 Annual Report and Accounts 2021 Strategic report ## Divestment of the majority of Performance Technologies and Industrial Chemicals (PTIC) In December 2021, we agreed to sell the majority of the PTIC businesses to Cargill Inc., for an enterprise value of €915m (approximately £778m). The business to be divested accounted for 77% of PTIC's 2021 reported sales and comprises five manufacturing facilities, together with associated laboratory facilities and sales operations. We are currently working on the process to separate the two businesses with completion expected in summer 2022. The consideration includes the sale of 100% of Croda Sipo in China, a joint venture which Croda currently manages and in which it has a 65% shareholding. If Croda's 100% ownership of Sipo cannot be realised, Sipo will be excluded from the PTIC sale, reducing the consideration by €140m. The overall disposal is subject to customary regulatory approvals but is not subject to shareholder approval. Under Cargill's ownership, the divested business and its talented workforce can look forward to a bright future. With completion of the divestment expected in summer 2022, this transaction had no impact on the Group's reported results for 2021, except for costs incurred reported as an exceptional item. In these 2021 results, PTIC revenue totalled £554m (2020: £470m) and adjusted operating profit was £72m (2020: £49m). Taking account of the value to be retained by Croda under a future supply agreement for products to be manufactured at Croda sites and supplied to the acquirer, together with dis-synergy costs remaining with Croda which were previously allocated to the divested business, the estimated impact of the divestment on Croda's reported 2021 results, had it occurred at the start of 2021, would have been to reduce revenue by £361m (2020: £298m) and adjusted operating profit by £59m (2020: £36m). ![img-6.jpeg](img-6.jpeg) ![img-7.jpeg](img-7.jpeg) ![img-8.jpeg](img-8.jpeg) ## Creation of Industrial Specialities With the agreement to divest the majority of PTIC reached in December 2021, the 23% of PTIC sales which will be retained within Croda will become the new Industrial Specialities sector. It will play a key role supporting Consumer Care and Life Sciences. It will support global site utilisation and profitability as part of Croda's integrated model in those areas of the business which are deeply embedded in Croda's regional operations, technologies and IP. Post-closing of the majority PTIC divestment, Industrial Specialities will also generate revenue and profit from a new long-term supply agreement, whereby Croda will supply certain products from its retained manufacturing sites to the acquirer. Post-closing, the Industrial Specialities sector will focus on supplying ingredients for its existing markets including coatings, emulsion technologies, water treatment and in fibres and fabrics. It will also leverage Croda's retained technology capabilities in markets such as display technologies and electronics, and a smart formulation capability in low-emission coatings. It will continue to manage tolling agreements and co-stream product sales from our sites which arise from Consumer Care and Life Sciences production processes. Croda International Plc Annual Report and Accounts 2021 29 ### Sustainability ## Sustainability strategy – our Commitment ## We are committed to being the most sustainable supplier of innovative ingredients. ## We will create, make and sell solutions to tackle some of the biggest challenges ## the world is facing. By 2030 we will be Climate, Land and People Positive. Our Commitment We also have important KPIs outside of these three categories, which In 2020 we launched our Commitment to be Climate, Land and People we believe are crucial to the success of our business. We have Positive by 2030, externally benchmarking our targets with the support of collectively called these our Fundamentals. We consider these targets to the Cambridge Institute of Sustainability Leadership to ensure our ambitions represent the required social licence to operate in 2030 for a align with expectations of a sustainability leader in our industry. Ours is a multinational company such as Croda. restorative strategy, designed to ensure that planet and society are better as The Sustainable Development Goals (SDGs), organised by the United a result of our activities, and that we are not just ‘doing less bad’. Nations, underpin our Commitment. We have identified 23 SDG targets out of the 169, across nine goals, that are drivers of our strategy – those where we must reduce our negative impact and those where we can make the biggest positive contribution. These were then grouped around d a m e n the themes of climate, nature and society, hence our Commitment to be F u n t a l s Climate, Land and People Positive. 2021 materiality assessment We conducted a full materiality assessment during 2021, concluding the | e | L | | | --- | --- | --- | | i v | a | | | t | n | fourth materiality assessment triennial cycle that started in 2012. This | i | | s | | d | | | | --- | --- | --- | --- | --- | --- | | | o | | P | | was our most comprehensive to date, with more data sources, direct | | | P | | | o | | | e | | | | s | contact with stakeholders and detailed analysis than ever before. Given | | t | | | | i | | | a | | | | t | | | | | | | i v | the accelerating nature of the global sustainability agenda it was vital to | | m i | | | | e | | | l | | | | | ‘take the temperature’ of stakeholder expectations in 2021. A full report | | C | | Smart science | | | | on the materiality assessment can be found in the accompanying TM to improve lives Sustainability Report 2021 (page 14); the outcome of the assessment reconfirmed we are focusing on the right topics for most stakeholders, while we saw nature/biodiversity and global health preparedness increasing in importance since our last assessment in 2018. As we deliver on our Commitment to be Climate, Land and People | P | | | | | Positive by 2030 we anticipate satisfying an increasing number of our | | --- | --- | --- | --- | --- | --- | | | e o | | | v e | | | | p | l e | P o s | i t i | | stakeholders’ sustainability demands. In doing so we anticipate generating significant value for our customers’ brands as they meet the needs of consumers, who in return will reward suppliers, like Croda, who help them achieve their own ambitious sustainability targets. See our 2021 Sustainability Report for more detail P14-15 The world’s impact on CrodaCroda’s impact on the world ### 2021 materiality ### framework C Climate action L Circular economy This grid provides a Global change L Environmental stewardship C summary of the key preparedness issues identified F Process safety through our materiality assessment and how F Health, safety and wellbeing Risk to Croda, they relate to Croda. therefore a challenge P P LC F L Growing Diversity BiodiversityProduct business and inclusion stewardship for good C Climate Positive C L P Product innovation F Supplier partnership L Land Positive P F Our people F Customer intimacy P People Positive F Responsible business F Knowledge management F Fundamentals P Community education and engagement Material areas that range across axes to provide a solution Opportunity for Croda P Growing business for good P Diversity and inclusion Croda International Plc ## 30 Annual Report and Accounts 2021 ## 2021 Performance ### Strategic report ## “I would like to recognise and thank everyone for the huge ## efforts made in delivering the 2021 progress towards the ## positive impacts on the planet and society to which we aspire.” Phil Ruxton, Chief Sustainability Officer ## Climate Positive | | 27% | | | 1.5°C | 951,000 | | 69% | | --- | --- | --- | --- | --- | --- | --- | --- | | reduction in scope 1 and | | | Science-Based Target | | tonnes CO | 2 e avoided through the use | of our organic origin | | 2GHG emissions intensity | | | | validated | ofingredients attached to verified | | raw materials were | | | | since 2020 | | | | casestudies | bio-based in 2021 | ## Land Positive ## 33,734 Validated Biodiversity 60% hectares of land saved over Through extensive field trials of our land area saved We recognise the benefits Croda 2019 baseline: our range of with a major customer in is in Asia andLatin technologies can bring in protecting biostimulants, adjuvants and Brazil, we measured and America, where there is biodiversity and nature, and have seed coatings continue to save demonstrated the land greatest demand for food started a programme to measure more land than is used to grow saving benefit of our productivityand the ourimpacts in partnership all of our bio-based adjuvant technologies highest threat of with CISL raw materials deforestation ## People Positive ## 55 Supported Six ## 36% the global scale up of COVID-19 million people protected projects approved for leadership vaccine delivery and rapidly annually through the funding by Croda roles held by executed significant investments use of Croda sun Foundation’s Board women at manufacturing sites in the protection ingredients ofTrustees UK and USA ## Fundamentals NETWORK ## 94% ## All employees temporary 17% of palm derivative and permanent were paid a | | reduction in process | | volumes purchased | | --- | --- | --- | --- | | living wage at the end of | | Awarded Business of | | | | safety incident rates | | havesupply chain | | 2021, according to Fair | | the Year at the World | | | | compared to 2020 | | transparency achieved | | Wage Network criteria | | Sustainability Awards | | torefinery We are committed to providing full transparency on progress against our milestones, KPIs and 2030 targets, as well as the wide variety of other ESG data points requested by stakeholders. Please see our ‘non-financial data performance summary’ on croda.com to download our non-financial datapack. Croda International Plc ## Annual Report and Accounts 2021 31 ### Sustainability (continued) ## Strategy in action – our targets given sector and geography. This approach ## A review of our sustainability strategy by the provides us with the tools to carry out a ## Executive Committee in 2021 resulted in complete assessment as well as identify carbon hotspots across the value chain, ensuring we ## re-committing to the highest level of ambition focus our attention where it matters most. ## across all our 2030 targets, despite a changing Where actual consumption data is available the process-based method is applied, as this is a ## business portfolio. more accurate estimation of our scope 3 emissions. The process-based method includes LCAs from a range of sources, and published conversion factors as described above. Technical Guidance for Calculating scope 3 ## Climate Positive Driving operational decarbonisation emissions. We use a hybrid approach to | | calculate our scope 3 emissions, using the | An internal shadow carbon price of £50 per | | | --- | --- | --- | --- | | Scope 3 emissions analysis and external | following methods: | metric tonne CO | 2 e was applied to all major | | verification | | capital investment proposals during 2021. | | Process-based method – using actual | In 2021 we established a clearer view of our | consumption data on a given activity and the | However, we realise that initiatives aimed at | | --- | --- | --- | | supply chain emissions, conducting a thorough | associated carbon conversion factor to | reducing emissions at manufacturing sites | | analysis of our scope 3 emissions, which is | calculate the emissions. Emissions factors | alone will not be enough to achieve our 1.5°C | | externally verified by Avieco. | have been sourced from: | science-based target. We are also developing | | The audit reduced our 2018 scope 3 baseline | | low carbon alternatives to existing ingredients. | • Croda’s Life Cycle (LCA) Analysis tools | by approximately 104,500 tonnes CO | e (7%) as | | To support this, we have developed a | | --- | --- | --- | --- | | | 2 | for raw materials | | | our emissions were previously overestimated. | | | methodology to calculate scope 1 and 2 | • A Life Cycle Analysis database (Ecoinvent) This was primarily due to the accuracy of emissions at a product level. By including the • Life Cycle Analysis studies published by estimations and emission factors for our sales of all products, we can now track our other reputable sources ‘Capital goods’ scope 3 category. Purchased scope 1 and 2 carbon footprint at the sector • Published conversion factor sets for level, driving ownership and focusing our goods is our largest category, accounting for reporting on organisational GHGs management teams on creating the alternative 83% of our upstream scope 3 emissions, with (DEFRA/IEA) low carbon solutions our customers require. the majority of this being raw materials. Extended Environmental Input-Output For the first time in 2021, major sectors presented Life cycle assessment studies for key raw (EEIO) model method – using spend data, their carbon budget to the Executive Committee materials have developed our knowledge of emissions are calculated using EEIO models to alongside their financial budget. They presented emissions within our supply chains and we are quantify the emissions associated with a sector their forecasted carbon emissions for 2022, as now able to represent the reduction in carbon of the economy in a given geography well as actions to ensure emissions remain within footprint associated with purchasing palm certified by the Roundtable on Sustainable Palm Oil To calculate our applicable scope 3 emissions, budget and are aligned to achieving our (RSPO). Around 40% of our scope 3 emissions extensive EEIO modelling was carried out. This Science-Based Target (SBT). In 2022 we will add associated with raw materials are covered by method combines macro-economic data and scope 3 emissions associated with raw materials supply chain specific studies such as this. We also industry-level carbon emissions data to estimate into these calculations, further improving sector have volume-based, industry-recognised life-cycle the carbon associated with financial activity in a visibility of their carbon footprint. assessment (LCA) figures attached to a further 35% of our raw material greenhouse gas emissions, leaving only 25% based on spend calculations. As our customers look to their suppliers to help them achieve their sustainability targets, understanding our scope 3 emissions and Purchased goods and services - 83% | being able to identify opportunities to reduce our | Raw materials – 73% | | --- | --- | | own emissions supports our customers as they | PFR/tolling/semi-finished – 5% | | seek more sustainable ingredients. | Packaging – 2% | | Our 2021 scope 3 emissions are 14.8% higher | Other – 3% | Capital goods – 6% than our baseline year of 2018. This is largely due Fuel and energy-related – 3% 2021 scope 3 emissions by category to greater investment and increased emissions Upstream transportation and distribution – 6% 2021 scope 3 emissions by category associated with raw material purchases, due to Road – 3% increased production volumes. Business travel Sea – 2% Purchased goods and services - 83% reduced by 75% due to the pandemic. This Air – 1% Raw materials – 73% increased granularity allows us to identify carbon PFR/tolling/semi-finished – 5% Waste generated in operations – <1% hotspots in our supply chain, and work with Packaging – 2% Business travel – <1% suppliers to drive emissions reductions. | | | | Other – 3% | | Employee commuting and home working – <1% | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Our scope 3 emissions are calculated using | | Capital goods – 6% | | | | | | | methodologies consistent with the WRI’s | | Fuel and energy-related – 3% | | 2021 scope 3 emissions: 1,141,056 teCO | | | 2 e | | | Upstream transportation and distribution – 6% | | | (2018 baseline: 994,235 teCO | | e) | | | Greenhouse Gas Protocol: Corporate Value | | | | | | 2 | | Road – 3% Chain (scope 3) Accounting and Reporting Sea – 2% Standard as well as the WRI’s GHG Protocol Air – 1% Waste generated in operations – <1% Business travel – <1% Employee commuting and home working – <1% Croda International Plc ## 32 Annual Report and Accounts 2021 2021 scope 3 emissions by category Purchased goods and services - 83% Raw materials – 73% PFR/tolling/semi-finished – 5% Packaging – 2% Other – 3% Capital goods – 6% Fuel and energy-related – 3% Upstream transportation and distribution – 6% Road – 3% Sea – 2% Air – 1% Waste generated in operations – <1% Business travel – <1% Employee commuting and home working – <1% ### Strategic report ## Land Positive Validating our land saving assumptions Our Land Positive targets focus on land use and crop science innovation. To enable us to identify areas where we can have the maximum impact on land use, we need to know our current land impact. In 2021 we collaborated with one of our major agriculture customers to validate the assumptions used to calculate our land saving data for our adjuvant technologies, demonstrating that our assumptions are justified and, in fact, conservative. 2021 also saw us make significant steps towards how we will achieve our crop science innovation target, opening our Product Validation Centre located in Holambra near São Paulo, Brazil. This state-of-the-art facility includes laboratories and greenhouses and is focused on validating and substantiating claims and results from our formulation, microbiology and seed treatment laboratories. Managed by a specialist team that includes agronomists, chemists and biologists from Crop Protection and our Seed Enhancement business, Incotec, the centre has the highest level of technical expertise, generating realistic and robust data for customers. This specialist team, now all under one roof, enhances our ability to develop innovative new solutions and explore the use of digitalisation and new technologies to create more sustainable ## People Positive ingredients. Collaboration to develop alternative vaccine adjuvants In 2021 we established a strategic collaboration with the Danish Government’s life science research institute, Statens Serum Institute (SSI). This will enable accelerated trials of alternatives to traditional aluminium-based adjuvants, providing new opportunities for the development of vaccines for diseases where effective vaccines do not currently exist, as well as more effective vaccines for a range of diseases. The collaboration encompasses manufacturing and commercialisation of two novel adjuvants, both of which are in clinical development. Studies show that both adjuvants induce strong immune responses, with one inducing both antibody and T-cell response and the other, which is already in use within cancer immunotherapy trials, facilitating production of CD8+ T cells. This agreement, along with the significant investment at manufacturing sites in the USA and UK made in 2021, will increase our capability and capacity to support World Health Organisation (WHO) pipeline vaccine development in the future. This takes us one step closer to achieving our ambition of supporting the successful development and commercialisation of at least 25% of WHO listed priority pipeline vaccines. See page 27 for more on our investments in Health Care. Croda International Plc ## Annual Report and Accounts 2021 33 ### Sustainability (continued) ## Driving growth through an embedded ## strategy | Impact beyond our direct operations | Aligning the whole organisation to deliver | | --- | --- | | Our impact on the SDG targets is far greater | on our Commitment | | through our supply chain and our customers | Through our decentralised approach to | | than just through our own operations (see | decision-making and can-do attitude, we | | business model page 16). | can mobilise the whole of Croda in our | sustainability journey, enabling us to To meet the sustainability expectations of respond to local variations in requirements our customers we need to measure, manage from stakeholders and adjust our approach and reduce the negative footprints of our raw as the sustainability agenda evolves. ### Sustainable Development Goals materials before they even reach our gates. For example the carbon, water and land Our Purpose and our Commitment are also It is estimated that there is US$12 trillion footprints embedded in our raw materials are proving to be vital recruitment and incremental economic value to be gained if the typically many times larger than the footprint motivational tools for existing and future world meets all 169 targets associated with the associated with our own activities. employees, enabling us to engage with the United Nations Sustainable Development Goals best possible candidates and support | (SDGs), delivered through technology innovation, | | We are starting work with partners in our | | | --- | --- | --- | --- | | | 1 | | further development of our staff. | | new markets and new business models. | | supply chains to identify programmes that | | | | | will do more than reduce negative footprints | We are taking several approaches to support | | | | and will restore and improve communities | this and ensure we align all our activities. We | | | | and ecosystems. | have included Climate, Land and People | Positive factors in our long-term incentive By innovating thoughtfully, sourcing scheme for the most senior leaders; we have sustainably, minimising the footprint of our Economic value of SDGs created regional Sustainability Champions own operations and leveraging our excellent Networks to engage those passionate decentralised customer intimacy, we will individuals around the organisation who can play our part in helping our customers and ## $12 trillion contribute to local execution and share best their markets deliver on the SDG targets. practice; and by the end of 2022 we will have to be gained if the world meets 1 doubled the resources across the all 169 SDG targets organisation focused on sustainability, beyond the central Group Sustainability team. Creating value as we help our customers ## At the heart of our approach to achieve their sustainability ambitions Consumer-facing companies responding to ## meeting our Commitment is innovation, societal demands and increasing regulation in every market and region we serve have ## which has been the lifeblood of our guided much of our work in prioritising the growing sustainability agenda to develop ## success for many decades. our Commitment. Our customers are diverting resources towards partnerships with those suppliers Innovating the right solutions for the planet Assessing the risks and opportunities who help them meet their purpose and and society in the right way Risks and opportunities associated with longer-term sustainability targets. Through our At the heart of our approach to meeting our delivering the various aspects of the intimate relationships with customers large Commitment is innovation, which has been sustainability agenda are captured using our and small across the world we are helping the lifeblood of our success for many global integrated risk management framework them achieve these non-financial targets and, decades. Our business model has relied on (page 50). In general, we identify more in so doing, we are creating the opportunity creating new market niches with novel sustainability related opportunities than risks for further value growth. product offerings to drive growth. This to the Croda business model. approach remains relevant today, in the UN In 2021 we adopted TCFD guidance to report Decade of Action on the SDGs, with our our climate related risks and opportunities innovation priorities focused on helping our (pages 40 to 43). customers and end markets deliver on the SDG targets, with 88% of new products directly contributing to our priority SDGs. Our innovation model is a decentralised one, with our R&D advances increasingly driven by Our Commitment our partnerships, often managed locally by one of our innovation centres around the ## world, close to customers and partners. This 23 SDG ensures we can respond to local variations in approach to contributing to the SDGs, and ## access novel processes, raw materials and targets 1. ‘Better Business, Better World’ report, Business expertise through our partners. Sustainable Development Commission, Jan 2017 underpin our strategy Croda International Plc ## 34 Annual Report and Accounts 2021 ### Strategic report Measuring our growth against the SDGs Having previously identified the SDG targets that directly connect with our Commitment (see Sustainability Report 2020 page 11), this year we have mapped out how those SDG targets can be impacted through the use of our products in the markets in which we operate, considering our product offering into those markets and the primary supply chains and operations that provide them. We plan to continue this assessment in the coming years to develop a means of assessing our revenues and profitability by SDG target. The table below presents a summary of the SDG targets our activities impact, broken down by sector and business unit: Consumer Care Life Sciences PTIC SDG S Beauty Beauty Home Fragrances Seed Crop Health Energy Smart Industrial Care Actives Care & Flavours Enhancement Protection Care Technologies Materials Chemicals 8.5 8.5 8.5 8.5 12.2 12.2 12.2 12.6 12.2 12.2 12.2 12.2 12.7 12.7 12.7 12.7 12.7 12.7 12.7 12.7 12.7 12.7 13.2 13.2 13.2 13.2 13.2 ### Value chainOperationsProducts & Services | 15.2 | | 15.2 15.2 15.2 | | 15.2 15.2 | | --- | --- | --- | --- | --- | | | 15.5 | | 15.2 | | | 15.5 15.5 15.5 15.5 | | | | 15.5 15.5 | 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 4.3 5.5 5.5 6.3 6.3 6.4 6.4 6.3 6.3 6.3 6.3 6.4 6.4 7.2 7.2 7.2 7.2 7.2 7.2 7.2 7.2 8.8 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.4 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 2.3 2.3 2.4 2.4 3.3 3.4 3.4 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 13.2 13.2 13.2 13.2 13.2 13.2 13.2 14.1 14.1 14.1 14.1 14.1 14.1 15.3 15.3 Croda International Plc ## Annual Report and Accounts 2021 35 ### Sustainability (continued) ## Delivering value through our culture ### Culture creating value and driving people’s full potential and deliver high globe assisted in the shaping of the performance and engagement within our teams. competencies and will continue to be involved in ### performance During 2021, a new set of 14 competencies the implementation and ongoing review. This Our people strategy is focused on delivering our aligned with our values of ‘Responsible’, has been a positive and exciting step forward in Purpose, further strengthening our culture and ‘Innovative’ and ‘Together’, were introduced. our journey as for the first time we have a creating inclusive and engaging environments Each competency describes how the values are description of the attitudes, skills and for all. We believe that embedding our values exhibited and can be developed through behaviours valued within Croda, that are shaped throughout the organisation will enable us to specific behaviours within our work. A cross by our values and underpinned by our culture. attract and retain the best talent, unlock our section of Croda employees from across the ### Values Embedding new competencies, that support our values, has been a priority within our learning and development teams and an integral part of our leadership development. This year, we have introduced a number of new programmes and activities which are aligned directly with our new competencies. Responsible – Authentic leadership Innovative – Phoenix Rising Together – Leading with empathy training We introduced a new concept programme to To develop our understanding of the role Authenticity is part of our new competency our leadership development with a difference, empathy plays, particularly in uncertain times, framework and encourages self-awareness called Phoenix Rising. It is routed in inclusive our Executive Committee and senior leaders and working in a way that is aligned with behaviours and attendees come from multiple attended webinars on the importance of inner values. We invited a number of our levels and functions across the organisation, to leading with empathy. The webinars used teams across the organisation to take part connect through experiences and discussions. neuroscience to explain the important role in an Authentic Leadership Development It is an opportunity to coach, mentor and empathy has in creating inclusive, innovative programme. The programme explains the reverse mentor each other, through different and psychologically safe working importance of understanding purpose, perspectives. This programme facilitates the environments. We have opened up our new acting with integrity and building integration of our Purpose, values and development planning tool to all employees, relationships which are founded on trust. behaviours of our people through leadership at all levels. To make development planning It uses psychometric evaluation and is and the programme is facilitated by easy and accessible, we have included new facilitated by external consultants. external consultants. competency-based playlists. ### Competencies Responsible Innovative Together • Authenticity • Curiosity • Working together • Cross cultural sensitivity • Strategic perspective • Empathy • Inclusivity • Adaptability • Care and compassion • Living the values • Delivery • Managing conflict Foundation competencies • Self-led learning • Technical/functional expertise ### Talent development Our learning and development programmes have been reviewed with the aim of modernising and aligning to our values and competencies. We have begun redesigning our internal offering with a plan to launch these programmes during 2022. A number of leadership behaviours aligned to our values were identified which will form part of selection and nomination to leadership development opportunities going forward. ### How we manage and measure culture Our approach to monitoring culture is through direct engagement with our people: Area Reason to use Example of use Pulse Used to give the perspective of our In 2021, we deployed a survey concerning the strategic review of the PTIC businesses. We asked a surveys people, helping leadership teams to series of questions, including a specific question related to our values; “I believe Croda is committed understand employee sentiment on to carrying out the review process in line with our values, keeping everyone informed of progress”. areas of interest or concern. 74% of responses agreed or strongly agreed, with 22% giving a neutral response. Listening A feedback channel used globally We regularly hold listening groups or offer feedback sessions, such as town hall meetings. In 2021, groups and regionally to enable employees members of the Board including the Chair, Anita Frew, hosted several sessions with participants from to share their positive and negative all around Croda to discuss strategic priorities, pressures and to get input and ideas. experiences on given topics. Purposeful Rewarding and sharing examples The first annual ‘Purpose in Action Awards’ was held in summer 2021, with over 150 award entries outputs of where employees have truly from all our regions. The awards were established to recognise teams and individuals that had lived our values. delivered actions that contribute towards either our Commitment or our values. Each entry demonstrates how we are truly living our Purpose and that Croda’s culture is actively driving change. Croda International Plc ## 36 Annual Report and Accounts 2021 ### Driving innovation through D&I representation within Croda and how our regions where data collection was legally organisation feels. allowed, it is a first for Croda and is an All of our new competencies encompass important step in understanding the broad | inclusive behaviours with one dedicated to | This was done through pulse surveys, reviewing | | | | --- | --- | --- | --- | | | | representation in our organisation. | Strategic report | | inclusivity. We believe that every employee | employee data and benchmarking against | | | | should feel able to come to work, give their | external sources. Raising awareness, | The survey consisted of brief questions asking | | | best and feel valued for the work they do. To | particularly at senior levels, focused on | employees to volunteer information about their | | | drive progress we created a D&I Roadmap. The | deepening knowledge about the experiences of | race / ethnicity, sexuality, gender identity, and | | | roadmap has a number of areas including data | different groups of people; the programme | disability. Due to legal restrictions on collection | | | gathering, improving awareness, developing | included external speakers, internal podcasts | of data, not all locations were able to participate | | | our brand, measurement and setting of KPIs, | with our employees, and delivering unconscious | including sites in the Netherlands, Finland and | | | and alignment to reward and recognition. Data | bias training. A strategic objective achieved in | Denmark. 70% of eligible employees responded | | | gathering was focused on understanding | 2021 was the delivery of a Global Diversity | to the survey, including 97% of senior leaders. | | | | Representation Survey*. Carried out across all | A summary of the results can be found below. | | Global Diversity Representation Survey results* Group average Senior leader average Identify as female 41% of responses 39% of responses Identify as male 53% of responses 60% of responses Identify as intersex, transgender, non-binary or other gender identity Less than 1% of responses Less than 1% of responses Identify as a minority race or ethnic group in the country they are located, 12.8% of responses 9.8% of responses based on local social, government or cultural understanding Identify as a person with a disability 3.5% of responses 1.8% of responses Identify as lesbian, gay, bisexual, queer or a sexuality other than heterosexual 3.8% of responses 1.8% of responses We have published this data internally and will merit, but we will work to ensure that we have shaping decisions at a local level. Over the last | continue with further surveys periodically to | balanced shortlists and create an environment | year, each sub-committee has begun reviewing | | --- | --- | --- | | help us track our progress. As the survey | where female employees can flourish, and | areas of local need, creating plans and working | | closed in late 2021, we are currently reviewing | believe this incentive will help us to achieve this. | with local leadership teams to create change. | | next steps and appropriate actions. In addition, | As part of our approach to understanding local | | | and linked to reward and recognition for 2022, | inclusion and diversity needs, our regional | | * The survey ran from June to October 2021 as a we have a specific gender balance target in our teams have set up new D&I sub-committees to voluntary survey with data collected anonymously long-term incentive Performance Share Plan. complement the Global D&I Committee. These at point of collection. We will continue to promote and appoint on teams are focused on driving awareness and ### Key people metrics Average headcount for 2021: Year end gender breakdown of our workforce^ ## 6,037 % of workforce ### Permanent employees 96.6% All Senior Board ### Temporary employees 3.4% employees management of Directors* Full time employees 94.9% Part time employees 5.1% % of Age category workforce 17-25 6.3% Male – 63% Male – 64% Male – 50% 26-35 29.6% Female – 37% Female – 36% Female – 50% 36-45 28.2% 46-55 23.2% 56-65 12.2% Employee turnover by quarter, 2021 This chart shows our voluntary employee 65+ 0.5% turnover rate by quarter for 2021. As this chart is for our global business it includes regions 2.7% such as Asia and the USA that traditionally 3.0 2.4% experience higher employee turnover than 2.5 1.8% | | 2.0 | | Europe. In Q2 and Q3 this year we experienced | | --- | --- | --- | --- | | All employees | | 1.2% | | | | 1.5 | | higher turnover rates, in line with many other | | | 1.0 | | organisations around the world. Fortunately, | ## are paid a | | 0.5 | | we are already seeing our turnover starting to | | --- | --- | --- | --- | | Living Wage. | 0.0 | | reduce to more typical levels. We continue to | | | | Q4 21Q3 21Q2 21Q1 21 | monitor turnover and conduct exit interviews | with leavers, the results of which are shared * As at 28 February 2022. Post-year end appointment means we have now achieved full gender balance on the Board of Directors. See page 61 for detail. widely in the organisation to inform our people ^ Reported figures specifically from HR systems only factor male and female binary, we are aware that <1% of policies and practice. employee headcount is likely to not identify as male or female. Croda International Plc ## Annual Report and Accounts 2021 37 ### Sustainability (continued) ## Transparency and disclosure | Since 2007 we have reported using the Global | conducting an analysis of our public disclosures | Accounting Standards Board (IASB). ISSB has | | --- | --- | --- | | Reporting Initiative (GRI) framework, following | and internal data capture versus the entire | already reached agreement with VRF and other | | GRI guidance on identifying and reporting | SASB framework and have started work to | sustainability reporting standard setters to pool | | against indicators material to our business. | close the gaps. | resources and expertise to develop unified | global sustainability standards for reporting and With the rapidly increasing demands for While we anticipate further alignment with disclosure. We will work with our stakeholders transparency and disclosure from many SASB in 2022, we are also monitoring the and the standards boards to identify how we stakeholders, investors and analysts in transformational development in global will maintain disclosure compliance. | particular, we have committed to increase our | sustainability standard setting. In June 2021 | | | --- | --- | --- | | reporting alignment with the Sustainability | SASB and the International Integrated | We support the aims of the Task Force on | | Accounting Standards Board (SASB) | Reporting Council (iiRC) announced they would | Climate-related Disclosure and are adopting | | framework. In 2021 we have utilised the SASB | merge to form the Value Reporting Foundation | their reporting recommendations to aid both | | process safety indicators as the basis for | (VRF) and, at COP26 in November, the IFRS | our understanding of climate change on our | | measuring and reporting our Process Safety | Foundation announced the launch of the | business, and of our business on climate | | progress, one of our Fundamental KPIs (see | International Sustainability Standards Board | change (see pages 40 to 43). | | Sustainability Report, page 37). We are also | (ISSB) to run alongside the International | | Non-financial information statement The table below sets out where more information can be found in our Annual Report (AR) and Sustainability Report (SR) that relates to non-financial matters, asrequired under the Non-Financial Reporting Directive. Reporting Read more about Annual Report Sustainability requirement Some of our relevant policies our impact and metrics page Report page Principal risks 1 Environmental Group SHE policy Process Safety P31 & 54 P34 & 37 Major safety or matters environmental 2 Supplier Code of Conduct Environmental Stewardship P34 & 37 incident (P54) Product Stewardship P35 & 40 Delivering sustainable Sustainable Sourcing and Supplier solutions (P53) | Partnership | P42 | P35 & 41 | | --- | --- | --- | | Climate Positive | P32 | P20 to 25 | | Land Positive | P33 | P26 to 29 | 2 Employee Code of Ethics Delivering value through our culture P36 Our people (P54) matters 2 Code of Conduct Key people metrics P37 Ethics and compliance (P55) Group Policy on Training and Workforce engagement P90 2 Development People Positive P33 P30 to 33 2 Equal Opportunities policy 1 Group SHE policy 2 Respect for International Human Rights policy Living Wage P92 Our people (P54) human rights 2 Group policy on Discrimination Fair income P35 & 38 2 Code of Conduct 2 Social matters Code of Conduct Driving innovation through D&I P9, 12, 37, 77 and 92 Our people (P54) 2 Group Policy for Managing Diversity 2 Transgender policy 2 Anti-bribery and Code of Conduct Responsible business P34 & 38 Ethics and corruptionissues compliance (P55) 2 Countering bribery Ethical compliance P83 2 Croda Modern Slavery Statement 2 Whistleblowing Policy 1 Competition Law Policy 1 Croda Fraud Policy 1 Ethics Procedures Manual 2 Business model Our Purpose Business model P16 All key risks on P53 to 55 link to our 2 Our Commitment business model 1. Available to employees via the Company intranet (Connect), not published externally. 2. Available to employees via the Company intranet (Connect) and published on www.croda.com. Croda International Plc ## 38 Annual Report and Accounts 2021 ## Tackling the climate emergency ### Strategic report | The urgent need for society to tackle the climate | Emissions target: By the end of 2029 we will | achieve 75% of our organic raw materials by | | --- | --- | --- | | emergency was highlighted during 2021. The | have reduced our operational (scope 1 and 2) | weight to be bio-based. These absorb carbon | | United Nations Conference on Climate Change | emissions by 46.2% from a 2018 baseline. With | as they grow, and using them allows us to | | (COP26) showed that governments and | the majority of our emissions within our supply | minimise our impact on the environment by | | businesses must both play their part in moving | chain, we also had our scope 3 target | designing lower-footprint products. In 2021 we | | from ambition to action if we are to limit global | approved by the SBTi, to reduce our absolute | continued to show progress, achieving 69% | | temperature rises to no more than 1.5ºC above | upstream scope 3 emissions by 13.5% over the | (2020: 67%) bio-based organic raw materials. | | pre-industrial levels and prevent the most | same time frame. The focus here is to engage | | Carbon cover target: Climate Positive, for us, catastrophic effects of climate change. and work with suppliers to reduce emissions means more than achieving net zero emissions associated with sourcing raw materials (see As a signatory to the UN Global Compact by 2050. Through our carbon cover target we page 32) alongside transportation and Business Ambition for 1.5°C and member of aim to help customers and consumers save or distribution of products to our customers. By the Race to Zero campaign, we are avoid four times the emissions associated with taking actions to achieve these targets within demonstrating leadership on climate action in our entire value chain (scope 1, 2 and 3). In our operations and supply chain we can an industry that is recognised as hard to 2021 we helped customers avoid 951,000 support our customers and enable them to decarbonise. In July 2021, this leadership tonnes CO 2 e (2020: 838,000 MT CO 2 e). meet their own supply chain SBT emission continued as we became only the third major reduction targets. | chemical company globally to have a 1.5°C | | For more, see our 2021 Sustainability Report. | | --- | --- | --- | | Science-Based Target validated and declare | Sustainable innovation target: In addition, | P20-23 | | our ambition to be net zero* by 2050. | we also have a sustainable innovation target to | | * Net zero means eliminating almost all scope 1 and 2 emissions and significantly reducing our upstream scope 3 emissions, with any residual supply chain emissions permanently offset through fully validated and approved schemes. Greenhouse gas scope 1 and 2 emissions and intensity charts Since 2018, our baseline year, our total scope 1 and 2greenhouse gas (GHG) emissions have reduced by 12.7%. Within this, scope 1 emissions increased by (TeCO e/£m) 2 4%, whilst we have seen a 60% reduction in scope 2 emissions. This has been driven by a switch to Scope 1 / tonnes CO e Scope 1 and 2 emissions intensity 2 renewable electricity across our manufacturing sites. In Scope 2 / tonnes CO 2 e 2021 we engaged with Accenture to help us with renewable electricity sourcingoptions for our manufacturing sites in Asia, where availability of green 2 250 350 electricity is more challenging. Renewable Energy e/£m) 316 2 Certificates (RECs) purchased at Thane in India and Singapore have led to a significant reduction in 300 275 emissions this year. 264 200 54 Scope 1 and 2 GHG emissions from our UK operations were 34,559 TeCO 2 e in 2021 (2020: 35,692 TeCO 2 e) 250 39 22 28 representing approximately 19% of our global GHG | emissions. | 150 | | | 161 | | 193 | | --- | --- | --- | --- | --- | --- | --- | | | | 155 | | | 200 | | | Our chosen measure of GHG emission intensity divides | | | 150 | | | | 142 our GHG emissions (market-based scope 2 emissions) 2 by value added , a measure of our business activity. GHG emissions intensity (TeCO 150 Since 2018, our GHG emissions intensity has 100 improved by 39%, illustrating how we are decoupling growth from our environmental impact. 100 Our scope 1, 2 and 3 GHG emissions are verified by | Avieco. Their formal independent verification statement | | 50 | | | --- | --- | --- | --- | | is available at: www.croda.com/carbonverification | 1 | | 50 | | GHG emissions GHG emissions intensity | | | | Energy consumption and efficiency improvements In 2021 we consumed 1,178,117,781 kWh 0 0 (2020: 1,125,612,495 kWh) of energy across our global operations. This included 219,130,734 kWh (2020: 222,759,173 kWh) consumed by UK operations. As part of our strategy to improve the efficiency of 1. Our GHG inventory has been completed in accordance with the Greenhouse Gas Protocol, Corporate Accounting e) energy consumption, 36 projects were implemented and Reporting Standard (Revised Edition). Scope 1 emissions are calculated using Defra Government emission globally, realising 39,514,274 kWh of annualised conversion factors for greenhouse gas company reporting. Scope 2 emissions are market-based. efficiency improvements, equivalent to 9,063 2. Value added is defined as operating profit before depreciation and employee costs at reported currency. TeCO 2 e avoided emissions. Emissions and energy usage 2021 2020 UK Rest of world Total UK Rest of world Total | Scope 1/tonnes CO | 2 e 34,321 126,514 160,835 35,279 114,342 149,621 | | | --- | --- | --- | | Scope 2/tonnes CO | 2 e 238 21,390 21,628 413 27,430 27,843 | | | Total scope 1 and 2 / tonnes CO | | 2 e 34,559 147,904 182,463 35,692 141,772 177,464 | Scope 1 energy use / kWh 185,948,678 753,882,423 939,831,101 189,846,081 708,638,453 898,484,534 Scope 1 and 2 emissions (‘000 tonnes CO Scope 2 energy use / kWh 33,182,056 205,104,623 238,286,679 32,913,091 194,214,869 227,127,960 Total Energy use / kWh 219,130,734 958,987,047 1,178,117,781 222,759,173 902,853,322 1,125,612,495 Croda International Plc ## Annual Report and Accounts 2021 39 2019 2020 20212018 2019 2020 20212018 ### Sustainability (continued) ## Task Force on Climate-related Financial ## Disclosures (TCFD) Croda has long recognised the scale of the climate emergency and by 2050. In July 2021 we became the third major chemical company in considers this to offer both opportunities and risks to our future growth. the world to have these SBT commitments verified. We continue to We consider actions to mitigate these risks as a core part of delivering integrate our climate related disclosures throughout our Annual Report our strategic Commitment to be Climate, Land and People positive and our Sustainability Report. The Sustainability Report provides an (page 30). As a ‘Race to Zero’ partner and a signatory to the UN Global opportunity to explain our approach in more detail and to provide case Compact’s Business Ambition for 1.5˚C we committed to set an studies to illustrate our progress. ambitious 1.5˚C 2030 Science Based Target (SBT) and become net zero Compliance Next steps and timeframes ### a. The Board oversees the setting and delivery of the strategy and is accountable for all risks, The Board's agenda for including climate related risks. In 2021 the Board completed a strategic deep dive of the 2022 includes a full review Describe the Board’s sustainability strategy including opportunities and risks (page 65). The Board considers all of sustainability progress oversight of climate- principal risks, including climate related risks, in its annual review (page 66). The Board and externally provided related risks and receives a quarterly update of progress against sustainability targets from the Executive sustainability education, opportunities. Committee, including an update on key risks and opportunities against which specific actions both including climate have been identified (page 64). In 2021 a member of the Board attended the Executive related risks and sustainability strategy review (of which climate is a key pillar). opportunities. ### b. Assessment, management and monitoring of climate related risks is governed through the The Sustainability Sustainability Committee, which meets quarterly and which is chaired by the Chief Committee will continue to Describe Sustainability Officer, Phil Ruxton. This is a formal sub-committee to the Executive Committee monitor and report on the management’s role (page 73), with delegated authority to oversee the development, measurement and delivery of delivery of the programme in assessing and our sustainability KPIs across the four pillars of our strategy: Climate, Land, People and throughout 2022. ### GovernanceStrategy managing climate- Fundamentals (page 30). The Committee is also responsible for Group communications and related risks and For 2022, our PSP includes recommendations to further develop our strategy. It comprises members of the Executive opportunities. sustainability metrics which Committee and senior leaders from across Croda, with each member responsible for delivery relate to reductions in of specific 2030 targets across the Climate, Land, People and Fundamentals pillars. In 2021, emissions (page 96); our CEO led the Executive Committee in a review of our sustainability strategy supported and directly linked to our informed by the investor community (case study on page 19) and we held our second carbon Climate Positive summit for senior leadership. commitment. ### a. Through our global risk management process, we have identified 41 climate related We will consider how to opportunities and risks covering the short, medium and longer term, covering both disclose our risks and Describe the climate transitional and physical causes as defined by the TCFD. They relate both to Croda's impact opportunities in more detail related risks and on the environment and how our products help our customers to manage their own climate in our 2022 Annual Report. opportunities the impact, and to the impact of environmental change on Croda including increased raw material organisation has costs, carbon pricing, emerging regulation and the effects on our people and working identified over the environment. We describe four of these risks in more detail on page 43 and we will consider short, medium, how to disclose our risks and opportunities in additional detail in future Annual Reports. Our and long-term. sustainability materiality framework table, described on page 30, summarises risks and opportunities identified from our 2021 materiality assessment and there is further detail on pages 14 to 15 of our Sustainability Report. b. Climate related opportunities form one of the three pillars of our sustainability strategy, to A further four climate become Climate Positive by 2030 (page 30). As a core part of our business strategy equation, related risks will be subject Describe the impact sustainability + innovation = growth, the impact of not delivering our climate related pillar is to full scenario assessment of climate related risks significant and hence we recognise this in our principal risks on page 53. We assess the in 2022. Although and opportunities on impact of our risks, and the benefits of our opportunities using the six point grading scale interdependencies between the organisation’s defined in our risk framework (page 52). In agreement with our core banking group, the risks are identified, further businesses, strategy, interest rate on our principal committed banking facilities is reduced if we reduce our carbon work will be focused in this and financial planning. use every year by a specified amount. If this is achieved then we will reinvest this saving in area in 2022 to make sustainability projects (case study on page 36 2019 Annual Report). During 2021 we these interdependencies completed detailed analysis of the impact of four climate related risks against three future more transparent. climate scenarios and the results are shown on page 43. We summarise our GHG commitments and plans to reduce emissions on page 39 and provide further detail on page 20 to 23 of our 2021 Sustainability Report. c. During 2021 we undertook (with support from a third party) detailed scenario analysis of four We will continue to assess (10%) of our climate related risks/opportunities (two transitional and two physical), to the resilience of our climate Describe the resilience determine the degree of resilience in our strategy. Financial impact was assessed using the strategy through further of the organisation’s same base financial model used for both going concern and viability statement assessments. scenario analysis in 2022. strategy, taking into Three climate change scenarios were considered: Orderly (+1.5°C), Disorderly (+2°C) and Hot consideration different House (+3°C) across six five-year time horizons to 2050. Our scenario process and the results climate related from our 2021 assessment are summarised in more detail on page 42 and 43. scenarios, including a 2°C or lower scenario. Croda International Plc ## 40 Annual Report and Accounts 2021 Strategic report In the TCFD table below we have summarised material climate related financial disclosures consistent with the four recommendations and the eleven recommended disclosures proposed by TCFD. Further detail of these can be found throughout our Annual Report and Sustainability Report as referenced. As we continue to align our approach to the updated TCFD additional guidance which was released in October 2021 (Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures (2021 TCFD Annex)) there are some recommendations that we continue to consider how to more completely explain. Our work will continue throughout 2022 with the intention of providing fuller disclosure in our 2022 Annual Report as required by the Listing Rules. | | Compliance | Next steps and timeframes | | --- | --- | --- | | **a.** Describe the organisation's processes for identifying and assessing climate related risks. | The process for assessing and identifying climate related risks is fully embedded as part of our global risk management process which is described on pages 50 to 52. When new and emerging risks or opportunities are identified they are assigned a business owner and are prioritised using our 6x6 risk assessment scale to determine their potential impact and likelihood. We identify climate related risks across all categories of our risk management framework: Strategic, People and Culture, Process, External Environment (which includes external regulatory) and Financial, and include security of raw material supply, supply chain, existing/emerging regulation and people. Risks and opportunities are grouped as either having transitional or physical causes as defined by the TCFD. When considering principal risks we pull all sustainability risks together within our 'Delivering sustainable solutions' risk (page 53) which was added as a standalone principal risk in 2019, recognising its significance to both ourselves and our customers. | The identification of emerging risks and opportunities and the assessment of our current risks will continue through our global risk management process (page 52). | | **b.** Describe the organisation's processes for managing climate-related risks. | In line with our model of decentralising the management of risks and opportunities to the first line, to be close to the point of action ownership, day-to-day management of climate related risks and opportunities is delivered by named owners globally. Our small central Group Sustainability and Sustainable Sourcing functions provide expertise and manage third-party relationships. In 2021 we founded regional sustainability champions to catalyse activity and share best practice at local level. Climate related risks and opportunities, and their mitigating controls and actions are captured in our global risk management system, the Digital Hive which provides transparency of risks and reporting (page 50). Delivery of our climate pillar is led by a named senior leader and progress is reported at the quarterly Sustainability Committee. | We will continue to support risk owners in managing risk with the support of the regional sustainability champions. | | **c.** Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation's overall risk management. | The process for assessing and identifying both current and emerging climate related risks and opportunities is the same as for all our risks and uses our global risk framework which is described on pages 50 to 52 of this report. In 2021 we conducted our fourth materiality assessment (page 30) to take the temperature of stakeholder expectations and assess sustainability risks and opportunities for Croda, including those relating to climate. | Following the completion of our 2021 materiality assessment, emerging risks and opportunities identified will be added to the Digital Hive where they do not already exist. | | **a.** Disclose the metrics used by the organisation to assess climate related risks and opportunities in line with its strategy and risk management process. | The metrics which we use to assess climate related risks and opportunities are described in more detail on page 31 of this report, with further detail in our 2021 Sustainability Report (page 20). A full ESG data pack has been developed and is downloadable from croda.com. We include the emissions metric in our key performance indicators on page 44. In 2021 we invested in market leading technology to collate and automate internal reporting of our metrics and trained employees having data entry and valuation responsibilities. We describe our internal carbon pricing on page 32. | In 2022 we will roll out customisable metric dashboards to management, undertake an internal audit review of non-financial KPI processes and procedures (page 81), and include emissions metrics as part of our PSP (page 96). | | **b.** Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas (GHG) emissions and the related risks. | Scope 1, 2 greenhouse gas emissions and our calculation methodology are disclosed on page 39. In 2021 we established a clearer view of our supply chain emissions, undertaking a thorough analysis of our scope 3 GHG emissions, which was externally verified by Avieco (page 32). Life cycle assessment studies for key raw materials were also updated in 2021 (page 32). For more detail on our scope 3 methodology see our Sustainability Report (page 22). | Based on our 2021 scope 3 carbon assessment, we will continue to work to decarbonise our supply chains. | | **c.** Describe the targets used by the organisation to manage climate related risks and opportunities and performance against targets. | As part of our sustainability strategy review in 2020, new climate related objectives and targets were set for 2030, which are laid out in more detail on page 20 of our Sustainability Report. Three key targets are identified (page 39): reducing emissions (including scope 1, 2 and 3 greenhouse gas emissions), sustainable innovation and carbon cover, each of which has clearly identified targets and milestones defined. | | Croda International Plc Annual Report and Accounts 2021 41 ### Sustainability (continued) ### 2021 climate scenario analysis (CSA) modelling Scenario analysis helps us to understand the potential impact of climate change on our future business, to inform our strategy and future business planning. Methodology The CSA was conducted using a standard methodology in line with the TCFD’s guidance. Climate scenarios defined by the Network for Greening the Financial Systems (NGFS) were used to model the potential climate related risks and opportunities that Croda may be exposed to. Selected climate related risks and opportunities identified through our risk assessment process were modelled against the following three scenario categories: • Net Zero 2050: Orderly (+1.5°C) – early, ambitious action to a net zero CO 2 emissions economy; • Divergent Net Zero: Disorderly (+2°C) – action that is late, disruptive, sudden and / or unanticipated; • Current Policies: Hot house world (+3°C) – limited action leads to a hot house world with significant global warming and, as a result, strongly increased exposure to physical risks. We considered the impact over six, five year time periods to 2050, which extends significantly beyond our strategic planning horizon but is in line with our commitment to be net zero by 2050. For each transitional risk we also considered the impact under the assumption that Croda continues to operate as today (business as usual) and secondly that currently planned mitigating actions to meet Science Based Targets are successfully implemented. Scenario data from the NGFS and Orbitas Finance, in conjunction with Croda’s financial and process data, were used to forecast and quantify the potential levels of climate related financial risk in line with Croda’s risk matrix. Conclusions Our analysis shows that although the scenarios present financial risks to Croda, these could be managed by currently planned mitigating actions meaning that we would not have to materially change our business model. Of the risks assessed the potential cost impact of carbon taxation across the two transitional risks is the most notable, which will mitigated by implementing our planned emissions reduction programme, described in more detail on page 39. ### The transition to 100% RSPO-certified palm derivatives – mitigating transitional and physical ### climate-related risks | Our sustainable sourcing activities and | palm and palm kernel oil without further | This is contributing to progress against | | --- | --- | --- | | future strategy will play a large part in | deforestation. Being a leading voice in | our science-based target as well as | | mitigating both physical and transitional | industry and working with coalitions such | mitigating the risk and impact of any | | climate-related risks associated with our | as ASD to drive further industry transition | potential carbon taxation associated with | | raw materials. Since 2012 we have | to RSPO helps to mitigate the risks | our product carbon footprints, for both | | supported the transition to RSPO- | associated with increased pricing due to | ourselves and our customers. | | certified sustainable palm, with 85% | lack of availability. | | 1. Schmidt J and De Rosa M (2019). | of our purchased palm derivatives | | 1 | Comparative LCA of RSPO-certified and | | --- | --- | --- | --- | | | A peer reviewed LCA study | has | | | RSPO-certified by the end of 2021. | | | non-certified palm oil – Executive Summary. | demonstrated the measurable carbon 2.-0 LCA consultants: https://lca-net.com/ RSPO-certified palm oil cultivation leads footprint reduction associated with clubs/palm-oil/ to increased yields due to more efficient switching to RSPO-certified palm farming practices, increasing availability of derivatives. ## Since 2018, our transition to RSPO certified ## ingredients has led to a 23,949 tonnesCO e ### 2 ## reduction in our scope 3 purchased goods ## andservices category. Croda International Plc ## 42 Annual Report and Accounts 2021 Strategic report # Transitional risks | Risk | Modelling assumptions | Summary of findings | | --- | --- | --- | | **Carbon pricing on direct emissions** | Rising carbon taxes may impact profits through increased direct costs (tax on direct emissions from operations). Key markets may develop and implement regional policies such as the EU carbon border tax to prevent carbon leakage. Using Croda revenue and emissions projections, the potential cost impact of increased carbon prices associated with Croda direct emissions was calculated. The cost was modelled across the future climate related scenarios using carbon price models at a global level from the NGFS database. | In the Current Policies scenario, the additional cost of carbon taxes increase is limited, resulting in a minor level of financial risk to the business out to 2045, when the risk level increases to low. In both the Net Zero 2050 and the Divergent Net Zero scenarios the additional costs due to higher levels of carbon taxation are forecast to expose Croda to high levels of financial risk beyond 2030 assuming a business-as-usual emissions trajectory, which is mitigated to moderate levels when following the planned emissions reduction trajectory in line with Croda's current Science Based Targets. | | **Cost of natural gas** | Future costs of natural gas may impact profits through increased direct costs. Future natural gas prices differ in future climate scenarios but all result in an increase in unit price, likely driven by carbon taxation. Using Croda revenue and natural gas usage projections this scenario assessed the possible cost to Croda of increased natural gas prices, which has been modelled across the future climate related scenarios using natural gas price models at a global level from the NGFS database. | In a business-as-usual energy usage trajectory the Current Policies scenario saw the lowest levels of financial risk, beginning with a moderate level and reaching high risk levels by 2040. In both the Net Zero 2050 and the Divergent Net Zero scenarios the additional costs due to natural gas price increases are expected to expose Croda to high levels of financial risk from 2030 onwards. This is mitigated by implementing Croda's current decarbonisation strategy resulting in reduced usage of natural gas. | # Physical risks | Risk | Modelling assumptions | Summary of findings | | --- | --- | --- | | **Natural raw material pricing** | Potential changes in mean global temperatures are likely to affect the location, yield and type of crops grown around the world, with resulting impact on raw material availability and cost. In 2020 palm oil derivatives formed a significant volume of our raw materials and this trend is expected to continue. As such, the future change in the price of palm derivatives will likely have a direct effect on the cost of sale of palm-based products. The potential changes in the cost of sales that Croda may be exposed to has been modelled using the future percentage increase of palm oil prices (Orbitas – Climate Transition Risk Analyst Brief: Indonesian Palm Oil) against the total volumes and price of palm derivatives purchased by Croda in 2021. | The cost of palm is forecast to expose Croda to varying levels of risk across two different climate related scenarios for which clear models are available. In the Current Policies scenario, the cost of palm oil increase is limited, resulting in a low level of financial risk to the business out to 2035 at which point the cost of palm is forecast to drop below the 2020 baseline cost resulting in a cost saving opportunity for the business, driven by continual efficiency improvement in farming technologies (partially supported by Croda innovation) driving prices down. In a Net Zero 2050 scenario a predicted increase in the cost of palm oil (driven by increasing demand for palm oil as an alternative to fossil based oils for fuel) is expected to drive moderate and high levels of financial risk by 2045. Our focus on high value niches and differentiated products with unique characteristics helps to mitigate this risk by enabling us to pass on raw material cost increases to our customers. | | **Labour productivity** | As global mean temperature increases, heat stress within the work force is also forecasted to increase. Heat stress can impact labour productivity due to the reduced capacity of the human body to perform physical labour. To maintain forecast levels of production across the business, Croda may have to hire more staff, increasing our overall staff costs. Staff costs were modelled using Croda staff costs, production volumes and expected annual growth rate in conjunction with NGFS labour productivity due to heat stress data. | In all three future climate scenarios there are only minor or low levels of financial risk to the business for all time periods considered. | Croda International Plc Annual Report and Accounts 2021 43 ### Key Performance Indicators ## Measuring our progress ## Our strategy is to combine sustainability and ## innovation to deliver growth. We measure our ## progress against each of these priorities ## through a range of KPIs. ### Scope 1 & 2 emissions and intensity* R 2 Definition: Scope 2 / tonnes CO e 2 Our operational emissions (associated with burning fuels onsite and purchased electricity), Scope 1 and 2 emissions intensity both in absolute terms and as emissions intensity. Our chosen measure of emissions intensity divides our GHG emissions (market-based scope 2 emissions) by value added, e) 2 a measure of our business activity*. 250,000 350 Target: By 2030, we will have achieved our Science Based Target, reducing emissions in line 200,000 300 with limiting global warming to no more than 1.5°C above pre-industrial levels. 250 150,000 Performance: 200 Since 2018 our scope 1 & 2 emissions have reduced by 12.7%, in line with the absolute 100,000 150 emissions reduction pathway required to achieve our verified Science Based Target. This 2 has been driven by a 60% reduction in scope 2 emissions following a switch to renewable 100 50,000 electricity at our manufacturing sites. Since 2018 our emissions intensity has improved by 50 Scope 1 and 2 emissions (tonnes CO 39% and we are successfully disconnecting growth from emissions. For more detail see 0 0 Sustainability on page 39. 2021202020192018 R Land area saved ### Land area saved (hectares) Definition: 33,734 Land area saved through the application of our crop protection and seed enhancement technologies, using 2019 as our baseline year. ## 33,734 Target: Throughout this decade, the land saved through the application of our technologies will hectares of land saved 16,455 exceed any increase in land used to grow our raw materials by at least a factor of two, over the 2019 baseline and by 2030 we will save a minimum 200,000 hectares per year more than in 2019. Performance: In 2021 the use of our agricultural ingredients and new technologies saved 33,734 hectares of land compared to our 2019 baseline. This puts us on track to achieve our 2030 target that the land we save outpaces the land we use as our business grows by a factor of at least two. Read more in our Sustainability section on page 33. ## Sustainability ### Health and wellbeing** Definition: ## 15/24 The number of pipeline vaccines that we are contributing to that combat the | World Health Organisation's (WHO) 24 priority diseases. | Our smart science is contributing | | --- | --- | | Target: | to vaccine projects combatting | | By the end of 2024, our technology will be contributing to at least 10 clinical phase III | 15 of the WHO’s 24 priority diseases | trials across at least 25% of the WHO-listed pipeline vaccines. Performance: We have continued to increase engagement with teams researching WHO-listed pipeline vaccines and are now supporting 79 projects (2020: 32) contributing to tackling 15 of the 24 priority diseases. ### Total Recordable Injury Rate^ Employee Contractor Combined Definition: 1.0 The number of incidents per 200,000 hours worked where a person has sustained an injury, including all lost time, restricted work and medical treatment cases. 0.8 Target: Achieve TRIR of 0.3 by the end of 2024, with an interim target of 0.6 for 2022. 0.6 Scope 1 & 2 emissions and scope Performance: | intensity | | | | ^ | | | --- | --- | --- | --- | --- | --- | | | | The headline TRIR increased from 0.58 to 0.73 | | in 2021. Injury rates at the sites of recently | 0.4 | | | Scope 1 / tonnes CO | | e | | | acquired businesses are, on average, higher than established Croda sites and while they are reducing as integration progresses, their inclusion has driven an increase in the overall 0.2 Total recordable injury rate Group TRIR. There was also a small increase driven by existing Croda sites as a return to ® Land area saved (hectares) more normal working patterns has seen increased recordable injuries. To read about our 0.0 Emissions intensity (tonnes CO 2020201920182017 performance and safety initiatives see page 36 of our 2021 Sustainability Report. * See page 39 for our definition of value added and further detail on our emissions intensity. ** Our People Positive strategy encompasses various targets and cannot be represented by a single KPI. In 2022 we plan to implement an employee engagement KPI for reporting. We have also introduced a specific gender balance target to our Remuneration Policy for 2022. ^ Both the 2021 and 2020 TRIR include businesses acquired but exclude workplace related COVID-19 cases. | | Croda International Plc | e / £m) | | --- | --- | --- | | 44 | Annual Report and Accounts 2021 | | | 20212020 | | 2021 | Key: **i** Remuneration: KPIs that form part of our Remuneration Policy. See page 88. Innovation ## New and Protected Products (NPP) sales % **Definition:** Proportion of sales from NPP (in constant currency), NPP products are sales protected by virtue of being either newly launched, protected by intellectual property or by unique quality characteristics. **Target:** NPP sales to grow ahead of sales growth. **Performance:** NPP sales increased from 27.4% in 2020 to 28.0% on an organic basis, or to 36.6%, including the impact of the Iberchem and Avanti acquisitions. This reflects strong sales of lipid systems and a high NPP percentage at Iberchem where a large proportion of sales are of new products due to ongoing innovation within that business model. Read more about innovation in Identifying unmet needs on page 4. ![img-9.jpeg](img-9.jpeg) ## Sales growth (%) **Definition:** Total sales growth measured at constant currency. **Target:** Mid-single digit % growth in Consumer Care. High-single digit % growth in Life Sciences. Excluding raw material price recovery. **Performance:** Sales growth in 2021 was 43.2%, driven by an excellent performance across all sectors including 52.9% growth in Consumer Care and 53.5% growth in Life Sciences. Acquisitions contributed 16.9% to sales growth, but excluding acquisitions underlying sales growth was 26.3%. ![img-10.jpeg](img-10.jpeg) ## Return on sales (ROS) (%) **Definition:** Adjusted operating profit as a percentage of sales. **Target:** Improve ROS in Consumer Care. ROS similar to current levels in Life Sciences. **Performance:** Group ROS increased by 180 basis points to 24.8%. Consumer Care ROS was 24.7% (2020: 27.8%) reflecting the dilution effect from F&F, which operates at structurally lower margins than Personal Care. Life Sciences ROS was 36.4% (2020: 31.7%) reflecting strong growth in higher-value patient health technologies. ![img-11.jpeg](img-11.jpeg) ## Return on invested capital (ROIC) (%) **Definition:** Adjusted operating profit after tax divided by the average adjusted invested capital. Adjusted invested capital represents net assets adjusted for net debt, earlier goodwill written off to reserves and accumulated amortisation of acquired intangible assets. **Target:** ROIC of two to three times cost of capital. **Performance:** The post-tax return on invested capital ('ROIC') was broadly flat at 14.2% (2020: 14.6%). Despite a significant increase in average invested capital due to the annualisation of 2020 acquisition activity, the growth in adjusted operating profit net of tax resulting from these investments, together with underlying growth, broadly offset this. ROIC continues to be more than twice the Group's cost of capital. ![img-12.jpeg](img-12.jpeg) ## Adjusted basic earnings per share (EPS) **Definition:** Adjusted profit after tax divided by the average number of shares in issue. **Target:** At least mid-single digit % EPS growth per annum. **Performance:** Adjusted earnings per share increased by 42.5% to 250.0p. This growth was driven by excellent profit growth and a marginally lower tax rate of 21.2% (2020: 24.1%) offset by an increased number of shares in issue following the equity placing in 2020. ![img-13.jpeg](img-13.jpeg) To read more about our financial performance see Finance review P46 Croda International Plc Annual Report and Accounts 2021 45 Strategic report ### Finance review ## We expect to continue with the ## current accelerated capital ## reinvestment and acquisition ## programmes over the next three ## years, given the strong demand ## environment and range of growth ## and technology opportunities in ## Consumer Care and Life Sciences. Jez Maiden ## Record profit Group Finance Director Adverse impact from currency translation ## and margin The average Sterling exchange rates against the Group’s key currencies strengthened during 2021 to US$1.375 (2020: US$1.285) and €1.164 (2020: €1.125). As a result, currency translation ## delivered reduced reported currency sales by £101.6m and adjusted operating profit by £24.8m. Transactional currency impact is correlated with translation, given that the UK is a meaningful centre of production for the Group, with the strength of Sterling having an adverse impact on margins. Strong sales from organic growth and acquisition Sales grew by 35.9% to £1,889.6m (2020: £1,390.3m), comprising underlying growth of 26.3% and a first-year acquisition benefit of 16.9%, partly offset by adverse currency translation of 7.3%. Volume was 8.9% higher than prior year and sales price/mix rose by 17.4%, reflecting successful recovery of raw material cost increases, together with a better product mix. Full year ended 31 December 2020 2021 Restated ## Sales Sales £m Price/mix Volume Acquisition Currency Change £m Consumer Care 763.0 12.8% 5.2% 34.9% (8.3)% 44.6% 527.8 ## performance Life Sciences 572.3 34.9% 5.5% 13.1% (7.7)% 45.8% 392.5 Performance ## wasexcellent Technologies 439.5 11.0% 12.5% – (5.9)% 17.6% 373.6 Industrial Chemicals 114.8 14.6% 10.3% – (5.8)% 19.1% 96.4 ## across all sectors, Group 1,889.6 17.4% 8.9% 16.9% (7.3)% 35.9% 1,390.3 ## augmented by raw Sales performance was excellent across all sectors, augmented by raw material cost recovery. Consumer Care sales increased by 44.6%, supported by a return to strong volume growth. Life ## material cost Sciences sales increased by 45.8%, with growth across all markets and sales of approximately US$200m from the lipid systems platform primarily to our principal vaccine customers. With ## recovery.” volume growth in industrial end markets, Performance Technologies sales increased by 17.6%, whilst a recovery in commodity prices saw Industrial Chemicals sales 19.1% higher. Overall, year-on-year growth was slightly lower in the second half year, due to a softer first half comparator when COVID-19 had its biggest impact in 2020. | | First | Second | | Full | | --- | --- | --- | --- | --- | | | half | | half | year | | 2021 sales growth | % | | % | % | Consumer Care 46.2 43.1 44.6 Life Sciences 61.5 32.5 45.8 Performance Technologies 14.7 20.8 17.6 Industrial Chemicals 12.6 25.3 19.1 Group 38.8 33.2 35.9 Note: Sector results for full year 2020 have been restated to reflect a change to the Group’s reporting structure. Croda International Plc ## 46 Annual Report and Accounts 2021 Strategic report Underlying sales were 17.7% ahead of 2019 (excluding sales of lipid systems introduced since 2019, to provide a better basis of comparison), demonstrating significant growth against pre-pandemic levels. Consumer Care, Life Sciences and Performance Technologies were all up double-digit percentage on 2019. | Underlying sales growth (excluding lipid systems) | % change 2021 vs. 2019 | | --- | --- | | Consumer Care | 17.3 | | Life Sciences | 23.6 | | Performance Technologies | 15.9 | | Industrial Chemicals | 8.0 | | Group | 17.7 | #### Record profit and margin delivered 2021 saw the most significant upward movement in raw material prices for over a decade, with our average basket of raw materials in the underlying business up 17% across the year. Croda's operating model is to recover such increases as they occur and this has been delivered overall, despite a small lag in recovery in F&F, where the business model differs from Croda's traditional model. Alongside a strengthening product mix as we grew in higher value niches, this resulted in an improvement of 17% in sales price/mix. 2021 also saw significant volume recovery globally, up 9% in underlying terms, as consumer demand returned as COVID impacts eased and customers restocked. Combined with global supply chain disruption affecting many industries, including a shortage of freight containers and delays accessing ports, together with new UK/European trading procedures post-Brexit and higher COVID-related absenteeism, maintaining customer service came under some stress and we increased tactical inventory volume to alleviate delays and protect customer supply. With volume growth moderating towards the end of the year, service levels improved. Our Brexit preparation plans were implemented smoothly and successfully. 2021 included a significantly higher remuneration incentive charge than the prior year, reflecting bonus and share-based payment costs due to the enhanced profit and share price performance; this reduced year-on-year margin by two percentage points. Despite these headwinds, Croda achieved a record profit and return on sales in 2021. | | 2021 | | | 2020 | | | | --- | --- | --- | --- | --- | --- | --- | | | IFRS £m | Adjustments £m | Adjusted £m | IFRS £m | Adjustments £m | Adjusted £m | | Sales | 1,889.6 | – | 1,889.6 | 1,390.3 | – | 1,390.3 | | Cost of sales | (950.7) | – | (950.7) | (758.2) | – | (758.2) | | Gross profit | 938.9 | – | 938.9 | 632.1 | – | 632.1 | | Operating costs | (500.7) | (30.4) | (470.3) | (342.1) | (29.6) | (312.5) | | Operating profit | 438.2 | (30.4) | 468.6 | 290.0 | (29.6) | 319.6 | | Net interest charge | (26.7) | (3.3) | (23.4) | (20.5) | (1.5) | (19.0) | | Profit before tax | 411.5 | (33.7) | 445.2 | 269.5 | (31.1) | 300.6 | | Tax | (88.7) | 5.7 | (94.4) | (67.9) | 4.5 | (72.4) | | Profit after tax | 322.8 | (28.0) | 350.8 | 201.6 | (26.6) | 228.2 | IFRS operating profit increased by 51.1% to £438.2m (2020: £290.0m). The charge for adjusting items before tax was £33.7m (2020: £31.1m). In common with many companies, Croda identifies adjusting items as amortisation of intangible assets arising on acquisition, together with exceptional items, which require separate disclosure by virtue of their size or incidence. The charge for amortisation of intangible assets before tax increased to £34.3m (2020: £13.6m), reflecting the impact of recent acquisitions. The net credit on exceptional items before tax was £0.6m (2020 charge: £17.5m), comprising a gain on pensions of £11.2m (arising from transfer of the Dutch scheme to a collective defined contribution arrangement); a gain on contingent consideration of £6.2m related to previous acquisitions; a charge for business acquisition and disposal costs of £13.5m, principally relating to the sale of the majority of PTIC; and a charge for the unwind of the discount on contingent consideration of £3.3m. Excluding these adjusting items, adjusted operating profit increased by 46.6% to £468.6m (2020: £319.6m), reflecting higher sales and margin. Return on sales improved to 24.8% (2020: 23.0%). With the adjusted net interest charge increasing to £23.4m (2020: £19.0m), including the write-off of a loan to a technology investment, adjusted profit before tax increased by 48.1% to £445.2m (2020: £300.6m). IFRS profit before tax increased by 52.7% to £411.5m (2020: £269.5m). The effective tax rate on adjusted profit reduced to 21.2% (2020: 24.1%). This benefited from a one-off settlement of a previous uncertain tax position; we expect the future tax rate to be around 25%. The impact of the divestment of the majority of PTIC on the future tax rate is expected to be immaterial. There were no other significant adjustments between the Group's expected and reported tax charge based on its accounting profit. With an increase in shares in issue following the equity placing to acquire therefrom in late 2020, IFRS basic earnings per share (EPS) were 230.0p (2020: 155.1p) and adjusted basic EPS increased by 42.5% to 250.0p (2020: 175.5p). Profit performance was strong across all sectors, led by Life Sciences where adjusted operating profit was up 67.5%, reflecting sales growth and an improvement in product mix towards higher value add niches. Consumer Care adjusted operating profit rose 28.7%, strengthening in the second half year with continued growth and mix improvement in its Personal Care business. Performance Technologies benefited from the recovery in demand, with higher volume positively impacting operating leverage, resulting in adjusted operating profit 31.9% higher. Industrial Chemicals enjoyed significantly better profit due to improved commodity pricing. Croda International Plc Annual Report and Accounts 2021 47 ### Finance review (continued) 2021 2020 restated IFRS Adjustments Adjusted IFRS Adjustments Adjusted Operating profit £m £m £m £m £m £m Consumer Care 168.0 (20.5) 188.5 133.0 (13.5) 146.5 Life Sciences 201.0 (7.5) 208.5 112.3 (12.2) 124.5 Performance Technologies 62.7 (1.8) 64.5 45.3 (3.6) 48.9 Industrial Chemicals 6.5 (0.6) 7.1 (0.6) (0.3) (0.3) Group 438.2 (30.4) 468.6 290.0 (29.6) 319.6 Underlying growth across the sectors added £116.0m to adjusted operating profit, acquisitions within the first year of ownership contributed £57.8m and currency represented a £24.8m headwind. Full year ended 31 December | | | Underlying | | | Acquisition | | | Currency | | | 2020 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2021 | | growth | | | impact | | impact | | restated | | | Adjusted profit | £m | | | £m | | | £m | | £m | | £m Change | Consumer Care 188.5 27.8 26.0 (11.8) 146.5 28.7% Life Sciences 208.5 62.5 31.8 (10.3) 124.5 67.5% Performance Technologies 64.5 17.9 – (2.3) 48.9 31.9% Industrial Chemicals 7.1 7.8 – (0.4) (0.3) – Operating profit 468.6 116.0 57.8 (24.8) 319.6 46.6% Net interest (23.4) (19.0) 23.2% Profit before tax 445.2 300.6 48.1% Impact of the divestment of the majority of PTIC On 22 December 2021, the Group announced an agreement to divest the majority of the PTIC business and is currently working with the acquirer on the process to separate the acquired activities from the Group. With completion of the divestment expected in summer 2022, this transaction had no impact on the Group’s reported results for 2021, except for costs incurred reported as an exceptional item. In these 2021 results, PTIC revenue totalled £554m (2020: £470m) and adjusted operating profit was £72m (2020: £49m). Taking account of the value to be retained by Croda under future supply agreements for products to be manufactured at Croda sites and supplied to the acquirer, together with dis-synergy costs remaining with Croda which were previously allocated to the divested business, the estimated impact of the divestment on Croda’s reported 2021 results, had it occurred at the start of 2021, would have been to reduce revenue by £361m (2020: £298m) and adjusted operating profit by £59m (2020: £36m). Lower free cash flow reflecting higher investment and demand growth Free cash flow reduced to £153.6m (2020: £176.9m) as a result of higher working capital and increased capital investment. Working capital rose by just over £100m due to increased raw material costs and selling prices, higher sales volumes and tactical increases in inventory to mitigate global distribution challenges. The impact of higher pricing and sales volume (at constant working days cover) accounted for approximately £69m of the increase with the balance reflecting tactical increases. Full year ended 31 December 2021 2020 Cash flow £m £m Adjusted operating profit 468.6 319.6 Depreciation and amortisation 79.0 68.2 EBITDA 547.6 387.8 Working capital (102.5) (2.3) Net capital expenditure (158.5) (121.0) Payment of lease liabilities (14.4) (7.6) Non-cash pension expense 11.2 7.7 Interest & tax (129.8) (87.7) Free cash flow 153.6 176.9 Dividends (132.5) (115.9) Issue of new equity – 615.5 Acquisitions (58.8) (869.7) Other cash movements 19.0 (26.6) Net cash flow (18.7) (219.8) Net movement in borrowings 37.6 237.3 Net movement in cash and cash equivalents 18.9 17.5 Capital investment increased to £158.5m (2020: £121.0m), reflecting the 1. Reinvest for growth – invest in organic capital expenditure to drive start of a programme to reinvest proceeds from the divestment of the shareholder value creation through new capacity, product innovation majority of PTIC to unlock growth opportunities in Consumer Care and and expansion in attractive geographic markets to drive sales and Life Sciences. This is creating new technology platforms and expanding profit growth; existing capacity to drive superior future growth. This organic expansion 2. Provide regular returns to shareholders – pay a regular dividend is supported by selected inorganic acquisition opportunities, with 2021 to shareholders, representing 40 to 50% of adjusted earnings over the seeing £58.8m invested in new platforms, with Parfex in fine fragrances business cycle. The full year dividend has been raised by 10% to and Alban Muller in natural Beauty Actives. Together, this organic and 100.0p (2020: 91.0p), being 40% of adjusted earnings; inorganic investment reflects elements 1 and 3 of the Group’s capital 3. Acquire disruptive technologies – to supplement organic growth, allocation policy, to: target a number of exciting technology acquisitions in existing and adjacent markets, strengthening Consumer Care and expanding Life Sciences; and Croda International Plc ## 48 Annual Report and Accounts 2021 Strategic report 4. Maintain an appropriate balance sheet and return excess capital – maintain an appropriate balance sheet to meet future investment and trading requirements, targeting a leverage ratio of 1 to 2x over the medium-term cycle. We consider returning excess capital to shareholders when leverage falls below our target range and sufficient capital is available to meet our investment opportunities. At 31 December 2021, the leverage ratio was 1.4x (31 December 2020: 1.8x) and is expected to fall below 1x on completion of the disposal of the majority of PTIC. We expect to continue with the current accelerated capital reinvestment and acquisition programmes over the next three years, given the strong demand environment and range of growth and technology opportunities in Consumer Care and Life Sciences. The post-tax ROIC was broadly flat at 14.2% (2020: 14.6%). Despite a significant increase in average invested capital due to the annualisation of 2020 acquisition activity, the growth in adjusted operating profit net of tax resulting from these investments, together with underlying growth, broadly offset this. ROIC continues to be more than twice the Group's cost of capital. Closing net debt was £823.2m (31 December 2020: £800.5m). The Group has a strong balance sheet with its material debt maturities falling due between 2023 and 2030, and the primary bank revolving credit facility extended during the year to 2026. As at 31 December 2021, the Group had committed funding in place of £1,225.8m, undrawn committed facilities of £334.4m and £112.8m in cash. As part of the annual review of going concern, the Group conducts a series of scenario tests for different economic environments. In 2021, Group sales and profit performed well ahead of the base case scenario evaluated in February 2021, whilst cash generation was broadly similar. # Retirement benefits The post-tax asset on retirement benefit plans at 31 December 2021, measured on an accounting valuation basis under IAS 19, improved to £5.8m (31 December 2020: £25.3m liability), primarily due to higher discount rates and the transfer of the Dutch scheme to a collective defined contribution arrangement. This new arrangement is accounted for as a defined contribution scheme as the Group pays a fixed rate of contributions and members are paid pensions with variable increases. The triennial actuarial valuation of the largest pension plan, the UK Croda Pension Scheme, was performed as at 30 September 2020 and indicated that the scheme was 101% funded on a technical provisions basis. Consequently, no deficit recovery plan is required. The Group has discussed with the Trustee the impact on the scheme of the planned divestment of the majority of PTIC and no changes to funding are anticipated as a result. # Alternative Performance Measures (APMs) We use a number of APMs to assist in presenting information in this statement in an easily analysable and comparable form. We use such measures consistently at the half year and full year, and reconcile them as appropriate. Whilst the Board believes the APMs used provide a meaningful basis upon which to analyse the Group's financial performance and position, which is helpful to the reader, it notes that APMs have certain limitations, including the exclusion of significant recurring items, and may not be directly comparable with similarly titled measures presented by other companies. The measures used in this statement include: - Constant currency results: these reflect current year performance for existing business translated at the prior year's average exchange rates and include the impact of acquisitions. Constant currency results are the primary measure used by management to monitor the performance of overseas business units, since they remove the impact of currency translation into Sterling, the Group's reporting currency, over which those overseas units have no control. Constant currency results are similarly useful to shareholders in understanding the performance of the Group excluding the impact of movements in currency translation over which the Group has no control. Constant currency results are reconciled to reported results in the Finance Review. The APMs are calculated as follows: - For constant currency profit, translation is performed using the entity reporting currency; - For constant currency sales, local currency sales are translated into the most relevant functional currency of the destination country of sale (for example, sales in Latin America are primarily made in US Dollars, which is therefore used as the functional currency). Sales in functional currency are then translated into Sterling using the prior year's average rates for the corresponding period; - Underlying results: these reflect constant currency values adjusted to exclude acquisitions and disposals in the first year of impact. They are used by management to measure the performance of each sector before the benefit of acquisitions or the impact of divestments are included, in order to assess the organic performance of the sector, thereby providing a consistent basis on which to make year-on-year comparison. They are seen as similarly useful to shareholders in assessing the performance of the business. Underlying results are reconciled to reported results in the Finance review; - Adjusted results: these are stated before exceptional items and amortisation of intangible assets arising on acquisition, and tax thereon. The Board believes that the adjusted presentation (and the columnar format adopted for the Group income statement) assists shareholders by providing a meaningful basis upon which to analyse business performance and make year-on-year comparisons. The same measures are used by management for planning, budgeting and reporting purposes and for the internal assessment of operating performance across the Group. The adjusted presentation is adopted on a consistent basis for each half year and full year results; - Return on sales: this is adjusted operating profit divided by sales, at reported currency. Management uses the measure to assess the profitability of each sector and the Group, as part of its drive to grow profit by more than sales value, in turn by more than sales volume, as set out in the Chief Executive's review; - Return on invested capital (ROIC): this is adjusted operating profit after tax divided by the average adjusted invested capital. Adjusted invested capital represents net assets adjusted for net debt, earlier goodwill written off to reserves and accumulated amortisation of acquired intangible assets. The Board believes that ROIC is a key measure of efficient capital allocation, in line with its policy set out in the Finance Review, with its aim being to maintain a ROIC of two to three times the cost of capital over the cycle, and that it is useful to shareholders in assessing the superior returns delivered by the Group and the impact of deploying more capital to grow future returns faster; - Net debt: comprises cash and cash equivalents (including bank overdrafts), current and non-current borrowings and lease liabilities. Management uses this measure to monitor debt funding levels and compliance with the Group's funding covenants which also use this measure. It believes that net debt is a helpful additional measure for shareholders in assessing the risk to equity holders and the capacity to invest more capital in the business; - Leverage ratio: this is the ratio of net debt to Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) adjusted to include EBITDA from acquisitions or disposals in the last 12 month period. EBITDA is adjusted operating profit plus depreciation and amortisation. The Board monitors the leverage ratio against the Group's debt funding covenants and overall appetite for funding risk, in approving capital expenditure and acquisitions. It believes that the APM is a helpful additional measure for shareholders in assessing the risk to equity holders and the capacity to invest more capital in the business; - Free cash flow: comprises EBITDA less movements in working capital, net capital expenditure, payment of lease liabilities, non-cash pension expense, and interest and tax payments. The Board uses free cash flow to monitor the Group's overall cash generation capability, to assess the ability of the Company to pay dividends and to finance future expansion, and, as such, it believes this is useful to shareholders in their assessment of the Group's performance. Croda International Plc Annual Report and Accounts 2021 49 ### Risk management ## Managing risk ## Our risk framework enables the business to protect and create ## value, helping us to identify opportunities and minimise threats ## to the delivery of our strategic and operational objectives. | Risk strategy and governance | Risk culture | Our principal risks | | --- | --- | --- | | Our Board owns and oversees our risk | We use our global risk management framework | Our risk heat map (page 52) identifies principal | | management programme, with overall | (page 52) to drive an integrated and owned | pre-mitigation risks and reflects a summary of | | responsibility for ensuring that our risks are | approach to risk management through the | local risks identified in the risk framework. They | | aligned with our goals and strategic objectives. | culture of the entire organisation. | are those that we consider most impact our | | The Audit Committee assists the Board in | | business model (page 16) and the delivery of | Risk oversight monitoring the effectiveness of our risk our long-term strategic objectives (page 20). The Board carried out a robust assessment of management and internal control policies, They are explained in further detail in the table emerging and principal risks facing the Group procedures and systems (page 81). on pages 53 to 55. These risks also form the at its meeting in July (page 66), including those | Risk monitoring and reporting | that would threaten its business model, future | basis of scenario testing for the assessment of | | --- | --- | --- | | Global visibility of all risks is delivered through | performance, solvency or liquidity. It also | long-term viability of the Company on page 56. | | our global risk reporting dashboard, updated | received quarterly assurance updates from the | Changes to our gross risk environment | | daily from our risk and control system (the | Chair of the Risk Management Committee. | in 2021 | | Digital Hive) which provides a platform to | | Movements on the risk heat map on page 52 | Risk management understand and manage risks and enables risk reflect changes to the long-term risk Responsibility for risk management is comparison across regions, operations and environment that we are facing and how these embedded throughout our organisation. Our sectors. Using our global risk management risks have changed in the year. In 2021 we first line of defence, our employees, have a framework (page 52), similar risks are have added one new principal risk, whilst three responsibility to manage day-to-day risk in considered together by generic risk area, risks have moved out of the principal list. their own areas guided by Group policies, sub-categories and categories, giving the procedures and control frameworks. Local Business system security risks have increased Board and management visibility of the management, and ultimately the Executive, during 2021 as a result of increasing cyber aggregated risks on a Group-wide basis. Each ensure that risks are managed, maintained, threats globally, whilst other principal risks have of our strategic and operational risks is owned reviewed and actioned according to remained at the same level as 2020. by an Executive member. these frameworks. All risks continue to be monitored by the Risk Risk appetite The second line of defence is provided by Management Committee for significant change Risk appetite statements are defined for each management team review of each risk register, and if the impact or likelihood increases will be subcategory of risks and each generic risk has culminating in review by the Risk Management identified as principal risks in future. a defined risk appetite, visible to all risk owners, Committee (page 52), which meets quarterly to New principal risks in 2021 which is owned and reviewed by an Executive challenge and monitor current risks and receive member. Risk appetite statements are reviewed In the light of significant business change presentations from key risk owners. Insight on annually by the Executive and the Board (page programmes being driven by our strategy (page external trends and on internal emerging risks 66) in order to guide the actions management 20) we have added a standalone principal risk (from review of the bottom-up risk registers) is take in executing our strategy. relating to Management of Business Change provided by the risk team and discussed by which is described in detail, together with our Key risk indicators the Committee. mitigation approach, on page 54. | We set targets to help monitor performance in | The third line of defence is assurance over the | | --- | --- | | mitigating our risks. These targets also support | effectiveness of mitigating controls, which is | | decision making by providing management with | provided through internal audits in addition to | | information about Executive expectations and | reports from external assurance providers. | | are monitored and reviewed by the risk related | These reports are reviewed by three Executive | | steering groups (page 52). | Committees (page 52) and are monitored and | challenged by the Audit Committee (page 81) and the Board. We have a Global Crisis Management plan in place to manage significant risk events, owned by the Executive, which is tested at least annually based on key risk scenarios. Croda International Plc ## 50 Annual Report and Accounts 2021 ### Strategic report | Risks moving out of principal risks in 2021 | remained uninterrupted. Our ability to secure | • Ineffective management of pension fund: In | | --- | --- | --- | | Management’s view is that the three risks | supply in such a challenging period enables | 2021 we worked with the UK scheme trustee | | which are no longer considered to be principal | us to reduce the impact of supplier and raw | to further reduce the likelihood of investment | | are all effectively managed. They are also | material security which results in the risk | and funding risks. Given the Group’s balance | | slower velocity risks, giving us time to take | falling outside our definition of a principal risk. | sheet strength, the impact of any significant | | mitigating actions to address any increased | • Product stewardship and chemical regulatory | increased funding requirements impacting | | levels of risk. These risks are: | compliance: We consider this to be a risk | Croda’s balance sheet is assessed as | | | with well established operational process, a | reduced since 2020. The combination of | • Supplier and raw material security: The last dedicated specialist team and no recent reduced risk impact and likelihood results in two years have seen a period of significant issues. In 2021 we increased the size of the the risk falling outside our definition of a disruption to global trade (see case study team to address complexity in this area and principal risk. below). Throughout this period our to support further integration across the procurement teams have worked with business. This enabled us to reduce the suppliers to ensure that raw materials likelihood of the risk, which results in this risk continue to be available and production has falling outside our definition of a principal risk. ## Supply chain management The continued short-term impact of COVID-19 and Brexit has seen disruption of our supply chain in 2021. This has the potential to impact both our raw material supply and the availability of freight to deliver finished product to our customers. We monitor delivery metrics closely through our Safety, Health, Environment and Quality (SHEQ) steering committee and at our monthly regional leadership team meetings. Supply chain management has been challenging, but thanks to the excellent work of our teams in customer service, shipping and sales we have supplied greater volumes to our customers than in previous years, demonstrating the resilience of our supply chain. In addition, our flexible production sites have implemented rapid debottlenecking and amended plant scheduling to accommodate changes to material availability and increased demand. The main short-term challenges we had to address in 2021 have been as follows: • Brexit import and export paperwork for particular raw materials, leading to a backlog of material being held in port • Shortage of hauliers, particularly in the UK, Spain and USA • Shortage of deep sea containers, particularly for shipping from East to West, with a consequent increase in prices of these containers • COVID-19 related absenteeism impacting Croda and third-party logistics provider teams ## Risk appetite Our risk appetite is the level of risk that Croda is willing to accept in the pursuit of a specific objective or strategy. We have defined our risk appetite in a number of areas in order to manage and monitor our risk exposure. Assessing risks against our risk appetite also provides the opportunity to identify areas where we may not be taking enough risk. Our risk appetite statements are compiled based on our Company values, strategy, and capacity to absorb risk in certain areas. We have risk appetite statements in place for each of our risk sub-categories, each being owned by a member of the Executive. On an annual basis the risk appetites are reviewed by the Executive and the Board (page 66) and updated to ensure they remain relevant. We use our risk appetites as a starting point to review and challenge the level of risk that we are taking for each of our key risks, to identify areas where additional control may be needed, or where the level of control may be too onerous. Croda International Plc ## Annual Report and Accounts 2021 51 ### Risk management (continued) ## Our risk framework ### What we monitor Executive risk register Summary of the principal risks facing us prepared by combining risks identified through the local bottom-up registers with Group-level risks identified and owned by the Executive Committee | Our risk landscape | What we assess | Risk categories we assess | | --- | --- | --- | | Current risks | Risk ownership: each risk has a named owner | Six categories, 17 subcategories, | | Risks we are managing now | Likelihood and impact: globally applied 6x6 scoringscale | over 50 generic risks, one | | that could stop us achieving our | | framework: | Gross risk: before mitigating controls strategic objectives • Strategic Mitigating controls: subject to internal audit review Emerging risks • People and culture andmonitoring Risks with a future impact from • Process external or internal opportunities or Net risk: after mitigating controls are applied • External environment threats. These can be slow moving, Risk appetite: defined at generic risk and subcategory • Business systems and Security as well as rapid velocity level and transparent through our risk dashboard • Financial Actions: for further mitigation if required Our bottom-up registers The core of our risk assessment. Owned by market sectors, regions, manufacturing sites and functions, they identify local risks and mitigating controls arising from day-to-day operations in over 30 risk registers globally ### How we monitor Board Audit Risk Management Committee Sustainability Group SHEQ Group Ethics Responsible Committee Chaired by Jez Maiden. Steering Committee Committee for the risk Reviews the Meets quarterly to monitor and review risks other than Chaired by Phil Ruxton. Committee Chaired by framework and effectiveness Safety, Health, Environment and Quality (SHEQ), Tom Brophy. definition of risk Meets quarterly to Chaired by of the Group risk Ethics and Sustainability. appetite. Reviews oversee the Mark Robinson. Meets quarterly to management | key risks with an | | Standing agenda item to monitor business IT systems | development, | | review ethics and | | --- | --- | --- | --- | --- | --- | | | process. Reviews | | | Meets quarterly to | | | opportunity for | | and cyber risks and currently COVID-19 risk. Covers | measurement and | | compliance risks. | | | assurance over | | | review SHEQ risks. | | | in-depth | | proactive risk management, risk monitoring and | delivery of our | | Monitors against | | | mitigating controls, | | | Monitors against | | | discussion of | | mitigation and internal and external emerging risks, | sustainability strategy | | agreed KPIs. | | | directing internal audit | | | stretching targets | | | specific key risks | | including emerging regulatory requirements. | and the significance of | | Considers the results | | | to undertake | | | and agreed KPIs. | | | and mitigating | | Receives an in-depth presentation of specific key | climate-related risks | Considers the results | of assurance audits | assurance reviews for controls annually. risks and mitigating controls from risk owners at each and opportunities. of assurance audits over Ethics controls. selected key risks. Approves the meeting. over SHEQ controls. Reviews viability Monitors against viability statement. | | scenario | | Considers the results of internal audit work for all | | stretching targets and | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | assessments. | | risks. | | agreed KPIs. | | | | | P73 | | P73 | | P73 | | P73 | P73 | P73 | ### Risk heat map High Our principal risks are reported gross (before mitigating controls) ### 2 ### 1 ### 10 5 Strategic risk ### 9 1 Revenue generation ### 7 2 Product and technology innovation and protection ### 8 3 Digital technology innovation 4 Delivering sustainable solutions — Climate and Land Positive 5 Management of business change Likelihood ### 4 People and culture risk ### 6 6 Our people — culture, wellbeing, talent development and retention ### 3 Process risk 7 Product quality 8 Loss of significant manufacturing site External environment risk Medium 9 Ethics and compliance Impact Business systems risk Medium High 10 Security of business information and networks Gross risk no change Gross risk decreaseGross risk increase Croda International Plc ## 52 Annual Report and Accounts 2021 ### Key Link to our strategy (page 20) Risk movement Link to our business model (page 16) Sustainability: Risk increase Engage E align our business with our Purpose and accelerate our customers’ transition to sustainable ingredients No change C Create ### Innovation: Risk decrease Make M Strategic report increase the proportion of NPP that we sell Included in viability statement SV Sell Growth: (see page 57) consistent top and bottom-line growth Strategic Principal risks 1. Revenue generation 2. Product and technology 3. Digital technology 4. Delivering sustainable innovation and protection innovation solutions – Climate and Land Positive President Regional Delivery Nick Challoner Jez Maiden Nick Challoner and Sector Presidents Group Chief Scientific Officer Group Finance Director Group Chief Scientific Officer E E C SV V C CM M SV V Why this matters to us | Our ambition is to deliver consistent top | Innovation is the lifeblood of our business | Digital technology is a significant | We have made a bold Commitment to be | | --- | --- | --- | --- | | and bottom-line growth, with profit | (page 4). It plays a critical role across our | disruptor, rapidly changing markets that | Climate and Land Positive by 2030 (page | | growing ahead of sales, ahead of | operations; it differentiates us from the | we operate in, changing the way we | 2), aligning our smart science with United | | volume. To grow, we need to innovate | competition, protects sales and | interact with our external partners and | Nations Sustainable Development Goals | | and also keep pace with our customers | improves our margins. Failure to leverage | each other. New and established | (SDGs). Sustainability has been a strategic | | as they serve consumers globally in | the knowledge of our global innovation | customers expect a high level of online | priority for Croda for over a decade and | | established markets and higher risk | teams could lead to a reduction in New | service, from researching ingredients to | we are committed to delivering | | developing markets. Failure to manage | and Protected Products (‘NPP’) and will | buying, and failure to meet these ahead | improvements in line with the objective to | | these challenges and the consequences | impact growth and margin. | of competitors will impact growth, hinder | limit global temperature rises to no more | | of any geopolitical tensions will adversely | | R&D knowledge sharing and create | than 1.5°C above pre-industrial levels. | Failure to protect the intellectual property impact delivery of our growth strategic inefficient processes. Climate change, biodiversity loss and (‘IP’) in these products in existing and objective (page 20). Acquisitions of rising inequality are changing consumer new markets could undermine our adjacent technologies will dilute growth if demands, making sustainability as competitive advantage. they are not effectively integrated. important to consumer choice as price. Failure to remain ahead of our competitors and to deliver on our stretching 2030 targets will damage our reputation and compromise growth. How we respond | Through our global sector sales, | Our outstanding technical research and | Our functional specialist teams focus on | Our sustainability team, led by our Chief | | --- | --- | --- | --- | | marketing and technology teams, we | development (R&D) teams, based in our | our business model areas of Create, | Sustainability Officer, maintain the | | identify consumer trends and respond | customer innovation centres and | Make and Sell (page 16) and provide | organisation’s focus. The Sustainability | | swiftly to satisfy customer needs through | application laboratories globally, focus | global leadership to take advantage of | Committee, which meets quarterly, has | | key technologies. Our direct selling | innovation on customer and market | the fast evolving digital world. They | representatives from all functions and | | model enables us to get closer to our | needs and are embedded across our | deliver an integrated market-facing | sectors who work together to deliver our | | customers. Our resilient business model | business. We invest in: R&D, Open | environment that encompasses | sustainability targets. We see more | | (page 16) and continued focus on | Innovation and Smart Partnership | everything from product development | opportunity than risk in climate change. | | growing profit ahead of sales ahead of | programmes, seeking premium niches | through artificial intelligence-enabled | | For more on Land and Climate Positive volume mitigates profit impact in difficult and disruptive technology acquisitions manufacture, to customer service. Digital see pages 32 and 33 and in our trading conditions. (page 12). Our specialist IP team protect pilot projects embedded in the Sustainability Report (pages 20 to 29). new products and technologies, organisation support agile, local trials of defending our IP and challenging innovative ideas, which can grow into third-party IP where appropriate. global initiatives. What we have done in 2021 | • Delivered growth across all regions and | • Resourced our long-term innovation | • Create: selected a provider for our | • Committed to climate Science Based | | --- | --- | --- | --- | | sectors (page 11) | platforms, ensuring we enhance the | global R&D knowledge management | Targets (SBT) and became the third | | • Continued to strengthen our country | skill levels of experts leading our | system and started the roll out to | major chemical company in the world | | selling teams and developed further | approach to disruptive technology | share global R&D expertise | to have our plan to achieve them | | digital channels through which our | development | • Make: developed a series of pilot | officially verified (page 12) | | customers can engage with us; crucial | • Commenced a multi-million pound | projects to enhance manufacturing | • Invested in market leading technology | | in maintaining the business pipeline | project to introduce artificial | efficiency, including real-time plant | to automate the collation and internal | | whilst in-person visits have been | intelligence and data mining across | monitoring and advanced process | reporting of sustainability metrics | | restricted by COVID-19 | our global R&D knowledge base | control | • Committed to complete roadmaps in | | • Started integration of Iberchem as part | (page 4) | • Sell: delivered key strategic projects | 2022 for decarbonisation of all our | | of our Consumer Care sector and | • Scaled our support of manufacturing | to enhance online presence, including | operational site and business sectors, | | provided a stronger footprint in | for lipid delivery systems in both | a new suite of websites targeting | supported by additional capital | | developing markets | Europe and USA enabling continuing | customers in China, integration of | investment | | • Invested in Iberchem Brazil, one of the | supply to COVID-19 vaccine | Croda’s global Customer Relationship | • Completed full Executive review of the | | largest markets for fragrances globally | manufacturers | Management system with website | sustainability strategy, attended by a | | | • Continued to educate our scientists to | enquiries, web improvements to drive | Board member | • Optimised the opportunities available | | ensure that we support the principles | greater customer engagement and | | | --- | --- | --- | --- | | to us in Health Care vaccination, | | | • Completed our periodic review of our | | | of green chemistry and sustainable | the introduction of new digital | | | building our brand and reputation in | | | material issues and climate related | | | innovation in line with our strategy | selling tools | | | this area and meeting the urgent | | | risks and opportunities (page 30) | | needs of the COVID-19 pandemic | • Delivered strong increase in NPP, | | • Prepared carbon budgets for each | | • Implemented a global ’voice of the | supported by our Avanti and | | sector, sitting alongside the financial | | customer’ survey to understand what we | Iberchem acquisitions (page 45) | | budgets | | do well and where we need to improve, | • Invested in a new centre for biotech | | • Engaged our investors in sustainability | | to continue to deliver innovative products | process design and optimisation in | | (see case study on page 19) | | and excellent service to our customers | the UK (page 12) | | | • Expanded our reach for high value niche Health Care ingredients globally, building a pipeline of new products • Acquired Alban Muller and Parfex Croda International Plc ## (page 6) Annual Report and Accounts 2021 53 ### Risk management (continued) Strategic People and culture Process Principal risks | 5. Management of | 6. Our people – culture, | 7. Product quality | 8. Loss of significant | | --- | --- | --- | --- | | business change | wellbeing, talent development | | manufacturing site | | | and retention | | (major safety or | environmental incident) Steve Foots Tracy Sheedy Tom Brophy Mark Robinson Group Chief Executive Group Human Resources Director Group General Counsel President Global Operations E C M S E C M S V V M M Why this matters to us | Delivery of the strategic review | Retaining and developing the experience | We sell into a number of highly | We rely on the continued sustainable | | --- | --- | --- | --- | | completed in 2021 requires significant | and motivation of all our knowledgeable | regulated applications and the | operation of our manufacturing sites | | business change globally, including | and diverse employees is critical to | transition to a focused Consumer | around the world, including newly | | acquisition and disposal of businesses | maintaining our ability to deliver our | Care and Life Sciences business | acquired sites. | | and investment in a significant capital | strategic priorities. Failing to maintain our | increases our exposure to this | | Climate change directly impacting the expenditure programme (page 6). Such distinctive Croda culture (pages 2 and 8) environment. Weak product quality location of a site or availability of utilities transformational change has the within which people thrive and which control leading to non-compliance used, or a major event causing loss of potential to distract the organisation attracts new and diverse talent to join the with our customers’ stringent product production and violating safety, health or resulting in failure to deliver expected Company would significantly damage our quality requirements and global and environmental regulations, could limit our results, or at worst destroy value. ability to innovate. local regulation could expose us to operations. This could also expose the liability claims, significant reputational Ineffective management of change could Group to liability, cost and reputational damage and compromise our ability result in a failure to integrate new damage, especially in light of our to deliver growth. acquisitions effectively and impact the commitment to sustainability and realisation of benefits. customer service. How we respond | The Board and Executive have oversight | A clear Purpose, strong development | Monitored by our Group SHEQ | Monitored by our Group SHEQ Steering | | --- | --- | --- | --- | | of the strategic change programme and | culture, excellent learning opportunities and | Steering Committee (page 52), our | Committee (page 52), our global network | | receive regular updates of status and | competitive reward programmes support | sites and products are certified to | of site-based safety professionals | | progress. Skilled programme managers, | the retention, engagement and career | demanding external quality standards | enforce compliance with global policies | | supported by external consultants, lead | development of the high-quality teams we | highly valued by our customers | and procedures defined in the Group | | our delivery of change programmes, | need. Global graduate and management | (including ISO 9001, GMP and | SHE manual. Assurance is provided by | | including the PTIC separation, and our | development programmes include | Excipact). Our global network of | the specialist Group SHE internal audit | | Capital Project Director monitors and | stretching and high-profile assignments and | quality professionals enforce | team, whilst external auditors certify our | | oversees the capital investment | provide a pipeline of internal talent. | compliance with the Group Quality | compliance with international safety | | programme. | | manual, assured through internal | standards. Our sites are certified to ISO | Our bi-annual global talent review process audits delivered by our specialist 14001 standards. We also acknowledge that the potential considers resources and succession plans Group Quality audit team and external separation has to be technically well for critical roles, with actions monitored by Risks specific to each site are identified certification audits. We work designed to minimise the impact on the the Executive Committee and the Board. in ‘bottom-up’ risk registers and local proactively with relevant trade organisation. business continuity plans are in place associations to shape future which are regularly tested. regulation. What we have done in 2021 | • Considered the implications of the | • Reviewed and upgraded all our internal | • Life Sciences appointed sector | • Prepared a new suite of process | | --- | --- | --- | --- | | sale of the majority of the PTIC | leadership programmes in conjunction | Head of Quality to lead and | safety guidance standards, developed | | business through a Board and | with Hult Ashridge business school | monitor delivery of GMP | in consultation with members of | | Executive process extending over | (page 36) | standards across all sector | the Group-wide Process Safety | | many months (case study page 69) | • Continued to expand our online training | manufacturing sites | Leaders Academy | | • All major change programmes are | courses and our mentoring programmes | • Developed and applied a | • Adopted an enhanced approach | | subject to oversight from Executive | • Developed and launched a new global | customisable quality toolkit across | to process safety, aligned with | | level steering groups and have an | competency framework to support and | all our sites to accelerate progress | Sustainability Accounting Standards | | Executive level sponsor. Progress | enhance the roll out of our values, a | towards our sustainability target of | Board (SASB) standards for | | is reported to the Board on a | summary of our cultural aspirations | 99.5% right first time in | our industry | | periodic basis | (page 36) | manufacturing operations. The | • Undertook process safety training | | • Separation Programme Director and | | resulting improvements mean we | of regional leadership teams | • Addressed increased risks to employee workstreams supported by external are ahead of schedule wellbeing and mental health through the • Delivered SHE leadership training to consultants provision of employee assistance • Demonstrated the strength of our the management teams of businesses • Dedicated programme management programmes, online mental health tools, quality management systems by acquired in the last two years for other significant change wellbeing activities and increased continuing to deliver to customers • Continued focus on process safety programmes communications despite supply chain disruptions leading metrics, which drive our (see case study on page 51) • Global Capital Project Director • Continued to benchmark rewards investment in assets developed capital projects framework regionally, introduced new reward and • For more on quality assurance see • For more on process safety and and governance to monitor progress recognition programmes and the Croda page 39 of our Sustainability Report environmental stewardship see in capital projects Free Share Plan (pages 90 and 91) page 37 of our Sustainability Report • For more on our people see page 30 of our Sustainability Report Croda International Plc ## 54 Annual Report and Accounts 2021 ### Key Link to our strategy (page 20) Risk movement Link to our business model (page 16) Sustainability: Risk increase Engage E align our business with our Purpose and accelerate No change C Create our customers’ transition to sustainable ingredients ### Innovation: Risk decrease Make M Strategic report increase the proportion of NPP that we sell Included in viability statement SV Sell Growth: (see page 57) consistent top and bottom-line growth External environment Business systems and security Principal risks 9. Ethics and compliance 10. Security of business information and networks Tom Brophy Jez Maiden Group General Counsel Group Finance Director V E E C M S V C M S Why this matters to us We are subject to UK legislation which is far-reaching in Society and business are subject to more numerous terms of global scope and often more rigorous than and increasingly sophisticated threats to security, local legislation (for example, the Bribery Act). including hackers, viruses and ransomware attacks, and keeping our data safe is subject to increasingly Our increased presence in emerging economies and stringent regulatory requirements globally. Our business the increasingly frequent introduction of new regulation model relies heavily on the availability of IT networks create an elevated compliance and reputational risk. and systems; an extended interruption of these services may result in an inability to operate. How we respond Our Group Ethics Committee (page 73) meets quarterly We run our key applications in distributed computing to consider new legislation requirements and to environments with regular failover testing and promote the importance of ethics and compliance penetration testing being undertaken. Our information across our business and stakeholder ecosystem. security specialists monitor our IT services and networks, oversee cyber protection solutions and Compliance training and education programmes are provide cyber awareness education globally, whilst rolled out globally, with results monitored by the internal and external auditors review and report on the Committee. operation of cyber and system controls annually. Our Audit Committee reviews the effectiveness of the Group’s anti-bribery and fraud procedures on an annual basis (page 81). What we have done in 2021 • Continued with the ethics integration of newly • Developed and adopted a new medium-term acquired companies, with particular focus on those information security strategy in emerging markets with the associated higher • Assessed our IT operations against the NIST Cyber ethical risks Security Framework • Developed an automated KPI dashboard that • Developed new security controls within Croda’s enables the tracking and monitoring of the ethics Operational Technology environment at a pilot programme and provides leading and lagging manufacturing site indicators of ethical risks • Conducted a third-party facilitated review of data • Supplemented the ethics procedures manual with privacy compliance, to maintain the health of the practical ‘how to do’ guidance notes. The Group global data privacy framework and improve where undertakes ethics risk assessments at site level, necessary which record detailed risks and mitigating controls • Completed an in-depth review of the IT control • Undertook over 2300 third-party reputational framework, including assessment of governance screenings and monitoring processes (page 81) • Undertook our annual review of antibribery and • Carried out an internal audit review to provide corruption, fraud and whistleblowing procedures assurance over asset management and third-party | (page 83) | | processes | | --- | --- | --- | | • Reported to the Board on the ethical compliance | • Carried out a full review of cyber security controls at | | | programme (page 66) | | Incotec China | Croda International Plc ## Annual Report and Accounts 2021 55 ### Long-term viability statement ## Long-term viability statement ## Based on their assessment of prospects and viability, the Directors ## confirm that they have the expectation that the Company will be ## able to continue in operation and meet its liabilities as they fall ## due over the next three years. | Confirmation of viability | For 2021 the Board considers that, in | (page 49). The most common debt maturity | | --- | --- | --- | | Based on their assessment of prospects and | assessing the prospects of the Company and | term is five years; | | viability, the Directors confirm that they have an | determining the appropriate viability period, its | • the resilient business model (page 16) and | | expectation that the Company will be able to | investment and financial planning horizon of | the Company’s diversified portfolio of | | continue in operation and meet its liabilities as | three years is the appropriate benchmark. In | products, operations and customers, which | | they fall due over the next three years to | reaching this conclusion they considered | reduce exposure to specific geographies and | | 31 December 2024. The Directors also | the following: | markets, as well as large customer/product | | considered it appropriate to prepare the | • the three year financial planning horizon, | combinations; and | | financial statements on a going concern basis, | supported by detailed financial modelling | • the strong, sector-led innovation pipeline | | as explained in the Group accounting policies | which considers profitability, cash flows, | (pages 24 to 29) extending over more than | | (page 125). | gearing and other key financial metrics; | three years, which supports the Company’s | | The viability assessment period | • the three year investment planning cycle | business through development of new sales | | | which reflects the typical maximum lead time | growth opportunities, protects sales and | The Directors have assessed the longer-term involved in developing new capacity. Both margins, differentiates the Company from viability of the Company over the three year financial and investment planning are led by competitors and provides barriers to entry period to 31 December 2024, taking account of | the Company’s current financial position and | the CEO and reviewed by the Board; | Given the progressive development of a longer | | --- | --- | --- | | the potential impact of the Company’s principal | • the Company has demonstrated a strong | term strategic plan for the Group, the Board will | | risks identified on pages 53 to 55. | balance sheet and cash generation which | review over the coming year whether it is | | | ensure its ability to repay, renew and raise | appropriate to consider a longer viability period | | | new debt facilities in most market conditions | in future Annual Reports. | Assessment of viability We assess our longer-term resilience to risk in two ways: • Top down: we test the Company’s overall funding capacity to withstand catastrophic events through stress testing the reduction in EBITDA required to breach the bank leverage covenant; • Bottom up: we assess the existing unused committed liquidity available and peak debt leverage rates under multiple bottom-up worst case risk scenarios, both individually and in combination. These risks are the principal risks which present long-term threats to the business as identified through our risk management process (page 50) and agreed by the Board. To ensure consistency, we use the base case model developed for going concern assessment (page 125). In 2021 we assessed viability assuming the sale of the majority of our Performance Technologies and Industrial Chemicals business (‘PTIC sale’) (page 11) will complete in summer 2022. We completed additional scenarios to assess the impact of this sale not completing on the Group’s viability, with the outcome described on page 57. Assuming a successful PTIC sale, under each worst case combination of scenarios, top-down headroom is considered to be more than adequate. The results of the bottom-up scenario modelling showed that no individual event or plausible combination of events (the most significant of which was scenario F) would give rise to a financial impact sufficient to endanger the viability of the Company in the period assessed, with ample liquidity and debt leverage headroom against funding covenants. Were the PTIC sale to be unsuccessful, using the same scenarios, the bottom-up modelling also showed that the financial impact of a severe but plausible combination of events would not endanger the viability of the Company but would require additional funding to be put in place (which is expected to be available). Top-down liquidity headroom We assess our overall funding capacity to withstand catastrophic events by stress testing the EBITDA reduction required to trigger the default of the bank leverage covenant, and the current level of committed debt facilities which mature within the viability period. • Bank leverage covenant: the leverage ratio at the end of 2021 of 1.4x remains substantially below the maximum covenant level under the Group’s debt facilities of 3.5x. Based on 2021 results, stress testing assesses that EBITDA would need to fall by 66% to trigger an event of default. In the event that the maximum covenant level was reached we would also take action to conserve cash; • Unused committed liquidity headroom: at 31 December 2021 over 78% of the current level of committed debt facilities of £1,226m mature after the end of the viability period, with current committed unused headroom of £334m (page 153). The Company expects to have access to additional liquidity funding in most market circumstances. Croda International Plc ## 56 Annual Report and Accounts 2021 ### Strategic report Bottom-up risk scenario headroom We consider the potential financial impact of combinations of the Group’s principal risks identified on pages 53 to 55, both individually and in plausible combination. Using the going concern base case model, we assess the impact of the risks on EBITDA and the consequent cumulative impact on net debt over the three year period based on worst case impact assumptions. The combinations modelled are identified below: Principal risks (pages Scenario combination modelled Key assumptions 53 to 55) considered* Assuming PTIC sale Assuming no PTIC sale Unused Peak Unused Peak debt committed debt committed leverage | | | | liquidity | | leverage | liquidity | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | (£m)** | | | (£m)** | | A: Regulatory issues damage | Loss of business in | 1. Revenue generation | | 600 0.4x 200 1.3x | | | | | reputation, enabling competition | Personal Care and Health | 4. Delivering | | | | | | | across multiple market sectors and | Care | sustainable solutions | | | | | | | loss of business. | | – Climate and Land | | | | | | Positive | B: Disruptive competitive technology | Alternative production | 2. Product and | 600 0.4x 200 1.4x | | --- | --- | --- | --- | | and supply chain disruption results in | technology, limited | technology innovation | | | loss of significant business. | availability of key raw | and protection | | | | material and fail to deliver | 3. Digital technology | | | | digital strategy | innovation | | Security of supply*** | C: Significant cyber attack results in | Cyber attack results in | 10. Security of | 600 0.5x 200 1.6x | | --- | --- | --- | --- | | loss of IT systems for a prolonged | loss of key systems | business information | | | period impacting ability to operate. | | and networks | | | D: Significant compliance breach | Cyber attack and major | 9. Ethics and | 600 0.4x 200 1.5x | | combined with a significant cyber | compliance breach | compliance | | | attack damages our reputation | leading to government | 10. Security of | | | resulting in loss of business. | investigation and fine | business information | | and networks 4. Delivering sustainable solutions | E: Product recall from product quality | Damages and costs from | 7. Product quality | 300 1.3x additional | | 2.4x | | --- | --- | --- | --- | --- | --- | | failure results in loss of business. | product recall in Health | 1. Revenue generation | | funding | | | | Care | | | required | | | F: Catastrophic uninsured loss of | Uninsured loss of major | 8. Loss of significant | 300 1.5x additional | | 2.5x | | manufacturing capability damages | UK and US | manufacturing site | | funding | | | reputation resulting in loss of | manufacturing sites | 1. Revenue generation | | required | | | significant business. | resulting in lost margin | | | | | for an extended period | Risks considered to have a slower | 6. Our people | | --- | --- | | velocity, giving the Group time to take | 5. Management of | | mitigating action. | business change | * See how we respond to mitigate these risks on pages 53 to 55 ** Excluding cash on deposit *** Not a principal risk in 2021 ## Considering the impact of the sale of the majority of PTIC The approach adopted to assess the impact of the sale of the majority of the PTIC businesses was to overlay the cash impact of not receiving the agreed proceeds on the debt headroom and debt gearing covenant over the three year viability period, using the same scenario combinations. We also considered a less impactful scenario of a limited warranty claim as a result of failing to separate the business effectively. Linking to going concern assessment The same base case and business model is used to assess the impact for both the viability statement and the going concern assessments. For more on going concern see page 125. Croda International Plc ## Annual Report and Accounts 2021 57 ### Chair’s statement on ### corporate governance Our strategy and stakeholders As well as collaborating with the Executive team on the development of our five-year strategy, focusing on our Consumer Care and Life Sciences market sectors, the Board spent a considerable amount of time overseeing the disposal of the majority of our Performance Technologies and Industrial Chemicals business. As well as considering the strategic and financial implications of the disposal for Croda, the Board took account of the interests of our key stakeholders; this is further described in the case study on page 69. The Board continued with the regular scheduled programme of meetings through in-person meetings when possible, via video Anita Frew conferencing and additional calls were held as Chair required throughout the year. Our first priority in the Board meetings is always the health and ### Dear fellow shareholder safety of all our employees and others impacted by our operations. Despite the ongoing challenges in 2021 ## Our strong associated with the COVID-19 pandemic, the In our meetings, we were presented with a Board was able to work together with the number of strategic deep dives, which this ## well established Executive Committee on a five-year strategy year covered health and safety, our Health Care centred on sustainability and innovation to and Consumer Care businesses, innovation ## governance deliver growth. This focus and collaboration and also our operations strategy. These were enabled through our clarity of Purpose allowed the newly appointed Presidents of ## framework and a well-established and transparent Consumer Care and Life Sciences to present to governance framework. Together these the Board on their strategic vision of the future ## underpins the underpin our decision making, ensuring we for these businesses. These were then debated balance the interests of all our stakeholders and challenged. ## delivery of the whilst continuing to promote the long-term In all its deliberations and decisions, the Board interests of the Company for our shareholders ## strategy and is always mindful of the impact on the business’ to provide a good return on their investment various stakeholders and on its long-term, in Croda. | all our decision | | | sustainable success, in line with Section 172(1) | | --- | --- | --- | --- | | | | At the same time, we have remained focused | of the Companies Act 2006. | | | making by | on supporting the wellbeing of our employees | | We describe on page 68 how the Board across the Group, who have once again shown engaged with each of our key stakeholders ## ensuring exceptional resilience to the challenges during 2021 and give some examples of how presented to them during the year. Our we have considered their interests in some of ## accountability, employees have continued supporting our the Board’s decisions made during the year. customers, suppliers and local communities Leadership and diversity ## responsibility and and there are many examples of this We consider that creating an inclusive Board is throughout this report. I am also delighted that essential to ensuring we attract a diverse set of ## transparency.” we continued with our track record of paying candidates for Board roles. The greater the regular dividends to our shareholders. diversity of our directors, the more likely we can Anita Frew This report, together with the Directors’ foster innovative thinking in the boardroom. Chair Remuneration Report, set out on pages 84 to On 1 September 2021 we welcomed Julie Kim 108, describe how the 2018 UK Corporate to the Board and more recently on 1 February Governance Code (the Code) principles have 2022 we were joined by Nawal Ouzren. These been applied by the Company. I am pleased to two additional Non-Executive Director report that the Company has complied with the appointments have brought fresh perspectives provisions of the Code for the period under to our discussions and support our strategic review. The 2018 UK Corporate Governance priorities. We look forward to working with them Code is available at www.frc.org.uk. in the years ahead. Following these appointments, I am delighted to report that the composition of the Board not only meets, but exceeds the ambitions set out in the Hampton-Alexander and Parker reviews for FTSE 100 companies. Our approach to Croda International Plc ## 58 Annual Report and Accounts 2021 ### Directors’ report the recruitment of these directors and to maintaining this Board diversity is set out in ### Company Culture the Nomination Committee Report on pages Our Purpose, values and culture are discussed in the Strategic Report. 76 to 77. Our Purpose is to use our Smart science to improve Lives™, and guides the choices we make The composition of the Executive Committee as a business. In line with our Purpose we have committed to be the most sustainable supplier was reviewed and refreshed with the of innovative ingredients by ensuring we are Climate, Land and People Positive by 2030. appointment of new members following consideration of the talent, development and Our Purpose is reflected in the Board’s strategy and is underpinned by our values and our succession throughout the business. Details of unique culture. The cultural tone of the Company is set by the Board, who are responsible these changes and our succession processes for assessing, monitoring and promoting the company culture through its decisions and are included in the report of the Nomination conduct. Further information on how the Board factors stakeholders into Board decisions is Committee. on pages 68 to 69. On the recommendation of the Nomination Croda’s positive culture continued to support employees, suppliers, customers and our local Committee, the Board agreed to extend my communities throughout the second year of the pandemic and examples of this can be seen appointment for a further year following the throughout this report. During the year the Croda Foundation made its first grants to completion of my second three-year term of employee nominated projects that that will help improve the lives of our local communities office. This annual extension is in line with our around the world. policy to review appointments annually once six During 2021, the Board monitored and assessed culture through multiple sources: years’ tenure has been completed. Helena • Inviting employees to present at Board and Committee meetings. Ganczakowski’s appointment for a further year • Regularly meeting with management. See page 64 for information on Board interaction was also recommended and agreed by the outside the boardroom. Board. Roberto Cirillo and Jacqui Ferguson • Receiving regular reports and data on health and safety and sustainability matters. These completed their first three-year terms and the were of prime focus for the Board. Nomination Committee recommended to the Board that their appointments be extended for • Receiving regular quarterly reports from all areas of the business including corporate a further three years. Before making the functions. These include progress and compliance with key performance indicators. recommendations to the Board, the Nomination • Reviewing reports on significant instances of inappropriate conduct, whether through the Committee considered the contribution made Company’s Speak-Up line or other grievance channels. to the Board and the Committees by the • Engaging directly with employees around the world through listening groups, site visits and individual and their time commitments. No town halls. director being considered for re-appointment • Discussing the feedback from listening groups and pulse surveys, which enabled took part in any discussion relating to their own communications and policies to be tailored and adjusted to ensure employees’ needs were appointment. Further information about the being met. tenure of other Board members can be found • Assessing management’s attitude to risk and assurance of the external and internal audit on page 75. functions through the work and reports of the Audit Committee. Board evaluation • Reviewing the work on diversity and inclusion and succession planning through the reports I am pleased to report that the Board evaluation of the Nomination Committee. this year confirmed that we continue to operate • Receiving feedback from the Remuneration Committee. The Remuneration Policy is aligned as a very effective Board. With the addition of to culture and also embedded in the Remuneration Committee’s discretion framework is an our new Non-Executive Directors we have the assessment of our cultural performance. Maintaining this alignment will form a vital part of right composition, experience, skills and diversity the review of the Remuneration Policy in 2022. Further detail on how remuneration is on the Board to support the strategic ambition of addressed across the Company is included in the Remuneration Committee report on the Group as we emerge from the pandemic. pages 84 to 108. Full details of the evaluation and the outcomes The Board was satisfied that Croda’s Purpose, values, strategy and culture are aligned and are included in the report on page 74. will act together to preserve long-term value. Annual general meeting Last year in light of government guidance | relating to COVID-19 prohibiting public | This year we will be holding a hybrid AGM, with | | --- | --- | | gatherings and restricting non-essential travel, | the ability for shareholders to attend in-person | | shareholders were strongly advised not to | or join virtually. Our AGM will take place on | | attend the Annual General Meeting (AGM). We | 20 May 2022 and I look forward to being able | | know our AGM provides investors with a | to meet with many of you in-person once again. | | valuable opportunity to communicate with us | More details of this event are set out in the | | and this dialogue is very important to the | Notice of Meeting and I would be delighted to | | Board. We therefore arranged an online | see you, whether in-person or online, and | | shareholder presentation from Steve Foots | answer any questions that you may have. | which included the opportunity for shareholders to attend virtually and ask questions at, and in advance of, the meeting. Anita Frew Chair Croda International Plc ## Annual Report and Accounts 2021 59 ### Corporate governance ## Board leadership & ## company Purpose ### Contents of corporate governance report Board leadership and Company purpose Effective Board 61 Purposes, values and culture 59 Governance framework and Board resources 72-74 Stakeholder engagement 68-71 Workforce policies and practices 109 Division of responsibilities Board roles 72 Independence 74 External commitments and conflicts of interest 74 Key activities of the Board in 2021 64-67 Composition, succession and evaluation Nomination Committee Report 76-77 Appointments to the Board 75 Board skills, experience and knowledge 62-63 Annual Board evaluation 74 Audit, risk and internal control Audit Committee Report 79-83 External Auditor & Internal audit 82-83 Review of the 2021 Annual Report 78 Internal financial controls 78 Risk management 78 Remuneration Remuneration Report 84 Linking remuneration with Purpose and strategy 84 Report of the Remuneration Committee 87 Remuneration Report for the year ended 31 December 2021 94 Summary of Remuneration Policy 106-108 ### UK Corporate Governance Code (the Code) For the year ended 31 December 2021 the principles of good corporate governance contained in the 2018 UK Corporate Governance Code have been complied with. The Annual Report has been structured to allow shareholders to evaluate how the Code Principles have been applied. Cross references are included where appropriate to where supporting information is contained outside of the Directors’ Report. Further information on the Code can be found on the Financial Reporting Council’s website at: www.frc.org.uk Croda International Plc ## 60 Annual Report and Accounts 2021 Board leadership agreed goals and objectives and ensures that The full schedule of matters reserved for the Directors’ report appropriate controls and systems exist to Board can be found in the governance section The Company is led by an effective and manage risk and that there are the necessary at www.croda.com. entrepreneurial Board, whose role is to promote | the long-term sustainable success of the | financial resources and people with the | The Board discharges some of its | | --- | --- | --- | | Company, generating value for shareholders | necessary skills to achieve the strategic goals | responsibilities directly and others through its | | and contributing to wider society. The Board | the Board has set. The Non-Executive Directors | Committees, details of which can be found on | | has ultimate responsibility for the overall | have a broad range of business, financial and | page 73. | | leadership of the Group. In this role, it oversees | international skills and experience, which | | Execution of the strategy and day-to-day the development and delivery of a clear provide appropriate balance and diversity. management of the Company’s business is Group strategy. The Directors’ biographical details appear on delegated to the Executive Committee, and | At the date of this report, the Board comprises | pages 62 and 63 and at www.croda.com. | subsequently to senior leadership teams where | | --- | --- | --- | | 10 Directors: the Chair; the Group Chief | The Board maintains a formal schedule of | relevant, with the Board retaining responsibility | | Executive; the Group Finance Director; six | matters reserved for its approval. These matters | for overseeing, guiding and holding | | independent Non-Executive Directors and one | include approving the Group’s strategy and | management to account. In addition to its | | non-independent Non-Executive Director, who | budget, material corporate transactions and the | monthly scheduled meetings, the Board met | | was the Company’s Chief Technology Officer | authorisation of capital expenditure above | and heard from the Executive Committee | | until his retirement in 2017. The size of the | delegated authority limits. They include matters | members, senior management and a wider | | Board allows time for constructive debate and | relating to risk management, approval of the | range of colleagues on a regular basis. | | challenge on key elements of the Company’s | Annual Report and Accounts, dividends, | Contributions from the Executive Committee | | performance and strategic projects and enables | appointing new directors and significant | members can be found throughout this report. | | all Directors’ views to be heard. Itmonitors | communications to shareholders. | | operational and financial performance against ## Board balance | 40-49 years – 1 | 0-3 years – 3 | | --- | --- | | 50-59 years – 5 | 3-6 years – 3 | | 60-65 years – 4 | >6 years – 4 | ### Age Tenure ## Gender balance ### All Senior Board ### employees management of Directors* Male – 63% Male – 64% Male – 50% Female – 37% Female – 36% Female – 50% * As at 28 February 2022. Post-year end appointment means we have now achieved full gender balance on the Board of Directors. Croda International Plc ## Annual Report and Accounts 2021 61 ### Corporate governance (continued) ## Our Leadership Team ## We have a Board that is well equipped to provide oversight and ## challenge to the Executive Committee and has the breadth of skills, ## experience and diversity to lead the business in delivering our ## ambitious strategic priorities that will deliver long-term growth. N R E F FRM A NE F SHEQ Anita Frew Steve Foots Jez Maiden Helena Ganczakowski Chair Group Chief Executive Group Finance Director Non-Executive Director (Senior Independent Director) | Appointment: March 2015 and | Appointment: July 2010 and Group | Appointment: January 2015 as | | | --- | --- | --- | --- | | Chair since September 2015 | Chief Executive since January 2012 | Group Finance Director | Appointment: February 2014 | | Nationality: British | Nationality: British | Nationality: British | Nationality: British | | Anita has served on Plc boards in the | Steve joined Croda as a Graduate | Jez is an experienced Group Finance | With 23 years of experience in | | chemical, resources, engineering, | Trainee in 1990 and brings to the | Director, having served in this role on | marketing and corporate strategy | | water and financial services industries | Board a business, strategic and | five UK listed company Boards. As a | at Unilever and a further eight as a | | for over 20 years. Prior to joining | operational background gained from | chartered management accountant, | strategic consultant for other | | Croda, she was Chair of Victrex Plc | a number of senior leadership roles | his expertise in all aspects of finance | multinational businesses, Helena | | and Senior Independent Director of | across the Group. Having spent | management, gained in speciality | brings marketing skills and an | | Aberdeen Asset Management Plc, | several years leading many different | chemical, FMCG and other | end-consumer perspective to the | | IMI Plc and was Deputy Chair of | Croda businesses, he has also | manufacturing environments, allows | Croda boardroom, as well as | | Lloyds Banking Group Plc. During | gathered extensive insight into the | him to support the Board and | challenge and support to the CEO in | | her time as a Director, she has | markets served, the importance of | Executive of Croda in managing the | strategy development. Her academic | | chaired main Boards, Remuneration, | customer focus and the power of an | performance of the business, risk | roots in engineering, with a PhD from | | Responsible Business and Risk | innovative culture. Outside of Croda, | management and control, and in | Cambridge University, drive her | | Committees. Currently she is also | Steve’s role as Industry co-Chair of | capital allocation and investment | passion and curiosity for both | | Chair of Rolls-Royce Holdings Plc. | the UK Chemistry Council enables | evaluation. Jez acts as business | product and process innovation. | | Anita brings extensive experience as | him to work alongside Government | partner to the Group Chief Executive | | Helena is also a Non-Executive Chair to the Croda Board as well as Ministers and industry peers to bring and leads the finance, IT and digital Director and Remuneration leadership in strategic management, wider industry knowledge into the teams. He is also on the Board of the Committee Chair of Greggs Plc. mergers and acquisitions and risk Croda business. Centre for Process Innovation Ltd, an experience from working independent technology innovation internationally across many sectors. organisation, and has also been a Non-Executive Director and Audit Committee Chair in two other UK Plcs. ### Key Chair of the Committee Member of the Committee Secretary of the Committee Nomination Committee N Remuneration Committee RM Audit Committee A Risk Management Committee R Group Executive Committee E Group Ethics Committee ET Group Finance Committee F Group SHEQ Committee SHEQ Croda International Plc ## 62 Annual Report and Accounts 2021 ### Directors’ report NA NRM A NRM A NRM | John Ramsay | Roberto Cirillo | Jacqui Ferguson | Keith Layden | | --- | --- | --- | --- | | Non-Executive Director | Non-Executive Director | Non-Executive Director | Non-Executive Director | | Appointment: January 2020 | Appointment: April 2018 | Appointment: September 2018 | Appointment: February 2012 and | Non-Executive Director since May Nationality: British Nationality: Swiss Nationality: British 2017 John has over 30 years’ broad-based With ten years’ experience as Country Jacqui is an experienced CEO from Nationality: British | international finance background with | and Group CEO in the Service and | the technology industry with general | | | --- | --- | --- | --- | | Life Science businesses such as ICI, | Health Care industries, and many | management and M&A experience in | Keith brings to the Croda Board 33 | | AstraZeneca and Syngenta. A large | years spent as a strategy practitioner | international and emerging markets. | years’ experience of working at Croda | | part of this experience was gained | in Europe and Asia, Roberto brings | She has first-hand insight of | in a variety of positions, most recently | | while working in Latin American and | knowledge of, and passion for, | transformational/disruptive digital, | leading the Global Research, | | Asian countries. John brings extensive | growth and operations to the Croda | cyber security, technology and | Development and Innovation function | | knowledge of business strategy to the | boardroom. He can also share | business process solutions. Jacqui | and as President of the Global Life | | Croda Board as well as a keen | lessons learned from large | spent three years in Silicon Valley as | Sciences business. He also has an | | interest in building on Croda’s strong | transformations and M&A. Roberto’s | Chief of Staff at Hewlett Packard, | interest and background in | | culture to deliver superior business | engineering background enables him | focused on a new company strategy | organisational culture, which is a key | | performance. He is also a member of | to link Croda’s R&D and production | and turnaround. Away from Croda, | consideration in the decision making | | the Supervisory Board at Koninklijke | competences with the evolving | she is a Non-Executive Director of | of the Board. In his roles of Honorary | | DSM NV and a Non-Executive | demands of its multinational markets. | John Wood Group Plc and Tesco | Professor of Chemistry and Industry | | Director at RHI Magnesita NV and | | Bank, a fellow of the IET, a Trustee of | at the University of Nottingham, | Alongside his role as Non-Executive Babock International Plc. He is also Engineering UK and a member of the member of Council at the University Director for Croda, he is CEO of Audit Committee Chair at each of Advisory Board of Engie UK. of Sheffield and a Fellow of the Royal Swiss Post. He was previously the these companies. Society of Chemistry, he widens his Group CEO at Optegra Eye Health network of emerging technology Care Ltd, France CEO and Group companies and research institutes to COO at Sodexo SA and Associate spot new talent that will aid Croda’s Partner at McKinsey & Co. future success. ### Appointment since ### the year end NA ERRMETA NRM Julie Kim Tom Brophy Non-Executive Director Group General Counsel and Company Secretary A NRM Appointment: September 2021 Appointment: December 2012 Nawal Ouzren Nationality: US as Board Secretary Non-Executive Director Julie has nearly 30 years of Nationality: British experience in the health care industry, Appointment: February 2022 with more than 15 years in Tom is an experienced corporate Nationality: French | international leadership positions. She | lawyer, having worked at City law firm | | | --- | --- | --- | | is currently President, Plasma-Derived | Hogan Lovells and FTSE 100 | Nawal has 20 years of expertise | | Therapies at Takeda Pharmaceutical, | company Ferguson. His expertise in | across a wide range of | | a global, values-based, R&D-driven | public and private acquisitions | international business roles, | | biopharmaceutical leader | supports Croda’s inorganic growth | including clinical development, | | headquartered in Japan. | plans and his professional | operational and strategic | | | background and breadth of | management roles within the | Her geographic experience covers experience in insurance, risk and pharmaceutical industry. Nawal both global and regional roles, compliance enable him to Chair the currently serves as CEO at focused on Europe, Asia and Latin Ethics Committee. He has also acted Sensorion, a Euronext listed America. as Managing Director of the Western biopharmaceutical company Previous executive positions include European Region. headquartered in France. roles as Head of International Market Tom provides corporate governance Nawal brings with her first-hand Access and Global Franchise Head of knowhow to the Board and Croda. experience in biologics and novel multiple therapeutic areas at Shire, Having spent many years leading gene therapies and is a Baxalta and Baxter. global teams, Tom leads the Legal Non-Executive Director of Arena Julie also sits on the industry board and Company Secretary team. Pharmaceuticals, the US for the Plasma Protein Therapeutics headquartered biopharmaceutical Association. company. Croda International Plc ## Annual Report and Accounts 2021 63 ### Corporate governance (continued) ## Board activity in 2021 ### Board activity in 2021 The Group Finance Director presents reports the employees in the business, they also help on monthly and year to date sales performance, provide the knowledge for Non-Executive Board meetings are the main forum for the profit, cash flow, cost base, capital expenditure Directors to provide constructive challenge at Directors to debate, review and challenge and outlook for the year. The CFO also reports Board meetings.Each of the Directors strategic, operational and governance matters during the year on performance against budget, (excluding the new appointees) has a mentoring concerning the Company, as required to ensure dividends, treasury items, including liquidity, relationship with employees below the that the Directors discharge their duties and keeps the Board abreast of investor Executive Committee level. This will be including under section 172(1) of the discussions and feedback. extended to the two new Non-Executive Companies Act 2006. Directors once they have completed their The Group General Counsel and Company There were seven meetings of the Board induction programme. The Executive Directors Secretary updates the Board on changes to during the year. In addition to the formal Board use the specific areas of expertise of the relevant laws, regulations and governance meetings, the Board had additional ad-hoc Non-Executive Directors as a source of ideas, mattersat each Board meeting. In addition, he update calls to discuss business performance experience, as well as challenge when takes responsibility for reporting on compliance and key projects as they progressed. This developing strategic plans. and insurance matters. ensured that sufficient time was given to allow The Chair and Non-Executive Directors met ### in-depth consideration of our stakeholders in Outside the boardroom without the Executive Directors present to allow relation to the key decisions made by the Board. The Board were unable to undertake in-person an additional opportunity to discuss areas The Board agenda has strong links to the site visits in 2021 due to ongoing UK and relevant to the operation of the Board. The strategic objectives for the business and is set overseas Government travel restrictions. They Non-Executive Directors also met on their own, via a collaborative process between the Chair, were, however, able to participate in three without the Chair. Group Chief Executive and Company virtual Board visits during the year, in Brazil, The Board activities during the year are outlined Secretary. The Board agenda programme Spain and China. These virtual Board sessions on page 65. All these activities and outputs ensures that strategic, operational, financial, included Town Halls with question and answer provide the context for future strategic human resources and corporate governance sessions and presentations from local decisions. References are made in this section items are discussed at the appropriate time management and operational employees. The to areas of the report where further information with additional deep dives into key strategic presentations covered briefings on health and on the activities outlined below can be found. areas during the year. This ensures enough safety and key risks at each site as well as a ### time is allocated to allow effective discussion. review of the current performance (both Training A separate strategy day, attended by members financial and non-financial) and the future All Directors keep their knowledge and skills up of the Executive Committee, is held during the strategy in each country. Further detail of the to date and include training discussions with year. The strategy day is held in the first half of virtual site visit to Iberchem as part of the Board the Chair in their annual performance reviews. the year, followed by the consideration of the strategy day is on page 66. As required, professional advisers are invited to | strategic plan in the autumn and then the | In addition to these site visits, an extensive | provide in-depth updates and the Board also | | --- | --- | --- | | approval of the budget towards the end of | programme of listening groups was undertaken | receives updates on market trends, | | the year. | and further information on these can be found | environmental, technological and social | | See more on our strategic priorities on pages | on page 70. | considerations when appropriate. The | | 20 and 67 of this report. | | Company Secretary provides regular updates | The Executive Committee attended a two day to the Board and its committees on regulatory The Group Chief Executive’s report to the strategy session on sustainability strategy, and corporate governance matters. Our Board focuses on strategic and operational which the Senior Independent Director Directors receive training on their duties under activities. A safety report is always the first attended and reported back to the Board. section 172(1) of the Companies Act 2006 as matter he reports on at each meeting, with a The Chair spends time interacting with the part of their induction process from the Group’s focus on both employee behavioural safety and Executive Committee team between Board corporate lawyers. All Directors participate in process safety issues. The CEO’s report also meetings; during 2021 each member of the online compliance training courses as required. covers the performance of each business unit, Executive management team had monthly including sales and regional activity as well as meetings with the Chair. This ensured that she competitor insights and performance. Market was kept up to date on significant trends and opportunities are considered and developments and emerging issues and dialogue with major customers and regulatory opportunities, as well as forging good working bodies discussed. Each quarter the Board relationships with the senior management team. receives comprehensive reports from members The Non-Executive Directors have direct of the Executive Committee in relation to all access at any time to the Executive Directors, aspects of the business, including market senior management teams and employees sectors, regional delivery, sustainability, across the Group. This provides the opportunity operations, innovation, people, risk and to develop a deeper understanding of the functional updates. This is in addition to the Company’s operations or to request deep dive sessions covered under the Board’s information about specific areas. These programme of business. interactions not only build connections with Croda International Plc ## 64 Annual Report and Accounts 2021 ### Directors’ report ### Board activity breakdown Key highlights and priorities of the Board’s activities in 2021 are set out on pages 65 to 67 along with an estimate of the proportion of time that the Board spent discussing each area. ### Strategy (50%) • Group strategic ambition and priorities, • Growth priorities and future markets • Digital strategy Group strategic projects and targets and • Business presentations from all sector • Product manufacturing strategies regular updates on progress Presidents • New and Protected Products pipeline • Disposal of a significant part of the • Product innovation programmes and • Capital Expenditure submissions to ensure Performance Technologies and Industrial technology platforms appropriate capacity infrastructure to meet Chemicals Business • Consideration of acquisition opportunities, Croda’s strategic ambitions. • Sustainability strategy and targets including Parfex and Alban Muller ### Strategic deep dives | Sustainability strategy and approach | R&D and innovation strategy | Talent review | | --- | --- | --- | | • The Croda Sustainability Committee | • Reviewed the detail of the innovation | • Debated the competency framework and | | attended a Board meeting to review the | model to support the strategic objectives. | definition of high potential talent at Croda. | | achievements of the Committee and | • Considered the impact of new technology | • Reviewed Executive Committee | | focus for 2021. | platforms on the 2030 sustainability | succession and succession development | | • Discussed the strategic commitments | targets. | profiles for new emerging talent. | | to 2030 and the associated Science | | • Endorsed the relaunch of the refreshed | Information on our dynamic innovation Based Targets. leadership development programmes. model can be found on page 4. • Received an update from the Chief Information on culture and succession Sustainability Officer of the progress planning can be found on page 36 and in Health Care and Drug Delivery Strategy during the year, and detail on the work on the report of the Nomination Committee on the sustainability strategy refresh. • Evaluated the Health Care strategy by page 76 to 77. reviewing the current position and market Information on our sustainability approach opportunities. Considered the future can be found from page 30 to 43. | | vision and process to achieve it. | Safety, Health and Environment | | --- | --- | --- | | | • Received a presentation from an external | • Reviewed the performance of both | | Operations Strategy | specialist in the development of vaccines | behavioural safety and process safety | | • Received an update on operations | and diagnostics which provided unique | across the group, including leading and | | strategy progress with a more detailed | insights. | lagging performance indicators and | | focus on activity relating to expanding | Information on our Health Care business | information on specific incidents. | | capacity in support of our strategic | can be found on page 26. | • Discussed mental health and wellbeing | | objectives. | | of employees. | | • Approval of the 2030 roadmap covering | | • Reviewed the training needs of the Board | 2021 Capital Expenditure Review the six strategy themes, which formed the to ensure knowledge is kept up to date. • Reviewed actual delivery against planned starting point for defining more detailed delivery of the material capital expenditure execution plans with the buy in of the projects in the previous 12 months. appropriate parts of the organisation. • Discussed trends, learnings and Information on operations can be found opportunities for improvement that can be from page 10. taken forward into ongoing and future strategic initiatives. Croda International Plc ## Annual Report and Accounts 2021 65 ### Corporate governance (continued) ### Board activity in 2021 (continued) | Financial, risk and | People (15%) | Governance and reporting (10%) | | --- | --- | --- | | performance management | • Safety, health, environment and quality. | • Board and Committee effectiveness | | (25%) | Keeping all employees and contractors | evaluation. Information on the outcomes | | | safe on all sites during the ongoing | of this can be found on page74. | • Group trading performance, including pandemic. • Annual Report and Accounts and other COVID-19 response. • Succession planning and organisational financial statements. The work undertaken • Monthly updates on financial restructure, including senior management to assess that the Annual Report is a fair, performance by business unit. succession. balanced and understandable assessment • Review of significant control • Diversity – Board diversity policy, diversity of the Company’s position and prospects weaknesses report. and inclusion of our workforce and the can be found on page 78. • Review of key risks, internal and external gender pay gap reporting. • Presentation from the Director of Investor assurance of each risk. See page 50. • Female talent review and mentoring scheme. Relations and Corporate Affairs. Review of • Review of risk appetite statements. the share price performance, valuation and • Leadership training and development. • Dividend policy and dividend approvals. investor areas of interest. • The Board’s engagement with employees • Long-term viability statement. See page • Ethical compliance programme. See and the employee voice. 56. page83. • Extension of the term of office of Anita • The approval of the Group’s budget. • Group litigation reports. Frew, Helena Ganczakowski, Roberto • Funding requirements, planned strategic • Group insurance programmeis reviewed to Cirillo and Jacqui Ferguson. project expenditure and the timing of ensure adequate protection is in place that • Modern Slavery reporting. any disposal proceeds. balanced risk appetite. • The introduction of the Free Share Plan • Key performance targets and indicators. • The UK pension regime new legislation and and all-employee share save grants. • Long-term financial modelling and regulation. • UK pension scheme and the triennial forecasts. • Governance compliance review. actuarial valuation. No deficit payments will • A review of the Company’s tax strategy. • Approved the Notice of AGM 2021 and be required. meeting arrangements. ### Board strategy session ### Inputs Outputs • Global markets and competitor presentations by the • Current positioning of the businesses Croda management teams • Opportunities to gain competitive advantage • First Impressions of Life Science and Consumer Care • Key customer trends and expectations businesses by the new sector Presidents • Product portfolio review • Customer insights by the senior management of two • Organisational structures required to deliver major customers • Current gaps in capabilities ### Virtual site visit to Iberchem ### Areas covered | Session one – A deep dive | Session two – Getting to | Session three – | Session four – Growth | | --- | --- | --- | --- | | into the SHE culture and | know Iberchem better | Integration with Croda | strategy and current | | standards on site. | | | trading | | | This session reviewed the | An integration steering | | | The Board looked at the | outstanding history and growth | committee had been set up | This session reviewed the | | current SHE structure at | story of Iberchem and the | to manage the integration | actual 2020 and expected | | Iberchem, performance KPIs | successful financial | with a detailed plan. The | 2021 trading results. The | | and any support that would | performance. The | Board learnt about the | business plan to 2025 was | | be required from Group SHE. | management team presented | review of the progress in | discussed as was the | | | a view of the current markets | realising the integration and | potential for additional | | | in which the business | synergies, both commercial | opportunities for the | | | operated, an overview of its | and technology/innovation. | business. | strong customer intimacy and the customer driven R&D process, which had been able to capture the most recent trends. The Board received presentations on the approach to sustainability, procurement, compliance and the workforce. Croda International Plc ## 66 Annual Report and Accounts 2021 Specific focus areas for 2021 ### Directors’ report Ongoing focus on safety leadership A safety session was held, facilitated by the Group SHE Director. The Board had a particular focus on the performance of our newly acquired companies to ensure the high standards expected of all Croda businesses and leaders were being met as regards behavioural safety, process safety and mental wellbeing. In addition, the training needs of the Board were agreed and progressed, to ensure knowledge is kept up to date. Continue to oversee delivery of the Strategic reviews of both Consumer Care and Life Sciences were undertaken. This included an 2030 strategy, with focus in 2021 on in-depth review of our fast-growing Health Care business. The Board reviewed our innovation model sustainability, innovation and our in support of the strategic objectives and the impact of new technology platforms on our 2030 Consumer Care and Life Sciences sustainability targets. market sectors Consider how to further enhance Following a detailed assessment of the required skills and experiences that would enhance the Board’s Board diversity support of our strategic objectives, we brought two new Non-Executive Directors onto the Board in the last 12 months; Julie Kim and Nawal Ouzren. Their appointments bring greater diversity to the Board in terms of gender, ethnicity, nationality and tenure. They also have broadened the Health Care sector knowledge around the Board table and they both bring skills and experiences as serving executives. Further details on these individuals are on page 63. Bring more external and customer As part of the Board strategy day, two important customers were invited to attend to provide customer insights into Board meetings to help insights into our performance as a supplier, including in the areas of sustainability and innovation. The shape thinking and decisions Board also heard from external business and industry experts on their experiences in vaccine development. These sessions proved invaluable for the Board in working alongside the Executive Committee in shaping our strategic objectives. Focus areas for 2022 Continue our focus on Oversee our expanded Continue our oversight of Focus on talent and Croda’s strategic progress organic capital investment Croda’s progressive and succession planning at in transitioning to a programme, whilst proactive inorganic all levels within Croda, pure-play Consumer Care ensuring we continue to investments in support including ensuring that and Life Sciences prioritise safety leadership of our strategic focus on we continue to have the company, including key and performance. our Life Sciences and capacity and capability innovation programmes. Consumer Care businesses. to support our strategic priorities. Croda International Plc ## Annual Report and Accounts 2021 67 ### Corporate governance (continued) ## Board engagement with ## our stakeholder ecosystem | The Section 172(1) statement and the key | By understanding how Croda’s activities impact | discussion and the Board always seeks to | | --- | --- | --- | | stakeholder groups that form part of our | on our various stakeholder groups, the Board | understand the priorities and interests of each | | stakeholder ecosystem are on pages 18 and 19 | can have regard to their interests when having | stakeholder group during its deliberations and | | and 68 to 71. | discussions and making decisions. Having | decision-making process. The Chair and | | | consideration for our stakeholders aligns with | Company Secretary provide guidance when | A key objective of the Strategic Report, our Purpose and our values, both of which required at Board meetings to ensure sufficient Directors’ Report, Financial Statements and the guide us in our approach to delivering our consideration is given to the likely Sustainability Report is to help stakeholders strategic commitments and promoting the long- consequences of any decisions in the long-term assess how effectively the Board, supported by term success of Croda for our shareholders and to the interests and impact of such the Group Executive Committee, senior and society. decisions on our stakeholder groups. managers and employees, promoted the success of Croda and had regard to the factors The relevance of each stakeholder group may set out in Section 172 during the year. change depending on the issue under ### Our customers Our communities Our people | Our direct sales model ensures we work | As a responsible business, we believe it is | Our success depends on our skilled and | | --- | --- | --- | | closely with customers and allows us to | essential that we operate safely and | highly committed employees who are | | develop a deep understanding of their | sustainably and that we understand the | central in our decision making process. | | needs. The Board receives customer insights | impact of our operations on local | The Board meets regularly with | | and information through Board reports from | communities and on the environment. Living | employees, through listening groups and | | the CEO and sector teams, as well as during | our Purpose also means we are committed | board presentations. Although business | | strategy and business presentations. Our | to providing a positive impact to society and | travel and face-to-face meetings were | | Group Chief Executive maintains oversight of | we nurture the links we have to our | again restricted during 2021, Board | | the management of our key customers and | communities through our offices and our | members continued to engage with a wide | | regularly updates the Board on these | sites. The Croda Foundation has made its | range of employees through video calls | | interactions with customers and his | first grants aligned to Croda’s purpose, | and received and discussed the results of | | engagement with policy makers and | values and expertise. The Board regularly | employee pulse surveys and the listening | | regulatory bodies. As part of the Board | receives information and feedback on | groups. The regular reports from the HR | | strategy day, two important customers were | community activities across the Group. | Director and other Executive Committee | | invited to attend to provide customer insights | | members keep the Board up to date on | | into our performance as a supplier, including | | the wide range of people initiatives. | in the areas of sustainability and innovation. | For information on our customers | For information on our community activities | For information on the Employee Voice, | | --- | --- | --- | | P18 | and the Croda Foundation | Listening Groups, workforce engagement | | | P13 and 19 | and reward | P70 and 90 ### Our suppliersOur shareholders Board engagement is primarily through the Supply chain integrity is essential to being Group Chief Executive, Group Finance a sustainable business and our supplier Director and the Investor Relations and relationships provide valuable insights to Corporate Affairs Director, who maintain the Board. Site and purchasing teams regular dialogue with our shareholders. engage and partner with suppliers on a Committee chairs have responded to wide range of matters, from product queries from major shareholders regarding stewardship and ethical sourcing to their areas of responsibility and this regulatory compliance and operational engagement is reported back to the Board. improvements. The Board understands The Directors attend the AGM to allow these issues through Board reports and shareholdersto ask questions directly. engagement with our operations and Although shareholder attendance at the functional teams. AGM was not possible in 2021 due to Government restrictions, a separate virtual shareholder engagement meeting was held. Analysts notes and reports from brokers and advisersare also reviewed to keep the Board informed of shareholders’ views. See Appointment of Non-Executive Directors for detail on a key Board decision and For information on engagement with For information on suppliers stakeholder considerations shareholders P16 and 18 P75 P19 and 71 Croda International Plc ## 68 Annual Report and Accounts 2021 ### Directors’ report | Management is tasked with ensuring that | • An annual strategy review which assesses | the wider sustainability team and regular | | --- | --- | --- | | potential impacts on stakeholders are fully | the long-term sustainable success of the | updates throughout the year. See page 65. | | considered when presenting to the Board. | Group’s strategy and the impact on our | • The Group Chief Executive and Group Finance | | | stakeholders. See page 66. | Director provide updates at Board meetings | Information on the key methods utilised by | the Board to engage with all stakeholders is | • Annual presentations to the Board from all | on their interactions with key stakeholders, as | | --- | --- | --- | | described on page 68. We also note where | the members of the Executive on the | well as updating Board members between | | further detail is available throughout this report | performance across the sectors and regions. | meetings on any material issues that arise. | | on this engagement. | A broad spectrum of employees from across | • Comprehensive quarterly reports which | | | the business are invited to present to | coverrisk, innovation, global operations | The Board receives information through the the Board. including customer service, SHEQ and following additional methods which assists the • An annual Board presentation on progress Sustainability, IT and Digital operations, legal Directors in their understanding of stakeholders with the Group’s sustainability agenda from and Company Secretarialand HR, culture and to perform their duties: and diversity. ## Decision to divest the majority of ## our PTIC businesses One of the major decisions the Board made during the year was TB to approve the sale of the majority of our PTIC businesses to Cargill. The divestment will deliver transition into a focused Consumer Care and Life Sciences company. Given the importance and impact of this decision, it was made over many months of deliberation by the Executive team and the Board and across numerous meetings during the year. The Board considered the likely consequences of the decision in the Tom Brophy is Group General Counsel and Company Secretary long term, identified the stakeholders who may be affected, and had regard to their interests as part of the decision-making process. Initially, a detailed strategic review was undertaken that focused on the to a wider all-employee announcement and to ensure they could then businesses and activities within PTIC that did not directly support the support the messaging. This helped reassure all our employees and Consumer Care and Life Sciences sectors. The Board considered enabled their views and concerns to be addressed throughout the whether Croda was the best future owner of all the PTIC businesses process, which in turn minimised any disruption to our business in a within the context of opportunities to deploy more capital and time of uncertainty. resources within the higher returning Consumer Care and Life Their needs were mapped and communication plans addressing those Sciences businesses. The review considered what ownership needs were developed. This communication strategy included critical structure would best serve the PTIC business going forward, not only stakeholders such as works councils, unions, business partners and to create a stronger platform for its future growth, but importantly to our pension trustees. A range of communication channels were provide a secure future for our employees within the business. utilised, ensuring our key stakeholders remained informed as the Soundings were taken from our advisers and the investor community review progressed. Members of our Executive and Board held at the appropriate time and the Board gained comfort that our employee listening sessions during this time and were able to hear shareholders would support the strategic rationale for the separation, first-hand how employees were feeling about the strategic review which was important in confirming the direction of travel for the and ensured areas of importance highlighted by employees were strategic review. considered and reflected in the decisions that were made. Such a complex divestment required careful management of internal The Board and Executive team spent time reviewing the interested and external communications, talent and resources, and of bidders to ensure they held similar values to Croda, which was an interactions and interdependencies with other Group programmes to important factor for the employees moving with the business. The ensure the continued successful performance of the PTIC business, Board considered that under Cargill’s ownership, the divested as well as the management of the process itself. Steering and project business and our talented, hardworking employees could look forward implementation processes were established to ensure the Executive to a bright future. team remained close to the views of those affected by all the Completing the sale in 2022 will enable us to meet our strategic and decisions under consideration. sustainability objectives, which will be to the advantage of all our Extensive and regular engagement by the Executive management stakeholders and support our shared Purpose to use Smart science team with our employees was undertaken. This was initially aimed at to Improve Lives™. senior leaders, particularly those directly affected by the divestment, so they could absorb the news and raise concerns and questions prior Croda International Plc ## Annual Report and Accounts 2021 69 ### Corporate governance (continued) ## Employee engagement ### Listening to the Employee Voice The Board engages directly with employees in through virtual site visits. These enabled Another employee voice route includes Speak several different ways, including ‘Town Hall’ Directors to meet a broad spectrum of Up reports, a summary of which are provided meetings, both face-to-face and virtual, that employees from different departments. In to the Audit Committee each year, including incorporate Q&A sessions and by holding addition to the Board’s virtual strategy day trends in the types of reports and regions smaller listening groups. The Chair has regular session with the Iberchem team in Spain, two reporters came from. one-to-one meetings with employees, as do virtual visits were held during the year to Brazil, A significant communications programme was other Directors whenever practicable. and China. These included health and safety undertaken as part of the sale of the majority of presentations, town hall and listening groups Regular pulse surveys have been held during the Performance Technologies and Industrial and strategy presentations from the senior the year which focus on specific issues. Recent Chemicals businesses and further information management. Each visit was attended by three surveys have gathered employees’ views on on this can be found on page 69. Non-Executive Directors and feedback was inclusion, health and safety (including mental The results and feedback of all the engagement given at the next Board meeting. health) and culture. The results of these surveys with employees were shared and discussed by provide invaluable information for the Board to As well as holding virtual site visits, a number of the Board. The Board also considers annually if gauge how employees feel on these important listening group sessions were organised during the current framework continues to be effective. topics. For example, it is through such surveys the year. These sessions covered topics Feedback from 2020 concluded that that the Board was able to understand any including Croda’s response to the pandemic, engagement had been too UK focused and concerns employees had during the pandemic the Group’s strategy, the role of the Board and that a wider global voice should be heard. In whilst working from home and in returning to the Remuneration Committee, our sustainability 2021 the virtual overseas visits in Brazil and the workplace. These surveys are one input programme and the effectiveness of the China included listening groups and there was that the Board uses to help guide them in their communication across the business. These global representation in all the other listening decision making. sessions were used as a sounding board to groups. understand employees’ views and opinions for Information on employees is also received at proposals, as well as providing time for The Board considers that it has meaningful and Board meetings through management reports, employees to discuss other topics which they genuine dialogue with employees and the with people KPIs in the HR report. wanted to bring to the Board’s attention. Such correct breadth of coverage using the existing Each Director has the opportunity, and is sessions are a mechanism to gain diversity of mechanisms. Croda is good at engagement encouraged, to undertake site visits. Whilst thought as well as enhancing the relationship of and has an open culture. Site visits are valuable face-to-face site visits remained a challenge the Directors across a wider employee base. and result in candid discussions and the Board during 2021 due to travel restrictions, the are looking forward to recommencing their Board continued to engage with our sites face-to-face engagement during 2022. Listening group date Countries attendees from Departments attendees from NED’s that participated January 2021 Global Representation Three sessions – All functions Helena Ganczakowski Americas, Asia and Europe April 2021 Italy (two sessions) R&D, Sales, Marketing, Logistics Roberto Cirillo June 2021 Brazil All functions Anita Frew Keith Layden Jacqui Ferguson June 2021 China All functions John Ramsay Roberto Cirillo Helena Ganczakowski November 2021 Global representation Three sessions – All functions, weighted towards Anita Frew Americas, Asia and Europe supply chain and operations Croda International Plc ## 70 Annual Report and Accounts 2021 Other – 3% ## Investor engagement Europe (ex. UK) – 28% North America – 29% UK – 40% ### 2021 Directors’ report engagement by investor location ### Approach investors the opportunity to engage directly with the Board. Results presentations are webcast live, The Board is committed to maintaining regular with a replay facility available on our website, dialogue with investors and communicating in ensuring all investors have equal opportunity to a clear and transparent manner. The investor Holder – 50% participate in our results presentations. Investors Non-holder – 50% engagement programme is led by the Investor can also sign up to receive regulatory alerts on Relations and Corporate Affairs Director and is | | our website making sure they are notified of any | | 2021 | | --- | --- | --- | --- | | a comprehensive programme compromising | | engagement | | | | company updates. | by investor | | results events, investor roadshows, attendance status at conferences, investor seminars and In addition to engaging with investors, the ad-hoc meetings. Group engages with other key audiences such as analysts and ESG ratings agencies. We The investor relations programme includes direct typically hold regular analyst calls following Board engagement through the Group Chief results, ensuring all covering analysts have the Executive and Group Finance Director. The Chair same opportunity to discuss our results. | and other Non-Executive Directors also make | | Croda’s strategy and the Group has a well | | --- | --- | --- | | themselves available to engage on topics such as | Activities during the year | embedded sustainability programme. In March | | governance, strategy, ESG performance, | Investor engagement in 2021 was of a hybrid | 2021 we hosted a virtual seminar to launch our | | remuneration and other relevant topics. This gives | nature, predominantly compromising virtual | 2020 sustainability report covering our | | the Board insight into investors’ views, helping to | meetings. Throughout 2021 we met with over | non-financial performance in 2020 against key | | inform key Board decisions and shape the future | 500 investors, covering a balance of both | metrics and new interim milestones to ensure | | direction of the company. The Board is also | holders and non-holders. This includes all | we achieve our Commitment to be Climate, | | regularly updated through monthly Board papers, | active fund managers among our top 30 | Land and People positive by 2030. We saw | | management presentations and feedback from | shareholders. Over the last two years there has | good engagement from a range of audiences, | | the investor relations team. This extends to | been an increase in engagement with fund | with questions from institutional and private | | commentary on the trading environment and | managers outside the UK, particularly in the | investors, ESG specialists and sell-side | | Croda’s performance relative to peers. | European Union, with the geographic | analysts. The seminar also led to further | | | breakdown of the meetings reflecting the global | engagement with several follow up meetings | Our AGM traditionally offers the opportunity for nature of our investor base. and questions from investors. investors to engage directly with the Board and receive an update on business performance. As it We have continued to see increased Looking forward to 2022 we will continue to was not possible to conduct this in the usual way engagement around ESG, with investors proactively engage with investors with seminars in 2021 due to COVID-19 restrictions, we hosted looking for increased disclosure and and site visits to provide a better understanding a pre-AGM Question and Answer session offering transparency. Sustainability is a core part of of our business model and investment case. ## Commonly asked investor questions 1. What has the impact of raw material inflation been on Croda? 4. How will you utilise proceeds from the divestment of the majority of your PTIC operations? Inflation and price increases have been a key theme throughout the economy in 2021. Croda uses a diverse range of raw materials in production and we have We have a clear capital allocation policy which prioritises organic experienced significant cost increases in 2021 averaging approximately 17% in the investment and we see exciting opportunities to invest in new capacity, underlying business. We typically provide critical ingredients into formulations at product innovation and attractive geographic markets to support our low concentrations, so the cost of our ingredients in our customers’ formulations in growth in Consumer Care and Life Science markets. This organic comparison to other ingredients is relatively small. As a result, we have broadly investment will be complemented by inorganic investment, targeting managed to pass on raw material cost increases to customers and have not seen knowledge intensive businesses in exciting niches that can accelerate our any negative impact on our operating margins due to inflation. growth. In line with our capital allocation policy, we will continue to make regular returns to shareholders and should we not identify suitable 2. What is driving the recovery in Consumer Care? opportunities to deploy capital with our leverage ratio remaining The Consumer Care sector was created at the beginning of 2021 comprising consistently below our targeted range, we would look to return capital Croda’s leading global position in Personal Care and the high-growth Home to shareholders. Care and Iberchem fragrances and flavours businesses. Personal Care sales 5. How will the divestment of the majority of your PTIC operations improved in early 2021, led by a resurgence in Beauty Actives. Sales and impact the progress you are making implementing your demand remained strong throughout the year with a recovery in “going out” sustainability strategy? sales offsetting a moderation in customer restocking. Consumer Care is a We have set out a bold sustainability commitment to be Climate Positive sustainability driven sector and our innovation programme is driving growth by 2030, and for 75% of our raw materials to be bio-based from 69% as consumers seek ‘green, clean and conscious’ beauty products. today. The operations being divested have a higher bio-based footprint 3. How sustainable is revenue in lipid systems and how will this evolve? than the Croda average, meaning that on divestment the Group average We delivered approximately US$200m of sales of lipid systems in 2021, and will fall, but we will retain our 75% target. Conversely, as the divested expect a similar level of sales in 2022. Lipid drug delivery has significant operations are more energy intensive, on divestment our scope 1 & 2 potential for applications beyond COVID-19 in areas such as gene therapy emissions intensity will fall, so we will re-baseline our carbon reduction and oncology. We expect to see an ongoing expansion in the range of targets accordingly. As a result, the divestment and the approach we are applications for lipid systems in vaccines and therapeutic drugs. adopting to adjusting our targets, will enhance the positive impact of our sustainability strategy overall. Croda International Plc ## Annual Report and Accounts 2021 71 ### Corporate governance (continued) ## Division of responsibilities ### The Board ### Chair The Chair leads the Board and sets the tone from the top promoting a culture of openness and debate and effective communication between the Executive and Non-Executive Directors. She creates an environment at Board meetings in which all Directors are able to contribute to discussions and feel comfortable in engaging in healthy debate and constructive challenge. | | | | Senior | | | | | Independent | | | | | Non-Independent | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Independent Director | | | | | | Non-Executive Directors | | | | | Non-Executive Director | | | | The Senior Independent Director | | | | The role of independent Non-Executive Director | | | | | | Having served Croda for 33 years, the | | | | provides a sounding board for the Chair | | | | | is central to an effective and accountable Board | | | | | | latter five of which were as a member | | | | | and acts as an intermediary for the | | | | | structure as they provide strategic and | | | | | | of the Board, Keith Layden is not | | | | Non-Executive Directors, where | | | | | specialist guidance together with effective | | | | | considered independent. However, | | | | necessary. She is available to shareholders | | | | | governance. They constructively challenge the | | | | | | | because of that experience, Keith | | | | where communication through the | | | | | | Executive Directors and scrutinise the | | | | contributes strongly to the Board’s culture | | | | | Chair or Executive Directors has | | | | performance of management in meeting agreed | | | | | | | | and personality, and adds | | | not been successful or where | | | | goals and objectives and ensure all stakeholder | | | | | | | unique and valuable insight and | | | | it may not seem appropriate. | | | | | | | views are considered. | | | | | constructive challenge. | | | | | | Group Chief Executive | | | | | | Group Finance Director | | | | | The Group Chief Executive has day-to-day responsibility for the | | | | | | | | | The role of Group Finance Director is to bring a commercial and | | | | | | effective management of the Group’s business and for ensuring | | | | | | | | | financial perspective to the boardroom. Working with the Group Chief | | | | | | | that Board decisions are implemented. He plays a key role in | | | | | | | | Executive, he is responsible for the leadership and management of | | | | | | | devising and reviewing Group strategies for discussion and | | | | | | | | the Company according to the strategic direction set by the Board. | | | | | | | approval by the Board. The Group Chief Executive is tasked | | | | | | | | He leads the global finance function and oversees the relationship | | | | | | | | with providing regular reports to the Board. | | | | | | | | with the investment community. | | | | ### Group General Counsel and Company Secretary The Group General Counsel and Company Secretary is secretary to the Board and its Committees. He works closely with the Chair in formulation of meeting agendas and yearly agenda programmes. He ensures that Board procedures are complied with and also advises on regulatory compliance and corporate governance. This role is to support the Chair and the Non-Executive Directors. ### Meetings Membership of the Board and its Committees, and attendance (eligibility) at meetings held during the year ended 31 December 2021 | | | Nomination | | Audit | Remuneration | | --- | --- | --- | --- | --- | --- | | | Board | Committee | | Committee | Committee | | Anita Frew (Chair) 7 (7) 4 (4) | | | CC | | | Roberto Cirillo 7 (7) 4 (4) 6 (6) 6 (6) Jacqui Ferguson 7 (7) 4 (4) 6 (6) 6 (6) Steve Foots 7 (7) Helena Ganczakowski 7 (7) 4 (4) 6 (6) 6 (6) C Keith Layden 7 (7) 4 (4) Jez Maiden 7 (7) John Ramsay 7 (7) 4 (4) 6 (6) 6 (6) C Julie Kim 3 (3) 1 (1) 1 (1) 2 (2) C Chair of the Committee Croda International Plc ## 72 Annual Report and Accounts 2021 ### Directors’ report ### Governance structure The Board has three main Committees: the Nomination Committee, the Audit Committee, and the Remuneration Committee. The terms of reference for each Board Committee can be found at www.croda.com. The day-to-day operational management of the Business is delegated by the Board to the Group Chief Executive, who uses several Committees to assist him in this task: the Group Executive Committee; the Group Finance Committee; the Risk Management Committee; the Group Safety, Health, Environment and Quality (SHEQ) Steering Committee; the Group Ethics Committee; and the Sustainability Committee. Further information on each of the Committees and the membership as at year end is shown below. ### Principal Board Committees Nomination Committee Audit Committee Remuneration Committee Chaired by Anita Frew Chaired by John Ramsay Chaired by Helena Ganczakowski | Reviews the structure, size and composition | Monitors the integrity of the Group’s financial | Recommends the Company’s remuneration | | --- | --- | --- | | of the Board and its Committees, identifies | statements and announcements, the | policy and framework and determines the | | and nominates suitable candidates for | effectiveness of internal controls and risk | remuneration packages for members of senior | | appointment to the Board and has | management as well as managing the | management. For more information see | | responsibility for Board and Executive | external auditor relationship. For more | pages 84 to 108. | | Committee succession planning. For more | information see pages 79 to 83. | | information see pages 76 to 77. ### Group Chief Executive | Group Executive | Group Finance | Risk Management | Group SHEQ | Group Ethics | Sustainability | | --- | --- | --- | --- | --- | --- | | Committee | Committee | Committee | Steering Committee | Committee | Committee | | Chaired by | Chaired by | Chaired by | Chaired by | Chaired by | Chaired by | | Steve Foots | Steve Foots | Jez Maiden | Mark Robinson | Tom Brophy | Phil Ruxton | | The Committee met | The Committee met | The Committee | The Committee | The Committee | The Committee met | | 12 times in 2021 | 11 times in 2021 to | meets quarterly to | meets quarterly to | meets quarterly in | five times in 2021 to | | and is responsible | review monthly | evaluate and | monitor progress | support of our | further develop the | | for: developing and | operating results and | propose policies and | against the Group | culture of integrity, | Group sustainability | | implementing | examine capital | monitor processes to | safety, health, | honesty and | strategy, to embed | | strategy, operational | expenditure projects. | control business, | environment and | openness, and to | sustainability | | plans, policies, | The Finance Director, | operational and | quality objectives | promote the | practices throughout | | procedures and | President of Global | compliance risks | and targets, review | importance of ethics | the organisation and | | budgets; monitoring | Operations, | faced by the Group, | safety performance | and compliance | to monitor progress | | operational | President of Regional | and to assess | and audits, and | across the Group | towards achieving | | and financial | Operations, Chief | emerging risks. | determine the | and amongst our | our Commitment. It | | performance; | Scientific Officer and | Three Executive | requirement for new | supply chain | comprises a diverse | | assessing and | Group Financial | Committee members | or revised SHEQ | partners. It | group of leaders | | controlling risk; | Controller also | attend as well as the | policies, procedures | comprises three | representing all | | and prioritising and | attend. | Group Financial | and objectives. The | Executive Committee | aspects of our | | allocating resources | | Controller and VP | Chief Executive and | members. The VP | business, including | | | | Risk and Assurance. | four Executive | Risk and Assurance | four Executive | | | | | members attend. | also attends. | Committee | | | | | The VP Risk and | | members. Each | | | | | Assurance also | | Committee member | | | | | attends. | | is the champion for | one or more of the KPIs in our Commitment. Croda International Plc ## Annual Report and Accounts 2021 73 ### Corporate governance (continued) ## Composition, succession & evaluation ### Board support Independence of Non-Executive The Board’s testing and development of the strategy was rated highly overall as were the ### Each Director has access to the advice and Directors monitoring KPls provided to the Board. The services of the Company Secretary. Where Croda complies with the Financial Reporting understanding of the company’s performance necessary, the Directors may take independent Council’s Reporting Code in having relative to competitors was identified as an area professional advice at the Company’s expense. experienced Non-Executive Directors who for continued review. Papers are made available electronically one represent a source of advice, strong judgement week in advance of meetings, which ensures The Board’s understanding of the views of major and challenge to the Executive Directors. At that each Director has the time and resources investors and stakeholders was rated highly. The present there are eight such Directors, including to fulfil their duties. A resource centre within the Board’s monitoring of culture was also rated the Chair and the Senior Independent Director, web portal provides access to useful highly, but it was concluded that there was each of whom has significant commercial information about the Group, including always scope for even greater focus on this area. experience. Details of their experience is on corporate governance materials, finance and pages 62 to 63. The relationships amongst individual Board strategy information, Group policies and members and between the Board and The independence of the Non-Executive procedures, and information on topics such as management were rated very effective, as was Directors is kept under review to ensure risk and insurance. In order to build and the Board’s relationship with the Chief Executive. continuing independence and objective increase the Non-Executive Directors’ familiarity judgement. The Chair was independent upon The Board’s monitoring of the Company’s with, and understanding of, the Group’s her appointment in 2015 and both the Chair as health and safety performance was rated highly people, businesses and markets, senior head of the Board and the Chief Executive as as was its understanding of the likelihood and managers regularly make presentations at head of executive management have clearly impact of key risks. The Board’s risk appetite Board meetings. Their understanding of the defined roles. Further information on their roles was seen to be appropriate. The evaluation Group’s operations is enhanced by regular is included on page 72. With the exception of emphasised the need to continue to review business presentations and site visits whenever Keith Layden, the Board considers that all past decisions to ensure learnings were possible. At induction, and as requirements Non-Executive Directors who served during the incorporated into future decision making. change, training is provided on governance, year are independent in character and The Board will agree areas for improvement legal and regulatory matters. Online training is judgement, with no relationships or and monitoring. The progress in the key focus provided on competition law and anti-bribery circumstances that are likely to affect, or could areas for 2021 can be found on page 67. and corruption. Specific training is provided appear to affect, their judgement. Keith Layden when requested by the Directors. To remain The Senior Independent Director met with the is not considered independent, having served up-to-date with wider issues the Directors are Chair to provide feedback on her performance as the Company’s Chief Technology Officer encouraged to participate in events hosted by following discussions with the other Non- prior to retirement from the Company external organisations to develop broader Executive Directors and the Executive and appointment as a Non-Executive Director perspectives. management to gather their views. It was in May 2017. agreed that the Chair was highly engaged and ### Conflicts of interest ### Board evaluation dedicated to her role. She creates a culture of A well-established process is in place whereby trust, openness and debate, facilitating an Following the previous years’ external the Board regularly reviews and monitors atmosphere of challenge whilst encouraging the evaluation, the 2021 Board evaluation was potential conflicts of interests. Under the effective contribution of all Board members. conducted using questionnaires and reports Company’s Articles of Association, the facilitated by Lindstock. The questionnaires The Chair met and provided feedback to each non-conflicted Board members have authority were developed by the Company Secretary and Non-Executive Director and the Executive to authorise a conflict or potential conflict of were set in consideration of the strategy and in Directors. Following these discussions, the interest. line with best governance practice. These Chair was satisfied that all the Directors Directors holding significant commitments questionnaires were issued to the Board continued to be effective and demonstrate outside of the Company are required to members, senior leaders and key advisors who commitment to the role, including having time disclose them prior to appointment and on an regularly attend the Board and Committee to attend all necessary meetings and to carry ongoing basis when there are any changes. meetings. Responses were on an anonymous out all their duties. Actual and potential conflicts of interest are basis. Lindstock collated the responses and ### Board re-election included on a register which is maintained by prepared reports that summarised the findings the Company Secretary and reviewed annually. and outlined key areas for discussion. The Following the individual performance reports were then discussed at the Board and assessments, the Board is satisfied that each During the appointment process for the two Committee meetings. Director continues to perform effectively, allocates new Non-Executive Directors, the candidate’s sufficient time for their duties and remains fully other commitments were taken into account, in Evaluation outcomes committed to their role. Full biographies for the addition to whether or not a conflict or potential The Board’s size, range of skiIIs, experience Directors are on pages 62 and 63. conflict would exist. In each case it was agreed and level of diversity were rated highly. that no potential conflict existed. The terms and conditions of appointment of International diversity had been improved Non-Executive Directors can be viewed at Details of the professional commitments of the through the recent Board appointments. The www.croda.com. Contracts for Executive and Chair and the Non-Executive Directors are value of further life sciences, consumer care Non-Executive Directors can be inspected included in their biographies on pages 62 to 63. and sustainability experience would be during normal business hours at the The Board is satisfied that these do not considered when the process for the Company’s registered office by contacting the interfere or conflict with the performance of succession of the Chair and the Senior Company Secretary and will also be available their duties for the Company. Independent Director commenced. for inspection at the AGM. The Directors will be proposed for election and re-election at the AGM on 20 May 2022 and details are in the Notice of Meeting. Croda International Plc ## 74 Annual Report and Accounts 2021 ### Appointment of Non-Executive Directors Directors’ report Background At the start of the year the Nomination Committee considered the composition of the Board and concluded that additional Health Care experience at Board level would be beneficial for the Company. In addition, the Committee recognised the benefit and value of having an even greater diversity on the Board, which had been a theme identified through the 2020 external board evaluation. As a result, the Committee concluded that a search for additional Non-Executive Directors should be undertaken and agreed to commence the recruitment process. Nomination Committee process 1. Search firm selection A sub-committee of the Nomination Committee, including the Chair, Chief Executive and Senior Non-Executive Director engaged with five search firms and met with each firm over two days with the aim of choosing one to recommend to the Nomination Committee. It was a requirement that the executive search firm must have signed up to the Voluntary Code of Conduct for Executive Search Firms. A key element of the search was to identify a firm that had deep understanding of the Life Sciences sector, and in particular Health Care. In addition, it was essential that the search firm could demonstrate they would be able to produce a longlist of candidates that were gender balanced and weighted towards ethnically diverse candidates. MWM Consulting was appointed following the tender process. 2. NED specification The Committee was asked to consider and approve a specification for the new Non-Executive position. The specification included key essential and desirable experience for the role. These included experience of desired markets, fast-paced change, emerging markets and industries where health and safety had been paramount. The specification also included personal qualities and specific attributes aligned to Croda’s culture, values and behaviours. 3. Stages of the selection process Following selection of the search firm a candidate long list was identified by the end of March 2021. All the Committee received the long list and were able to provide feedback. A short list was identified by a sub-committee including the Chair, Chief Executive and Senior Non-Executive Director and interviews were conducted in April and May 2021. a. First interview - The Chair and Chief Executive interviewed the short listed candidates separately and the Senior Non-Executive Director supported by another NED also interviewed candidates together. Two candidates were progressed through to the second interview stage. b. Second interviews - All Committee members and the Company Secretary then met with the two final candidates. This stage included discussions around their interest in the role, current time commitments and any potential conflicts of interest. c. Appointment - The sub-committee of the Nomination Committee met and, having reviewed the feedback, and the skills sets of the candidates against the candidate specification and skills matrix, concluded that an offer be extended to both candidates, increasing the size of the Board from eight to 10 Directors. Julie Kim joined the Board on 1 September 2021 and Nawal Owzen on the 1 February 2022. Their biographies can be found on page 63. Stakeholder considerations. | Strategy – Appointing Board members | Values – The new Non-Executive Directors | Diversity – The new appointments | | --- | --- | --- | | with Health Care business experience, | appointed have the skills and behaviours | increase the diversity of the Board, | | experience of fast-paced change and | that will provide a constructive and | including gender, ethnicity, nationality and | | emerging markets supports the delivery of | empathetic approach, the ability to | tenure. Different views bring broader | | the Croda strategy and the long-term | promote the culture and Croda’s | debate and can lead to better decisions, | | success of the business. Further | sustainability ethos alongside their | which reflect the concerns of all the | | information on the strategy can be found | considerable professional experience. | stakeholders and lead to greater | | on pages 20 and 21. The appointments will | | commercial success. | also bring in-depth understanding of a wide of stakeholders. ### Non-Executive Directors’ Tenure Key The Committee reviews the tenure and succession plans for the Non-Executive John Ramsay Anita Frew Directors’ tenure annually. The focus in 2022 will be on the on the succession for Julie Kim Jacqui Ferguson Helena Ganczakowski’s and her roles as Senior Independent Non-Executive Director Keith Layden Roberto Cirillo and Chair of the Remuneration Committee. This work will commence early in 2022. | | | | | | | Helena Ganczakowski | | Nawal Ouzren | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 3 years | 3 years | 3 years | | | | | | | | | 6 years | 6 years | | 6 years | 6 years | 6 years | | | | | | 9 years | 9 years | | 9 years | 9 years | | | 9 years9 years | | 9 years | 2023 2024 2025 2027 2028 20292026 2030 2031 Croda International Plc ## Annual Report and Accounts 2021 75 ### Corporate governance (continued) ### Report of the Nomination Committee for the year ended 31 December 2021 ## Having a diverse ## and talented group ## of people at all ## levels of Croda is ## essential for ## delivering success. Anita Frew Chair ## Nomination Committee Overview ### Responsibilities Key Focus Areas The Committee is responsible for nominating candidates for appointment to the Board for • Board appointments – Reviewed the approval by the Board, and for succession planning. It evaluates the balance of skills, updated NED skills/experience knowledge, experience and diversity on the Board. assessment and led the recruitment process for two new Non-Executive ### Key responsibilities Directors • Succession planning – Assessed the • To regularly review the structure, size and • To keep the organisation’s leadership changes to the Executive Committee composition, including the skills, needs, both Executive and Non-Executive, and senior leadership teams knowledge, experience and diversity, under review to ensure that the Company • Governance – Ensured compliance with of the Board and make recommendations continues to compete effectively in the key governance issues for any changes to the Board marketplace • To give full consideration to succession • To review annually the time required from ### Time allocation planning for Directors and other senior a Non-Executive Director and the Chair Executives, taking into account • To make recommendations on succession the challenges and opportunities facing planning for the Board the Company and, consequently, what skills and expertise the Board will need in the future • Where a Board vacancy is identified, to evaluate the balance of skills, knowledge, experience and diversity on the Board, The Committee’s terms of reference are and prepare a description of the role and reviewed annually and they can be found in the governance section at capabilities required for the respective www.croda.com appointment • To identify and nominate candidates to fill Details of attendance at the meetings during the ### course of the year can be found on page 72. Key Board vacancies, for the approval of the When it is appropriate to do so members of the Board, as and when openings arise Board – 60% Executive Committee attend the meetings on request of the Chair of the Committee. Succession – 20% Governance – 20% Croda International Plc ## 76 Annual Report and Accounts 2021 | Dear fellow shareholder, | The gender balance on Executive Committee | Director induction | | | --- | --- | --- | --- | | I am pleased to present the Nomination Committee | and senior management teams (direct reports | The Company provides new Directors with a | | | report for the year ended December 2021. | to the Executive Committee) by 31 December | comprehensive and tailored induction process. | | | | 2021 stood at 36 % female. We continued to | One of the first sessions attended is a health and | Directors’ report | ### Main activities and priorities increase the diversity of our leaders below safety briefing, and the induction schedule ### in 2021 Board and Executive Committee level. 27% includes meetings with members of the Board Board changes of our Top 56 employees are female, with the and Executive Committee, meetings with key Top 56 made up of employees across eleven senior managers and the Group’s audit partner Each year the Nomination Committee considers nationalities. There continues to be work to and other key advisers. Induction programmes the composition of the Board and in terms of do to create further diversity and the gender are developed by the Group’s Company the balance of skills, experience, length of balance in the underlying management teams Secretarial department and discussions start service and wider diversity considerations. The and this will take a number of years. well in advance of the appointment date to tailor Guidance on Board effectiveness comments | that boards are more likely to make good | Further information on our current people | the experience to the existing knowledge and | | --- | --- | --- | | decisions and maximise opportunities for | initiatives and diversity and inclusion and our | experience. New Directors are provided with | | long-term success if their members collectively | ambitions in these areas can be found on | external training that addresses their role and | | have the right balance of skills, experience, | pages 36 and 37 of this report. The Committee | duties as a Director of a quoted public company. | | knowledge and independence. | and the Board receives reports from the Group | All new Directors are given access to our | | | HR Director on these initiatives throughout the | electronic Board papers which provide easy and | As a result of this review early in 2021,and year. Members of the senior management team immediate access to key documents including following a comprehensive recruitment process, and potential future leaders are given the the previous twelve month’s Board and two new appointments have been made to the opportunity to present to the Board whenever Committee papers, recent reports from the Board and details of the activities undertaken the opportunity arises. external Auditor; the Group’s risk register and by the Committee in relation to these appointments are outlined on page 75. A copy of our Board Diversity Policy, which is Schedule of Principal Risks; the latest budget regularly reviewed by the Board, is available in the and strategic plan; recent sell-side analyst On 1 September 2021, Julie Kim was appointed corporate governance section at www.croda.com. reports and feedback from our stakeholder as a Non-Executive Director, bringing 25 years’ For more information on our Board see the engagement programmes; information on our experience of health care markets across Europe, Directors Biographies on pages 62 and 63. sustainability initiatives and matters reserved for Asia and Latin America. Julie is currently President the Board and the Committee terms of reference of Plasma-Derived Therapies at Takeda Succession planning and other key policies. This information is Pharmaceutical, a global, R&D driven The Committee, supported by HR, reviewed supplemented by country and site tours and we biopharmaceuticals company. Then on the development plans for the Board and each expect these to recommence in 2022. 1 February 2022, we also welcomed Nawal Executive Committee member. They also Ouzren, currently CEO of biopharmaceutical Other activities of the Committee reviewed the talent and succession planning company Sensorion, to the Board, adding further within the Group. Succession plans for sector, The Committee reviewed the time commitment health care expertise through her first-hand region and function, and the plan to improve of the Non-Executive Directors. This is assessed experience of biologics and novel gene therapies. female talent in senior positions are all well before appointment and on an annual basis. established. During the year, I became a Non-Executive Both appointments add relevant experience as Director and Chair of Rolls-Royce Holdings Plc. we look to access higher growth markets in Following the changes made in 2020 to the Since the year end John Ramsay had been Health Care, and in regions beyond Europe and Executive Committee structure, a further review appointed as a Non-Executive Director of North America. They also bring even greater was undertaken in advance of the departure of Babcock International Group Plc. The diversity to the Board in terms of gender, Maarten Heybroek, President Consumer Care Committee considered each appointment and ethnicity and nationality. I am pleased and the retirement of Stuart Arnott, President of concluded that these appointments would not to have fulfilled our commitment to meeting the Sustainability to ensure we could continue to impact on our commitment and availability to requirements of the Parker Review on ethnic deliver our ambitious strategy. Croda. It was satisfied that all the Non-Executive diversity and achieving full gender balance on Following an external search conducted by Egon Directors remain able to commit the required the Board in line with the Hampton-Alexander Zehnder, Daniele Piergentilli was appointed to time for the proper performance of their duties. Review. Our Board diversity policy seeks to the role of President of Life Sciences. Daniele’s maintain this position going forward. The Committee considered and concluded appointment strengthens Croda’s ability to take that, except for Keith Layden, all Non-Executive Helena Ganczakowski’s and my own advantage of the opportunities in Life Sciences Directors continue to fulfil the criteria of appointment were considered by the which is in line with our strategy. Daniele has a independence. As Keith was formerly an Committee and both terms were extended by strong background in Health Care at BASF, Executive Director of the Company, he is another year in line with the Nomination where he worked for 23 years in a number of not currently considered to be independent. Committee policy that once a Non-Executive sales, marketing and R&D roles. Director has served six years, any extension to The annual Committee evaluation was David Shannon, who was Senior VP North their term would be on a year-by-year basis. conducted using questionnaires considering America was appointed to the role of President Roberto Cirillo and Jacqui Ferguson having the Committee’s operations, oversight and Consumer Care. David has been with Croda for completed their first three year terms, were also progress during the year. The evaluation 24 years working in both regional and sector roles reappointed for a further three years. confirmed that the Committee continued to be in Personal Care, Health Care and Crop Care. He well led and excellent progress had been made Diversity and inclusion has deep customer knowledge and a network of with the Board appointments during the year. Having a diverse and talented group of people close relationships across Croda. David was Positive progress had been made developing at all levels of Croda is essential for delivering appointed following an open internal process. talent and increasing gender balance. Going success. The Board supports the The opportunity was also taken to strengthen the forward the oversight on diversity and inclusion recommendations of the Hampton-Alexander Sustainability team to further support our strong needed to be maintained and monitored. and Parker Reviews in relation to gender and strategic commitment to sustainability. Phil ethnic diversity. I am pleased that we have now Ruxton (Vice President Sustainability) was achieved a position of 50% of women on the appointed as Chief Sustainability Officer reporting Board (including female Directors as Chair and into Nick Challoner, Chief Scientific Officer. Senior Independent Director) and our new All these changes were proactively planned and appointments to the Board fulfil the managed and contributions from all these requirements of the Parker Review. individuals can be found throughout this report. Anita Frew Chair of the Nomination Committee Croda International Plc ## Annual Report and Accounts 2021 77 ### Corporate governance (continued) ## Audit, risk and internal control | Fair, balanced and understandable | A full statement of Directors’ responsibilities | business plan appraisal, risk analysis and | | --- | --- | --- | | To assist the Board in determining whether | can be found on page 111. | authorisation. The Global Capital Project Director | | the Annual Report was fair, balanced and | | has developed a framework for managing major | Risk management and internal control understandable, the annual report team capital expenditure, and post-investment review The Board acknowledges its responsibility for prepared a Board paper that, amongst other processes are completed by internal audit (at the ensuing the maintenance of a sound system of things, reviewed the process of preparation of Audit Committee’s request). internal controls and risk management, in the report, the controls in place to ensure Business risk management accordance with the guidance set out in the consistency and reliability of the underlying Financial Reporting Council’s Guidance on Risk As described on page 50 the Executive information, identified the material positive and Management, Internal Control and Related Committee has established an ongoing process negative matters referred to in the report to Financial Business reporting 2014, and in the for identifying, evaluating and managing ensure balanced content and provided details Corporate Governance Code itself. emerging and principal risks. The Board receives of the level of senior level oversight of the updates on principal risks and risk appetite on Executive management have established an content of the report. an annual basis (page 66) and the Audit organisational structure with clear operating The Annual Report and Accounts process is Committee receives reports from internal audit procedures, lines of responsibility and delegated designed to give the Board enough time to on the effectiveness of mitigating controls in authority which was reviewed by the Board assess whether it is fair, balanced and place over selected principal risks at each (page 73). In particular, there are clear understandable, as required by the Code. The meeting. The Risk Management steering group, procedures and defined authorities for key themes and messages to be included in the a subcommittee of the Executive Committee the following: Annual Report and Accounts are considered by (page 73), meets on a quarterly basis to monitor Financial reporting and financial statements the Board early in the process. and review both current and emerging risks. review The Board considered whether the Annual Internal Controls Policies and procedures governing the financial Report and Accounts contained the necessary There is a documented framework of required reporting process and preparation of the information for shareholders to assess the internal controls for business processes, IT, financial statements are owned by the Group Company’s position and performance, safety and quality, which form part of our Finance Director and clearly and transparently business model and strategy. The Directors ‘business as usual’ activities and which are communicated through the Group Policies received a full draft of the Annual Report and documented in controls manuals. Policies system. In order to assess the financial provided feedback. This review ensures that governing the internal controls are documented statements, the Audit Committee regularly each Director has an opportunity to highlight in the Group Policies system, which is available reviews reports from members of the finance any areas requiring further clarity as well as online to all employees, and each group policy team and external audit who are invited to suggesting issues and areas that were not is owned by a member of the Executive attend the Committee’s meetings. When adequately covered or on which the report may Committee. Confirmation that the controls are conducting its review the Committee considers have placed too much emphasis. being adhered to is the responsibility of material accounting assumptions and estimates The key messages in the narrative in the managers, who together with their teams made by management, any significant Strategic Report and Governance sections of complete an annual self-assessment process judgements or key audit matters identified by the Annual Report and Accounts were reviewed against all controls which provides a snapshot the external auditor (pages 113 to 114 Auditor to ensure they were consistent with the financial of the control environment at the start of the report), compliance with relevant accounting reporting contained in the financial statements. year. Compliance with controls is tested by the standards and other regulatory reporting The Board believed that clear explanations had internal audit team as part of their annual plan requirements, including the UK Corporate been provided for the KPIs. of work approved by the Audit Committee each Governance code, and the accounting policies year (page 81), as well as being tested by other The Board reviewed whether the Annual Report and procedures applied (see page 80 Audit internal assurance providers. and Accounts disclosed the successes and the Committee report). challenges that had been faced in the period The Board discharged its responsibility for Internal audit function and that the narrative and analysis effectively monitoring the operational effectiveness of The internal audit function is a key element of the balanced the information needs and interests the internal control and risk management Group’s corporate governance framework. Its role of each of our key stakeholder groups.In systems throughout the year using a process is to provide independent and objective particular the Board considered if the which involved: assurance, advice and insight on governance, risk explanation of the impact of COVID-19 and the • Delegation of review of systems of risk management and internal controls to the Board additional sustainability disclosures included management and internal control to the Audit and Audit Committee and the Group. It supports this year had any impact on the balance and Committee, whose activities are described in the Group’s strategy and objectives by evaluating clarity of the Annual Report and Accounts. detail on pages 80 to 81 and assessing the effectiveness of risk | The framework and layout were considered to | management systems, business policies and | • Receipt of written confirmations from senior | | --- | --- | --- | | be clear and coherent, with a consistent tone | procedures, system and key internal controls. In | management | | throughout and clearly signposted linkage | reporting on their reviews, internal audit makes | • Board review of the report on significant | | between all sections, in a manner that reflected | recommendations to address issues and improve | control weaknesses (page 66) | | a comprehensive narrative and highlighted the | processes. Once recommendations are agreed | | • Annual review of risk appetite statements key messages appropriately throughout. with management, the internal audit function and principal risks (page 51) monitors their implementation and reports to the Following this assessment, the Board was of the These processes have been in place for the full Audit Committee on progress at every meeting. opinion that the 2021 Annual Report and financial year up to the date on which the See page 81 Audit Committee report. Accounts are representative of the year and financial statements were approved by the present a fair, balanced and understandable Capital investment Board. The systems are designed to mitigate, overview, providing the necessary information for The Finance Committee (a subcommittee of the rather than eliminate, the risk of failure to shareholders to assess the Group’s position, Executive Committee) operate a clearly defined achieve business objectives and provide performance, business model and strategy. capital expenditure process including detailed reasonable, but not absolute, assurance against material misstatement or loss. Croda International Plc ## 78 Annual Report and Accounts 2021 ### Report of the Audit Committee for the year ended 31 December 2021 ### Directors’ report ## The ongoing ## pandemic has meant ## that the financial ## reporting and audit ## process had to ## continue to adapt, ## reflecting the lessons ## learnt from the 2020 ## audit process. John Ramsay Chair of the Audit Committee ## Audit Committee Overview ### Responsibilities Key focus areas in 2021 The Committee assists the Board in ensuring that the Group’s financial systems provide • Maintained our focus on cyber security accurate and up-to-date information on its financial position. improvement: Reviewed the workplan of the recently appointed Information ### Key responsibilities Time allocation Security Manager and assessed the adequacy of proposed control • To monitor the integrity of the financial improvements. statements and results announcements of the Group and to review significant • Monitored Avanti and Iberchem financial reporting issues and judgements. integration programmes. Reviewed the integration of Avanti and Iberchem and • To recommend external auditor the adequacy of internal controls in appointment and removal, assess audit relation to Croda standards. quality, negotiate and approve the audit fee, assess independence, monitor • Reviewed the improved controls and non-audit services and be responsible for assurance standards in relation to the audit tendering. project management of major capital projects. • To review the adequacy and effectiveness ### Key • Assessed the impact of regulatory of the Group’s internal controls and risk management systems, and the adequacy, change on Croda’s risk and control Financial reporting – 25% effectiveness and output of the internal framework. Reviewed the Government Governance – 15% audit function. consultation white paper on Audit External audit – 25% Reform and submitted comments on • To review the adequacy of the Group’s Internal audit and risk management – 25% proposals as well as initial consideration whistleblowing arrangements and Specific focus areas for 2021 – 10% of the Group’s preparedness for the procedures for detecting fraud. major proposals. | Detailed responsibilities are set out in the | Details of attendance at the meetings | • Oversaw the onboarding and | | --- | --- | --- | | Committee’s Terms of Reference which are | during the year | effectiveness of the new external | | reviewed regularly. They can be found in the | P72 | | audit partner. governance section at Details of the key focus areas for 2022 www.croda.com P81 Croda International Plc ## Annual Report and Accounts 2021 79 ### Corporate governance (continued) ### Report of the Audit Committee (continued) for the year ended 31 December 2021 Report of the Audit Committee for The Committee met on six occasions during Agenda coverage through the year was seen as the year and has met twice since the financial full and appropriate. Committee members were ### the year ended 31 December 2021 year end. The meetings were held in advance well prepared for meetings, engendering I am pleased to present the Audit Committee of the Board and I then provided a report of the informed discussions and constructive debate. report for the year ended 31 December 2021. key matters that were discussed and any Overall, the evaluation concluded that the This report provides shareholders with an emerging areas that may require additional Committee was operating effectively. overview of the work undertaken by the focus. A programme of business is agreed at Four focus areas for 2022 were identified and Committee and the key areas considered when the start of the year and it is reviewed and these are summarised on page 81. discharging its responsibilities and providing updated to ensure any additional focus areas assurance on the integrity of the annual report Committee activity in 2021 identified are considered. and financial statements for the year ended The Committee’s main business as usual To ensure the work of the Committee remains 31 December 2021. activities, as well as the focus areas, and an focused on the key and emerging issues, I The ongoing pandemic has meant that the estimate of the proportion of time spent on regularly meet and speak separately with the financial reporting and audit process had to them, are detailed below. Group Finance Director, Group Financial continue to adapt, reflecting the lessons learnt Financial reporting (25%) Controller, the VP Risk and Assurance and the from the 2020 audit process. The majority of The Committee: internal and external auditors. Meetings without the external audit has again been delivered the Executive present are also held with the • Monitored the Group’s financial statements remotely, while more of the internal audit internal and external auditors to facilitate open and results announcements, including the programme was delivered in-person. I received dialogue and assurance. Before each Audit Annual Report and the interim statement, regular updates from the Group Finance Committee meeting, I also meet with the and with support from the external auditors, Director, the wider global finance team, the external auditors, the Group Finance Director, reviewed those items in the Group’s financial Lead Audit Partner and the VP Risk and the Group Financial Controller and the VP Risk statements that had the potential to Assurance. The dedication and commitment and Assurance to discuss control and significantly impact reporting. The Committee from the Croda executive management team, compliance issues generally and specifically challenged management on the statements the audit teams and Croda employees has the detail of the year end and half year results, and was satisfied with the explanations been exceptional and robust audit processes accounting judgements and disclosures. This provided. Consideration was given to the were delivered once again. | | helps me to ensure there is a shared | appropriateness of accounting policies, | | --- | --- | --- | | Committee membership and attendance | understanding of the key issues, technical | critical accounting judgements and key | | The composition of the Committee at the end | matters and judgements and to make sure | sources of estimation of uncertainty. | | of the year comprised of five independent | sufficient time is devoted to them at the | Recommendations were made to the Board, | | Non-Executive Directors. Julie Kim joined the | meetings. | supporting the half and full-year accounts | | Board and Committee on 1 September 2021 | | and financial statements. | Committee evaluation and post year end Nawal Ouzren was • Reviewed the Group’s external reporting The Committee performance was assessed appointed to the Board and Committee on framework and use of Alternate Performance as part of the internal annual Board evaluation 1 February 2022. The experience of each Measures (APMs) to assess ongoing process (see page 74 for further detail on the Board member is outlined on pages 62 and 63. appropriateness. The Committee was process). The output of the evaluation was The Board considers all members of the Audit satisfied that the APM’s reviewed were considered by the Committee in January 2022. Committee have the appropriate and relevant consistent with market practice of both the The effectiveness with which the Audit level of experience in financial matters as well peer group and the wider FTSE 100 Committee uses its time was rated very highly as a diverse and broad range of competence companies, and that disclosure and with all agenda items being covered with relevant to the sector focus and the future reconciliation to statutory measures was appropriate time allowed for more in-depth strategic direction of the Group. appropriate. discussion when required. The Chair was These skills and my own experience of over • In conjunction with the Board, reviewed the seen to demonstrate effective leadership and 30 years in international finance and extensive financial modelling and stress testing rated highly in ensuring all opinions are heard experience as an audit committee chair conducted for the going concern and considered. provides the Board with assurance that the assessment. A recommendation was made Relationships between the Committee and Committee has the appropriate skills and to the Board to support the going concern Croda management were considered very breadth and depth of experience to ensure statement. Further information can be found effective with the Audit Committee providing that it can be fully effective. It also meets the on page 125. both support and challenge. Following the Code requirements that at least one member • Reviewed the viability assessment process rotation of KPMG’s lead audit partner at the has significant, recent and relevant financial undertaken in support of the long-term start of 2021 due to an organisation change in experience. viability statement, based on plausible KPMG, the Committee was satisfied that the The Chair of the Board, Keith Layden (a scenarios arising from key risks and their leadership of the global audit continued to be Non-Executive Director), the Group Chief impact on headroom and debt covenants. effective. Proactive engagement by the lead Executive, the Group Finance Director, the The Committee challenged the assumptions audit partner during Committee meetings was, Group Financial Controller, the VP Risk and and scenarios noting the effect they would however, encouraged to ensure appropriate Assurance (who leads the internal audit have during the viability period. Further input and challenge was given during the function) and representatives from the external information can be found on pages 56 to 57. Committee’s deliberations and discussions, and internal auditors attend the meetings • Undertook regular reviews of the Group’s particularly in areas of financial reporting issues by invitation. litigation. The Committee receives reports and judgements. twice a year from the Group General Counsel Croda International Plc ## 80 Annual Report and Accounts 2021 ### Directors’ report | and Company Secretary and was satisfied | • Reviewed a project to develop further the | steps forward that had been identified. | | --- | --- | --- | | with the approach to provisioning and | IT control environment. | Management were tasked with providing | | disclosure. | • Met with the external auditors without | regular updates on progress throughout | | • Reviewed the accounting treatment for the | management present. The Committee | 2022, together with implementing | | disposal of the majority of the PTIC business. | considered KPMG’s views. There were no | comprehensive KPIs. | | The Committee was supportive of the | significant issues to report. | • Reviewed and approved the 2022 internal | | approach adopted. | • Considered the independence and objectivity | audit plan and scope of the peer reviews. | | | of KPMG. The Committee confirmed the | The Committee approved the plan. | Governance (15%) independence of KPMG as further described • Met with the internal auditors without The Committee: on page 83. management present. There were no • Reviewed the input from a compliance review • Considered the effectiveness of the external significant issues identified. to ensure the Committee met its corporate audit process including the onboarding of the • Conducted its annual review of the governance and regulatory requirements. new audit partner. The Committee concluded effectiveness of the Group’s internal audit The Committee concluded that the that the audit was effective and a function. The Committee concluded that the requirements were being met. recommendation was made to the Board on internal audit team, supported by PwC • Reviewed the effectiveness of the Group’s the reappointment of KPMG at the AGM. resource was effective. anti-bribery and fraud procedures, including | those for whistleblowing. The Committee | Internal audit and risk management (25%) | | --- | --- | | received a report on the independent | The Committee: | | investigations that had been conducted in | • Reviewed the strategic internal audit planning | ### Looking ahead to 2022 response to concerns raised under the approach, reviewed reports on the work of whistleblowing policy and were satisfied with In addition to our routine business, the the internal audit function from the VP Risk the outcome, including follow-up actions. Committee has four focus areas for and Assurance and monitored compliance 2022. We will: | • Undertook an external evaluation of the | with the Group risk assurance programme. | | | --- | --- | --- | | Committee’s effectiveness. Information on | The Committee approved the internal audit | 1. Maintain focus on cyber security and | | the evaluation process can be found on page | plan and the implementation of any resulting | the delivery of projects identified in | | 74. The results of the review concluded that | actions by management. | the 2021 information security | | the Committee continued to be effective. | • Discussed the use of data analytics as an | strategy | | • Reviewed and took account of the annual | integral part of the internal audits delivered | 2. Monitor progress in the development | | FRC letter to Audit Committee Chairs. | by the co-source internal audit provider, | of processes and controls over the | | • Reviewed the Committee’s terms of | PwC. The Committee reviewed the potential | reporting of non-financial KPIs, | | reference and confirmed that the role and | use of such data analytics in continuous | particularly relating to sustainability | | responsibilities of the Committee are aligned | controls monitoring. | 3. Monitor the impact of major business | | with the UK Corporate Governance Code. | • Discussed the results of the 2021 controls | change programmes on Croda’s risk | | No changes were made during the year. | assurance internal audits delivered by PwC. | and control environment | | • Completed its annual review of the Group’s | The Committee considered the adequacy of | 4. Review management’s oversight and | | tax compliance policy and risks relating | management’s response to matters raised | monitoring of quality controls within | | thereto. No significant updates were | and the timeliness in resolving such matters. | the Health Care sector | | required. The policy is available at | • Received updates on the IT control | | | www.croda.com. | environment in-depth review undertaken by | | management, and the Governance Project External audit (25%) which covered risk assessment, a control The Committee: framework review and refresh and • Discussed and approved the external audit governance. The Committee considered the plan, including the assessment of significant management action that had been audit risks; the engagement risk profile; the undertaken to address specific control use of data analytics; the scope of the audit; recommendations during the year. Internal the impact of COVID-19; the materiality level audit reported into the Committee on the and the de minimis reporting threshold; the progress achieved during 2021. co-ordination of external audits; and the key • Assisted the Board in its assessment of the members of the engagement team. The Group’s emerging and principal risks. The Committee monitored the progress made by Committee challenged the results of the the statutory audit team against the agreed 2021 risk assurance activity carried out by plan and discussed issues as they arose. internal audit and considered any additional • Discussed increases to the audit fee to key risks as a result of acquisitions during the reflect expansion of the Group through year. acquisition, regulatory changes to the • Received a deep dive review from the requirements for UK managed audits, any recently appointed Information Security additional work due to COVID-19 and Manager on the cyber security framework increased staff costs within the audit and strategy. The Committee was satisfied profession. Information on the audit fees can with the progress made to date and the be found in note 3 on page 134. Croda International Plc ## Annual Report and Accounts 2021 81 ### Corporate governance (continued) ### Report of the Audit Committee (continued) for the year ended 31 December 2021 Specific focus areas for 2021 (10%) As highlighted above, the Audit Committee has delivered on our ‘business as usual’ work, as set out in our terms of reference. In addition, last year we noted four specific focus areas for 2021, which absorbed the balance of the Committee’s time. Specific focus area Actions during the year Progress Maintain our focus on cyber The information security manager attended the November 2021 committee meeting to present his Moved to BAU security with a refreshed refreshed strategy, which is aligned with the NIST framework. This identified 12 tactical and 12 rolling assurance rolling annual assurance strategic projects which will continue to progress through 2022. Internal audit reviewed the risks process programme based on the and controls over the asset management and third party supplier management processes as part NIST security framework of the rolling annual assurance plan. Monitor Avanti and Facilitated risk reviews were undertaken with the Avanti and Iberchem leadership teams using the Completed Iberchem integration Croda risk management framework (see pages 50 to 52) and the risks were captured in the programmes, including Digital Hive. Gap analysis of controls in operation at Avanti and Iberchem were completed by controls assessment against internal audit against the Croda controls frameworks and actions were discussed with Croda risk and control management to define a plan to full compliance and integration. standards Review the major A capital programme director was appointed during 2021 and a capital projects framework Moved to rolling capital projects developed with comments from the internal audit’s review being incorporated into the finalised assurance assurance programme document. A rolling internal audit programme of major capital projects was implemented with process findings discussed with the Audit Committee. The programme of audits planned for 2022 was agreed to include five major in-flight project reviews. Assess the impact of The Audit Committee considered management’s response to the BEIS UK corporate governance In progress anticipated regulatory reform white-paper and the Group’s response to the public consultation. Management undertook changes on Croda’s risk and four self assessment benchmarking reviews with EY to identify any significant gaps in the current control framework control frameworks and actions have been identified, particularly in the IT control environment. Future regulatory changes in relation to the reporting and monitoring non-financial KPIs were discussed, with internal audit acting as critical friend to the sustainability team at the request of the Audit Committee. | Significant financial statement reporting items | saw two acquisitions for Croda. As a result, | The Committee assessed the key accounting | | --- | --- | --- | | The Committee, with support from the external | goodwill represents a significant asset value on | considerations, and after challenge, was | | auditors, reviewed those items in the Group’s | the balance sheet of £852.0m out of total net | satisfied that the disposal group did not meet | | financial statements that have the potential to | assets of £1,765.9m at 31 December 2021. | the requirements to be classified as held-for- | | significantly impact reporting. These are set | | sale as at 31 December 2021. | The Committee completed its annual | out below. | impairment review of the carrying value of | Parent Company’s carrying value of | | --- | --- | --- | | Pensions: The Committee monitored the | goodwill, as prepared by management, | investments in subsidiaries and | | Group’s pension arrangements, in particular | including the detailed sensitivity analysis to a | intercompany receivables: The Committee | | the funding of the defined benefit plans in the | number of underlying assumptions, including | considered the carrying amount of parent | | UK, the US and the Netherlands, which are | the ongoing impact of COVID-19, and the | Company’s investments in subsidiaries and | | sensitive to assumptions made in respect of | broader consequences on the markets in which | intercompany debtors, held at cost less | | discount rates, salary increases and inflation. | the Group operates. The Committee assessed | impairment, representing 98% of parent | | | the methodologies used and the adequacy of | Company’s total assets (2020: 99%). | The Group engages external actuarial the management disclosures. Particular specialists. The Committee reviewed the The recoverability of these balances is not attention was given to Iberchem’s cash actuarial assumptions used and compared them considered judgemental; however, they are the generating units, which had the smallest with those used by other companies. The most significant component of the parent headroom between their carrying values and external auditors also challenged the benchmark Company balance sheet and therefore require value in use. The Committee reviewed the assumptions applied and conducted sensitivity additional consideration as part of preparing the methodology adopted to evaluate the risk of analysis. The Committee considered this work financial statements. This included comparing the goodwill impairment. After challenge, the and found the assumptions to be reasonable. carrying amount with the respective subsidiary’s Committee was satisfied that the assumptions net asset value, profitability and cash generation. The Committee also assessed the were reasonable and that no impairments were After review, the Committee was satisfied that considerations in relation to the transfer of the necessary; however, enhanced disclosure was the recoverability of these balances was Netherlands defined benefit pension scheme to agreed to be appropriate, given the sensitivity acceptable, and no impairments were necessary. a collective defined contribution arrangement, of the calculations to certain assumptions. resulting in the settlement of the scheme’s Internal audit and risk management Impact of the divestment of the majority assets and liabilities of £207.1m and a I met with the Vice President Risk and of PTIC: On 22 December 2021, the Group corresponding gain of £11.2m. After review, Assurance several times during the year outside announced an agreement to dispose of the the Committee was satisfied with the settlement of the formal meetings to discuss the majority of the PTIC businesses and is currently accounting in the financial statements. performance and output of the internal audit working with the acquirer on the process to function and aspects of risk management. The Goodwill impairment: The strategy of the separate the businesses, with completion of Vice President Risk and Assurance attended Group includes acquiring new technologies and the divestment expected in summer 2022. each Committee meeting and presented an businesses operating in adjacent markets. 2021 Croda International Plc ## 82 Annual Report and Accounts 2021 internal audit report that was fully reviewed and It took account of the views of the Group External auditor’s independence discussed, highlighting any major deviations Finance Director and Group Financial Controller, The Committee and the Board place great from the annual plan agreed with the Committee. who had discussed subsidiary component emphasis on the objectivity of the Group’s ### audits with local audit partners, to gauge the external auditors in reporting to shareholders. Directors’ report At each meeting, the Committee considered quality of the team and knowledge and the results of the audits undertaken and the Our Group policy on the provision of non-audit understanding of the business. The Committee adequacy of management’s response to services by external auditors, which is on our also considered how well the auditor assessed matters raised, including the time taken to website www.croda.com, sets out permitted key accounting and audit judgements and the resolve such matters. Particular focus was and prohibited non-audit services and the way it applied constructive challenge and addressed to those areas where there was a controls over assignments awarded to the professional scepticism in dealing with major divergence between the outcome of the external auditor to ensure that audit management. | internal audit and the scoring of the self- | | independence is not compromised and the | | --- | --- | --- | | assessment questionnaire, completed annually | The Committee also reviewed the output from | provision of such services do not impair the | | by each business unit. In these instances, the | a questionnaire completed by senior members | external auditor’s objectivity. KPMG have not | | Committee challenged management as to what | of the finance team to obtain their views on | been required to terminate any services that | | actions it was taking to minimise the chances of | KPMG’s effectiveness in carrying out the 2021 | would not be permissible under the Standard. | | divergences arising in the future. | audit. The questionnaire covered: | | In 2021, non-audit fees were £0.1m, significantly | In January, the Committee conducted its | • Quality of planning, delivery and execution | less than the total audit fees of £1.7m; the | | --- | --- | --- | | annual review of the internal audit function, | of the audit. | non-audit to audit fees ratio stands at 0.1:1. | | including its approach to audit planning and risk | • Quality and knowledge of the audit team. | | The Committee undertook its annual review of assessment, communication within the • Effectiveness of communications between the Group’s policies relating to external audit, business and with the Committee and its management and the audit team. including the policy that governs how and when relationship with the external auditors. Senior • Robustness of the audit, including the audit employees and former employees of the Group’s management feedback from sites included in team’s ability to challenge management as auditors can be employed by the Company. No the 2021 audit programme is gathered by well as demonstrate professional scepticism changes were made. The Committee also questionnaire to support this process. These and independence. reviewed and accepted KPMG’s Independence did not highlight any significant areas for letter which annually confirms their independence Following the review, the Committee development. In the light of the continuing and compliance with the Financial Reporting concluded that the audit was effective and requirement for virtual audits in 2021, the Council’s (FRC) ethical standard. overall the Committee was satisfied with the Committee was pleased with progress. performance of KPMG. In conclusion, the Committee agreed that Details on how the Business monitors risk and KPMG were independent. Croda is in compliance with the Statutory Audit how it implements its risk management Services Order 2014. We undertook an audit External auditor reappointment framework are set out on pages 50 to 55. tender in 2017 and the Board appointed As noted above, the Committee recommended External auditors’ effectiveness KPMG as external auditor, with Chris Hearld to the Board that KPMG be offered for During the year, the Committee assessed the as the Lead Audit Partner. The first year to be re-election at the forthcoming AGM. effectiveness of KPMG as Group external audited by KPMG was the year ended I will be available at the shareholder auditor. To assist in the assessment, the 31 December 2018. Following an engagement event to respond to any questions Committee considered the quality of reports organisational change in KPMG, Chris Hearld shareholders may raise on the Committee’s from KPMG and the additional insights provided stepped down as Lead Audit Partner following activities in the year. by the audit team, particularly at partner level. the AGM 2021 and was succeeded by Ian Griffiths. John Ramsay Chair of the Audit Committee ## Ethical compliance review Under its terms of reference, the Committee is tasked with an The recently updated ethical compliance manual had been annual review of the Company’s anti-bribery and corruption, fraud effective in proceduralising the ethics programme, and had been and whistleblowing procedures. In 2021, the Committee’s review supplemented with practical ‘how to do’ guidance notes. Training of these matters consisted of receiving reports and presentations programmes continued to operate effectively, with over 1,000 from the executive owner of the procedures. The Committee was employees undertaking training during the year (online or face-to- satisfied that the design and focus of the ethics programme took face). The Group’s Speak Up line was working effectively, and the account of the Company’s increasing presence in emerging Committee were satisfied that the procedure for investigating economies, which could often pose elevated compliance and reports was robust and being undertaken by independent experts. reputational risks. During 2021, 93 reports were made using the Speak Up line and every report had been investigated with no serious allegations The Committee discussed the progress of integrating Iberchem having been substantiated. and other recently acquired companies within the Group’s ethics programme and were comfortable with the work undertaken and The Committee reviewed the KPIs that tracked and monitored how with the level the engagement by the newly acquired businesses. the ethics programme was embedded and were used as leading and lagging indicators of ethical risks. The Committee considered that the work of the ethics committee in its robust oversight of the development and reinforcement of the Group’s The Committee conducted a review of the Group’s fraud policy and ethics strategy and considered that it was demonstrative of the procedures – with no changes being required. No instances of fraud top-level commitment to anti-bribery by the executive team. The were brought to the Committee’s attention. Group had 48 ethical risk assessments in place at the site level, which accurately recorded detailed assessments of the local bribery risk. Croda International Plc ## Annual Report and Accounts 2021 83 ### Remuneration Report ### Report of the Remuneration Committee for the year ended 31 December 2021 ## Croda’s remuneration ## approach plays a key ## role in the continued ## achievement of the ## Group’s strategic ## objectives and in the ## delivery of sustainable, ## profitable growth.” Dr Helena Ganczakowski Chair of the Remuneration Committee | | to Croda’s evolving ambition and received | Alignment to strategic objectives | | --- | --- | --- | | Contents | 97.6% votes in favour. Last year we were | Croda’s strategy continues to focus on | | | pleased to receive 98.8% votes in favour | consistently delivering sustainable, profitable | A Chair’s letter of the 2020 Remuneration Report. growth by providing innovative, sustainable B 2021 Remuneration at a glance The Remuneration Committee is not proposing solutions to our customers consistent with TM C Report of the Remuneration any material changes to the operation of the our Purpose: Smart science to improve lives . Committee for the year ended policy in 2022, being satisfied with both the During 2021 we conducted a strategic review 31 December 2021 outcome of the 2019 review and subsequent of our Performance Technologies and Industrial • How our reward strategy aligns to minor changes made last year. Chemicals (PTIC) businesses to decide on the and supports our business strategy Continued strong progress best ownership structure going forward. • Executive Directors’ remuneration The conclusion of this review was to sell the I am pleased to confirm that Croda continues for the year ending 31 December majority of the PTIC businesses to Cargill, to progress successfully in line with its strategy, 2022 a company which has a distinguished history with excellent, profitable growth across all and strong values. | D Directors’ remuneration for the year | sectors. Recent acquisitions have been | | | --- | --- | --- | | ended 31 December 2021 | successfully incorporated, opening up new fast | Under Cargill’s ownership, PTIC and its | | | growth markets, and vigorous progress has | employees will benefit from further investment | E Summary of the Remuneration Policy been made in building the Life Sciences which will enable the business and employees to platform. The full year financial results were capture new growth opportunities and flourish. very strong, with reported sales up 36%, In March 2021 we acquired Alban Muller, driven by organic growth and acquisitions, a leader in the creation and supply of natural A. Chair’s letter and with improving margin driving excellent and botanical ingredients for the global beauty On behalf of the Board and the Remuneration profit growth. industry, and in June 2021 our wholly owned Committee, I am pleased to present Croda’s This pleasing performance was delivered Iberchem subsidiary successfully completed Directors’ Remuneration Report for the year despite the ongoing challenges of COVID-19 the acquisition of Parfex S.A., a fine fragrance ended 31 December 2021. I would like to thank where we continued to balance the needs of business based in Grasse, France. These my colleagues for their engagement throughout all our stakeholders while always ensuring the acquisitions, alongside Iberchem and Avanti the year, and to welcome Julie Kim as a new health and safety of our employees. As we in 2020, all represent strong alignment to our member of the Committee in 2021 and reported last year, in managing COVID-19, objective of transitioning to a pure-play Life Nawal Ouzren who joined the Committee we have not made anyone redundant or Sciences and Consumer Care company. in February 2022. furloughed any employees and have protected Delivering sustainable, profitable growth is The Committee believes that Croda’s pay and benefits, including for those unable directly reflected in our performance measures remuneration approach plays a key role in the to work normally due to the need to self-isolate and stretching targets. The Group Profit continued achievement of the Group’s strategic or work from home. We also provided support Incentive Bonus Scheme (senior annual Bonus objectives and in the delivery of sustainable, for our suppliers and customers, where Plan) is based on a single operating profit profitable growth. In 2019 we reviewed and appropriate, and continued to pay dividends metric with no pay-out unless the previous updated our policy to ensure ongoing alignment for our shareholders. year’s outcome is exceeded. Croda International Plc ## 84 Annual Report and Accounts 2021 | For the longer-term Performance Share Plan | eligible to receive the senior annual Bonus Plan. | and sustainable by reviewing underlying | | | --- | --- | --- | --- | | (PSP), 35% of the award is based on earnings | As the senior annual Bonus Plan paid out for | performance. The Committee determined | | | per share (EPS) growth and 35% is based on | 2021, every employee globally in the Free | that 100% of the senior annual Bonus Plan | | | relative Total Shareholder Return (TSR) | Share Plan, around 5,150 in total, will receive | was payable. | Directors’ report | | performance against a bespoke group of our | ten Croda shares or the cash equivalent, | | | Croda’s longer-term performance in profitable most relevant competitors. 30% of the 2022 payable in May 2022. This Plan is in addition growth and Total Shareholder Return was also award will continue to be based on to other reward plans offered at a local level. very strong and reflected the long-term growth sustainability metrics. Within this, 15% will be In 2018 we gained accreditation in the UK as a trajectory of the business. 2021 was the year in based on our innovation metric, New and Living Wage Employer from the Living Wage which PSP grants made in 2019 concluded Protected Products (NPP); those products Foundation. In 2021 we extended this globally their three-year period, and the Committee that will drive our future growth. Innovating to complete an assessment of all employees reviewed performance for the targets that were sustainably is core to Croda’s success, and we worldwide, in partnership with the Fair Wage set at that time. Over the period TSR continue to focus management on the delivery Network, establishing a Living Wage in each of performance was 109.8%, placing Croda in the of this. The remaining 15% will be focused on the countries in which we operate and ensuring all top quartile against our bespoke comparator selected KPIs aligned to the delivery of our employees receive this as a minimum. Our target group with 100% of this part of the award ‘Climate Positive’ and ‘People Positive’ for 2022 is to ensure that this is also applied to all vesting. Our strong profit performance led to sustainability commitments. We have also of our regularly employed contractors. EPS growth of 31.4%, which resulted in a revised our EVA underpin to a more 93.5% payment of this part of the award. In line with our ‘One Croda’ culture, our senior discretionary basis following the divestment NPP growth, for the first time, met the leaders all share the same performance metrics of the majority of the PTIC businesses. stretching vesting target, which reflected for the senior annual Bonus Plan and PSP. Performance is always considered holistically; the ambition of this metric and led to a Around 510 employees participate in the senior each year the Committee applies a Discretion payment of 100% of this part of the award. annual Bonus Plan and 66 of these are also in Framework to satisfy itself that the outcome the PSP. We believe that this focuses our The PSP award is dependent on satisfactory in terms of primary performance metrics has leadership on working together globally to underlying financial performance of the Group. not been to the detriment of other measures deliver the best overall outcome for our The Committee considered this, and a range of of corporate performance. Health & safety customers and, in turn, our shareholders and other broader performance criteria using the always remains a key metric of particular other stakeholders. Discretion Framework, and concluded that the focus in this review. PSP awards were consistent with and reflective Pay for all employees is set in line with the Workforce engagement of overall financial performance over the time market and closely monitored and in 2021 we In 2021 I met with a cross section of period. Therefore, after consideration of all conducted extensive salary benchmarking in employees through a series of listening groups factors, an overall PSP vesting of 97.4% many countries, making adjustments where it in Asia, the Americas and Western Europe. of the total award was agreed. was appropriate to do so. Local bonus Participants expressed their appreciation at the schemes are available for those below senior Salaries for 2022 content and openness of the sessions which leader level in most regions. Around 84% of our For 2022, the general salary increase set for provided me with valuable feedback on a UK workforce and 60% globally participate in the UK workforce is 5%, with additional funds broad range of reward topics, including share plans and therefore benefit from the available to address specific market issues. executive remuneration. In addition, there is rewards enjoyed by all shareholders. The Committee considered the salaries of the a dedicated email address where employees We continue to offer a career average defined Executive Directors in the context of the UK can communicate with me directly and my benefit pension scheme that is open to all new workforce increases, low positioning against Board colleagues also held listening groups and existing UK employees, a generous and market benchmarks, Croda’s overall strong throughout 2021 covering a range of topics inclusive benefit for our UK workforce. An performance and the strong performance of including reward. important part of the value to employees is that the Executive Directors, and concluded that the The Committee receives regular updates on the level of accrued pension is guaranteed, as 2022 salary increase for Executive Directors employees’ global terms and conditions, and the Company bears all the investment risk. This should be in line with that of the UK workforce. we are made aware of any significant policy security for our workforce is an important part A review of the Chair fees was also undertaken changes impacting employees. In 2021 we of our ‘One Croda’ culture. In 2020 we reduced and, reflecting similar principles and the were pleased to note that flexible working was Executive Director pension supplements to continuing high time commitment, an increase extended across the business including the align to the UK workforce. in line with that of the UK workforce was facilitation of increased home working and Remuneration out-turn for 2021 also awarded. flexible hours. The pay and benefits of Croda delivered an outstanding performance in employees that choose to work flexibly are Looking ahead 2021 with very strong sales and profit growth, maintained in full reflecting our belief that Measures and targets for 2022 have been set driven in part by lipid system sales for flexible working enhances productivity. for the senior annual Bonus Plan and PSP, as COVID-19 applications. The Committee outlined above. In response to COVID-19 we also continued determined that, given the unique nature and our wellbeing initiatives; all sites offered The Remuneration Policy is due for its triennial scale of this piece of business, the profit from targeted activities; some have been local renewal at the 2023 AGM and therefore during our principal COVID-19 vaccine contract should one-off events and others are more broadly 2022 we will be undertaking a comprehensive be excluded from the Bonusable Profit applicable such as the availability of review to ensure that it continues to align to our calculation for both the 2021 and 2022 bonus. Employee Assistance Programmes globally. strategy, taking on board input and advice from In line with our usual practice, profit contributions We continued to use our online recognition our investors and other stakeholders. We remain from in-year acquisitions (e.g. Parfex and Alban programme in North America and Latin committed to ensuring that our remuneration Muller) are excluded from the calculation to ensure America and our Asia colleagues launched framework reflects the evolving needs of all of a like-for-like comparison with the base year. their own programme, ‘Kudos!’. our stakeholders and the communities in which Bonusable Profit (after exclusion of in-year we operate. Alignment of executive reward with the acquisition profits and the lipid system sales for wider workforce our principal COVID-19 vaccine contract) Our ‘One Croda’ culture drives focus on the significantly exceeded the outcome for 2020 alignment of executive reward with the wider and the maximum payout target. The Dr Helena Ganczakowski workforce. In 2021 we launched a ‘Free Share Committee used the Discretion Framework to Chair of the Remuneration Committee Plan’ for all of our employees who are not satisfy itself that this performance was robust Croda International Plc ## Annual Report and Accounts 2021 85 ### Remuneration Report (continued) ### B. Remuneration at a glance ### How we performed in 2021 | Adjusted Operating Profit | Adjusted EPS | NPP | Total Shareholder Return | | --- | --- | --- | --- | | +46.6% to | +42.5% to | | | | £468.6m | 250.0p | 37% | 109.8% | | | | of Group sales | over the three-year PSP performance | period (1 January 2019 to 31 December 2021) Salary Benefits Pension Annual bonus LTIPs Other ### Operation of our policy in 2021 | | | | | Group | Group | | --- | --- | --- | --- | --- | --- | | | | | | Chief | Finance | | Key component | | | Executive | | Director | | and timeline Feature Metrics and results | | | | (CEO) | (GFD) | | Basic salary Competitive package to attract | | • Pay rise of 1% awarded to Executive Directors. | £682,340 £470,579 | | | | | and retain high calibre | • UK workforce was awarded a 1% increase. An additional 1% | | | | | | executives. | increase was awarded to the majority of the UK workforce in | | | | July 2021, excluding Executive Directors and those in our most senior grades. Annual bonus Incentivise delivery of strategic Bonusable Profit £1,023,510 £588,224 plan, targets set in line with (see page 95 for definition of Bonusable Profit) Group KPIs. Threshold 2020 actual Maximum 2020 actual plus 10% Actual 2020 actual plus 24% 100% of maximum bonus paid | Deferred element | Compulsory deferral of one third of | N/A Of which | | Of which | | --- | --- | --- | --- | --- | | of bonus | bonus into shares with three-year | | £341,170 | £196,075 | | | holding period to align with | | is deferred | is deferred | long-term business performance. PSP Incentivise execution of the Vesting of the 2019 PSP award £2,556,242 £1,322,175 business strategy over long-term Threshold Maximum Actual % payout measuring profit, shareholder EPS* 5% 11% 10.5% 93.5% value and innovation. | TSR Median Upper | | | | 89.4 | 100% | | --- | --- | --- | --- | --- | --- | | | Quartile | | percentile | | | | | | (UQ) | Above UQ | | | | NPP** NPP sales growth to be at | | | | 3.8x 100% | | least twice non-NPP sales. Total payout – 97.4% * EPS growth p.a. is calculated on a simple average basis over the three-year period. ** Subject to a minimum average of 5% growth per year and overall positive Group profit growth. Pension Pension benefits are either a N/A £136,635 £94,116 capped career average defined benefit pension plan with a cash supplement above the cap, or a cash supplement. For 2021, cash allowance of up to 20% of salary, in line with the UK workforce. Single figure remuneration: Shareholding Share ownership guideline to • CEO – 225% of salary >225% >175% requirements ensure material personal stake in • GFD – 175% of salary of salary of salary business. Steve Foots (total £4,427,284) Croda International Plc Jez Maiden ## 86 Annual Report and Accounts 2021 (total £2,499,195) 0% 100%20% 40% 60% 80% Directors' report # C. Report of the Remuneration Committee for the year ended 31 December 2021 # Contents 1. Summary of Remuneration Policy adopted in 2020 2. How our reward strategy aligns to and supports the delivery of our business strategy 3. How our Remuneration Policy reflects the UK Corporate Governance Code - Our Discretion Framework 4. Reward in the wider employee context - Workforce engagement - How our Remuneration Policy relates to reward in the wider employee context 5. Sharing success across the business - Free Share Plan - All-employee share plans - Living Wage - More than just pay 6. Promoting diversity & inclusion 7. Other disclosures - UK gender pay gap - UK CEO pay ratio 8. Remuneration Committee year ended 31 December 2021 9. Executive Directors' remuneration for the year ending 31 December 2022 # 1. Summary of Remuneration Policy adopted in 2020 An updated Remuneration Policy was presented and approved by shareholders at the 2020 AGM. This is intended to operate until the AGM in 2023. In reviewing the Policy and its implementation, the Remuneration Committee undertook a thorough review of existing arrangements with a particular focus on alignment to Croda's strategy and ambitions. This review was completed with the following principal objectives in mind: - achieve the closest possible alignment with the Company's strategy; - support the Company's ambition to be a purpose-led organisation focused on Smart science to improve lives™; - ensure that business performance is appropriately measured and rewarded and that the scale of reward is proportionate; - make certain that the Policy properly reflects the various interests of all our stakeholders in its structure and metrics; - ensure that the Policy is fair and competitive and that it also considers reward more broadly in the organisation; - disclose the Policy in an open and transparent way. The Remuneration Committee is not proposing any substantive changes to the operation of the Policy in 2022, being satisfied with both the outcome of the review and the minor changes made since then. In line with the normal three-year cycle under the remuneration reporting regulations, a new Policy will be subject to shareholder approval at the 2023 AGM. In advance of this, during 2022, the Remuneration Committee will undertake a review of the existing Policy to ensure it continues to align to Croda's strategy, taking on board input and advice from investors and other stakeholders. # Summary of Policy and its operation | *Salary* | Set taking into account an individual's responsibilities, performance and experience as well as pay and employment conditions elsewhere in the Group and other external factors. | | --- | --- | | *Annual bonus* | Maximum annual bonus opportunities: • Group Chief Executive – 150% of salary • Group Finance Director – 125% of salary Bonusable Profit growth targets, with no bonus payable until the previous year's profit is exceeded. Discretion Framework applies, which includes health, safety and environmental performance. One third deferred for three years. Malus and clawback provisions apply. | | *Performance Share Plan* | Normal maximum PSP opportunities: • Group Chief Executive – 225% of salary • Group Finance Director – 175% of salary Awards based on financial (e.g. EPS), shareholder return (e.g. relative TSR) and strategic (e.g. sustainability) metrics. The Discretion Framework also applies, which includes satisfactory underlying financial performance. Three-year performance period with an additional two-year holding period. Malus and clawback provisions apply. | | *Pension and benefits* | Pension benefits are either a capped career average defined benefit pension plan with a cash supplement above the cap, or a cash supplement. Cash allowance for Executive Directors of up to 20% of salary which aligns with our UK workforce. Typical other benefits include a company car, private fuel allowance, private health insurance and other insured benefits. | | *Shareholding guidelines* | Shareholding guidelines of: • Group Chief Executive – 225% of salary • Group Finance Director – 175% of salary Post-employment shareholding guidelines also apply for two years after leaving employment. These are set at 100% of the in-employment guideline for the first year after leaving employment, tapering to 0% by the end of year two. This policy applies to shares from awards that vest in 2020 and beyond. The Committee is implementing structures to ensure that post-employment shareholding guidelines are adhered to, by the placing of restrictions on the sale of shares via our third-party share plan administrator. | Further details about the Policy can be found on pages 106 to 108. Croda International Plc Annual Report and Accounts 2021 87 ### Remuneration Report (continued) ### 2. How our reward strategy aligns to and supports the delivery of our business strategy Over the last eighteen months we have accelerated key elements of our strategy to complete our transition to a dedicated Consumer Care and Life Sciences company. Across these markets, innovation and sustainability will be the core drivers of our future growth. In developing and implementing our Remuneration Policy the Committee has been mindful to ensure that every element of reward directly aligns to our strategy, ensuring we provide and protect long-term shareholder value. Long-term shareholder Element of reward Link to strategy Sustainability Innovation Growth value Annual bonus Profit Clear and simple measure that supports our strategic   objective of consistent bottom-line growth. One third of awards are deferred, further protecting shareholder value. Performance Share Plan Earnings per share (EPS) A measure of earnings growth over a three-year period    recognising that sustained growth can only come through relentless innovation. Total Shareholder Return Measured against our peers, a key indicator of long-term    (TSR) growth and shareholder value. New & Protected Products An established measure of innovation, the metric is growth of     (NPP) NPP products versus non-NPP products rewarding growth that is driven by innovation. Sustainability Over the last three years we have incorporated sustainability     metrics directly linked to our ambitions to be Climate, Land and People Positive by 2030. Underpins & Discretion Framework Safety, Health and The SHE underpins ensure that rewards are not made at the   Environment (SHE) expense of the safety, health and environment of our employees or the communities that we serve. Financial underpins The financial underpins including EVA within our Discretion    Framework ensure that reward reflects the overall financial health of the business. Culture and ethics The culture and ethics underpin ensures that reward reflects   strong governance and the experience of all our stakeholders. Other features Holding periods Extends the period to five years before shares are released,  further protecting shareholder value. Shareholding requirements Ensures that our Executives’ interests are aligned to  shareholders. Malus and clawback Allows incentive awards to be clawed back or reduced in the  event of significant financial or personal misconduct. Croda International Plc ## 88 Annual Report and Accounts 2021 ### 3. How our Remuneration Policy reflects the UK Corporate Governance Code When developing the Remuneration Policy, the Committee was mindful of the UK Corporate Governance Code and considers that the executive remuneration framework appropriately addresses the following factors: ### Directors’ report Factors How these are addressed Clarity Our values of openness and transparency are reflected in our reward principles. The Committee is committed to providing open and transparent disclosure on executive remuneration for our stakeholders. Our arrangements are clearly disclosed and any changes to our Remuneration Policy and its operation are highlighted in a way that defines their alignment to both our strategic ambitions as well as the provisions of the UK Corporate Governance Code. Simplicity Our executive remuneration arrangements, as well as those throughout the global organisation, are simple in nature and well understood by both participants and shareholders. Our senior annual Bonus Plan, in which around 510 of our global employees participate, is based on a single profit metric, with a simple key requirement that no bonus can be paid until the previous year’s profit is exceeded. Risk The Committee considers that the structure of incentive arrangements does not encourage inappropriate risk-taking. Performance is based on a balance of metrics which also reflect our broader stakeholders, for example inclusion of sustainability targets and health and safety underpins. We then take a holistic assessment of performance using our Discretion Framework. Annual bonus deferral, the PSP holding period and our shareholding guidelines provide a clear link to the ongoing performance of the business as well as alignment with shareholders. Executives will be rewarded for sustainable long-term shareholder return. Malus and clawback provisions also apply for both the senior annual Bonus Plan and PSP. Predictability Our Remuneration Policy contains details of maximum opportunity levels for each component of pay, with actual incentive outcomes varying depending on the level of performance achieved against specific measures. Proportionality Our Remuneration Policy directly aligns to our strategy and financial performance. The Committee considers performance from a range of perspectives. Poor financial performance is not rewarded. Alignment to culture Alignment to our ‘One Croda’ culture is clearly established in our Remuneration Policy; our senior annual Bonus Plan has the same metric for all participants, our PSP metricsreflect our commitment to sustainability and pensions are aligned acrossthe workforce. Our Discretion Framework To enhance the rigour with which performance is reviewed the Committee has adopted a Discretion Framework which it applies when assessing bonus and long-term incentive plan outcomes. As with all Board/Committee decisions (in line with section 172) we also reflect on the experience of all our stakeholders throughout the course of the plan periods. What is the formulaic result following consideration of the existing underpins? What is the single figure outcome? Committee to consider year-on-year change and whether this mirrors the trend in performance How does the outcome compare with wider shareholder experience? Committee to consider Total Shareholder Return in both relative and absolute terms over a number of different periods How does the outcome compare with overall Company performance? Consider performance against other KPIs, for example ROIC and EVA Sales Profit growth Sustainability Culture and conduct Culture Conduct Health and safety Systems and control Are there any external headwinds or tailwinds which need to be considered? Are there any other events that should be factored in? Other events could be reputational/risk related or a change of accounting standards As an additional reference point, are the bonus and PSP outcomes consistent? Input from others? Draw on input from other Committees as well as other management teams including HR, Legal, Internal Audit and Risk Consider shareholder response to results The Committee may also want to reflect on how the market is likely to respond to the preliminary results Compare with historical use of discretion Does the outcome appear reasonable/fair, or should an adjustment be considered? Croda International Plc ## Annual Report and Accounts 2021 89 ## Remuneration Report (continued) ### 4. Reward in the wider employee context #### Workforce engagement Engagement with the workforce is an area in which we continue to make progress. In addition to continuing with established workforce engagement channels (pulse surveys and a dedicated email address for employees to contact the Chair of the Committee), in 2021, the Chair of the Remuneration Committee attended virtual listening groups where employees discussed and shared their thoughts on executive remuneration and reward in the wider business. As 2022 will be the year that we consider our Remuneration Policy, with any changes adopted in 2023, we plan to engage the workforce more widely through pulse surveys and further listening groups with the Chair of the Remuneration Committee. A summary of engagement activities undertaken to date is as follows: | *Reward principles* | Our reward principles, which were developed and approved during 2019, guide the way we recognise and remunerate all our global employees. These principles focus on total reward including intangible rewards and were strongly influenced by the results of our previous Global Employee Survey. These have been shared across the organisation. | | --- | --- | | *Employee pulse surveys* | In 2021, a small number of pulse surveys covering a range of topics, including COVID-19 and resulting changes to the workplace, were undertaken and findings were shared with the Board as well as management to help guide decisions. For 2022 a new series of pulse surveys covering culture and reward will be issued. | | *Listening groups* | During 2021, Helena Ganczakowski, Chair of the Remuneration Committee, held listening groups across a cross-section of employees in Asia, the Americas and Western Europe. Helena presented on the role of the Board and the Remuneration Committee and also shared an overview of the Elements of Reward at Croda and feedback on the Global Reward pulse survey conducted in 2020. The sessions were greatly appreciated by those who attended, with a number of participants noting that they had limited knowledge of the Board and Remuneration Committee before the session. The Chair of the Board and other Non-Executive Directors also attended listening groups throughout the year. Anita Frew held listening groups to better understand how employees were feeling on a range of different topics, including strategy, culture, recognition, and value. These listening groups also focused on employees' wellbeing at Croda and what additional support the Board could offer. Roberto Cirillo presented listening groups on Board responsibilities to a cross section of employees in Italian. | | *Dedicated email to Chair of Committee* | A dedicated email address has been established for employees to send comments or questions to the Chair of the Remuneration Committee. | | *Overview of pay and policy decisions* | Committee members are updated annually on global employees' terms and conditions and are made aware of any significant changes to policies and other pay-related matters. | #### How our Remuneration Policy relates to reward in the wider employee context When making decisions about executive remuneration the Committee considers the pay and reward structures across the business. Annually, the Group Human Resources Director provides the Committee with a review of workforce remuneration, and the Committee is updated periodically on any feedback received on remuneration practices across the Group. One of the principles of Croda's culture is to drive 'One Croda', therefore, many of the remuneration structures that apply to Executives also apply further in the global organisation, as set out in the table below. The key difference between the policy for Executive Directors compared to other employees is that remuneration for Executive Directors is more heavily weighted towards variable pay and share ownership. | Remuneration element | Who participates? | Details | | --- | --- | --- | | *Base pay* | All employees | Pay is set in line with the market and closely monitored. Any comparator group used as a reference point is country and/or industry specific. We pay a 'Living Wage' globally. | | *Annual bonus* | Executive Directors, Executive Committee, senior leaders and senior managers (c. 510 employees globally) | Consistent senior annual Bonus Plan aligned to increase in annual profit. Operates on a tiered basis from 150% of salary to 20% of salary across the most senior global grades. Deferral applies for Executive Directors and members of the Executive Committee. | | | All other employees | Local schemes apply in many locations. | | *Free Share Plan* | All employees who do not participate in the senior annual Bonus Plan (c. 5,150 employees globally) | New for 2021, an award of free shares or the cash equivalent if the senior annual Bonus Plan pays out. For 2021 this will be 10 shares or the cash equivalent. | | *Performance Share Plan* | Executive Directors, Executive Committee and senior leaders (c. 66 employees globally) | Consistent PSP based on EPS, TSR and sustainability metrics, including NPP. Operates on a tiered basis from 225% of salary to 30% of salary across the most senior global grades. | | *Restricted Share Plan* | Selected employees generally not eligible for PSP | Discretionary awards can be granted annually to selected employees to reward exemplary performance. | | *All employee share plans* | All employees | Employees can participate in our global Sharesave Scheme, subject to qualifying service, allowing everyone to save monthly and purchase discounted shares. | | *Pension (UK only)* | All employees | Defined benefit plan based on career average salary plus 20% cash supplement paid for salaries above the cap or to employees who are tax limited and have opted out of the pension scheme. | 1. Sharesave or similar schemes are provided where local social security laws allow. 2. Other pension arrangements, aligned to local practice and legislation, are available in many of our locations. 90 Croda International Plc Annual Report and Accounts 2021 ## 5. Sharing success across the business The Committee believes in sharing success across the business and extending share ownership more widely across our employee base. This is promoted through the operation of a new 'Free Share Plan' and a number of all-employee share schemes. ### Free Share Plan Croda is proud to announce that in 2021 we launched the 'Free Share Plan'. Under this new plan, all employees globally who are not eligible for the senior annual Bonus Plan will be gifted Croda shares (or the cash equivalent) if the senior annual Bonus Plan pays out. Unlike other elements of remuneration this award is not set as a multiple of salary, instead it rewards all eligible employees at the same value. The Free Share Plan was developed in response to findings from the Global Reward Survey in 2020 and aims to share success more widely across the business and encourage share ownership. As the senior annual Bonus Plan paid out for 2021, all eligible employees will receive 10 Croda shares (or the cash equivalent) in April 2022 under the Free Share Plan. The value of the award is determined by the share price at vesting and based on the recent share price will be in the region of £706 (based on a share price of £70.60 on 18 February 2022). ### All-employee share schemes Workforce participation in these plans has remained consistently strong and is driven by our culture of employees feeling a strong loyalty to the business. ![img-14.jpeg](img-14.jpeg) Croda's strong share price performance has led to the all-employee share schemes being a strong benefit for employees. ### Example value of the 2018 Sharesave Scheme The 2018 Sharesave Scheme which was granted in September 2018 at a share price of 4144p could be exercised from November 2021. The price of Croda shares on the settlement date in November 2021 was 9438.2p, meaning employees could have made a potential return of c.128% on their savings. For example, an employee saving £50 a month would have made a profit in excess of £2,258. ![img-15.jpeg](img-15.jpeg) Directors' report Croda International Plc Annual Report and Accounts 2021 91 ### Remuneration Report (continued) Living Wage We were pleased to announce in 2018 that we gained accreditation in the UK as a Living Wage Employer from the Living Wage Foundation. In 2022, we will continue to ensure that all our UK employees and regular contractors are paid at, or above, the rates advised by the Living Wage Foundation. NETWORK In addition, the business continues to pursue its Global Living Wage target, one of our sustainability KPIs linked to the UN SDGs. In 2020 we forged a partnership with the Fair Wage Network (FWN) to establish, using an independent and economically rigorous methodology, Living Wage levels across the world. In 2021, we compared our global wage levels to Living Wage comparators provided by the FWN and made all necessary adjustments to ensure that all our employees are now paid a Living Wage at a minimum. We have established processes to ensure that Living Wage levels are reviewed annually and the necessary adjustments to wages are made in order to continue paying a Living Wage to all employees. In addition, we will also begin to plan for and progress towards our commitment of paying a Living Wage to all regularly employed contractors globally by the end of 2022. More than just pay Our employees and our culture remain central to the continued success of Croda. Croda has been resilient in its response to COVID-19 and during the pandemic the wellbeing and safety of our employees has been and continues to be a key priority. In addition, we continue to enhance our range of other workforce initiatives, including: • We continued with the rollout of our online recognition programme, Croda Stars, in North America and Latin America. An online recognition programme, Kudos! was also launched in Asia. All programmes have been positively received by employees. • We are proud of the training and development that we provide for employees and have set a target of ensuring all employees receive at least one week of training a year by the end of 2025. In 2021, our employees undertook over 93,000 hours of training with the average number of hours an employee completed being 16 hours. • We relaunched and redesigned our core company development programmes for senior leaders and future leaders with our values at their heart. • We launched a new inclusion based global leadership programme, Phoenix Rising, and a series of leadership webinars on diversity & inclusive leadership. • We recorded over 100 wellbeing activities which took place in 2021. We also extended Employee Assistance Programmes in many of our countries. ### 6. Promoting diversity & inclusion As a business with innovation at its heart, diversity of thought and ideas is critical to our long-term success and we are committed to encouraging and promoting all types of diversity within our organisation. We have established a global Diversity & Inclusion Steering Committee plus a number of regional and country committees designed to discuss and promote diversity & inclusion. At the beginning of 2021, we published a Board diversity & inclusion policy and communicated our commitment to greater diversity within our business. Julie Kim was appointed as a new member of the Board in 2021 and Nawal Ouzren joined the Board in February 2022. These two appointments mean we have fulfilled our commitment to meeting the requirements of the Parker Review on ethnic diversity as well as also achieving full gender balance on the Board. In 2021 we ran a global diversity survey to collect wider diversity data in the organisation. All data was collected in good faith, in line with local laws and legal restrictions, including data privacy regulations. The data will be used to influence future work and is the first step in being able to report on our ethnicity pay gap. For further information on this please refer to page 37. Croda International Plc ## 92 Annual Report and Accounts 2021 ## 7. Other disclosures ### UK gender pay gap The table below shows a summary of the gender pay gap for UK employees of Croda Europe Ltd: | | 2018 | 2019 | 2020 | 2021 | | --- | --- | --- | --- | --- | | Mean pay gap | 27.68% | 27.06% | 18.72% | 17.70% | | Median pay gap | 23.10% | 23.90% | 19.22% | 21.11% | | Mean bonus gap | 63.05% | 67.08% | 64.36% | 62.58% | | Median bonus gap* | 33.26% | 33.36% | 0% | 0% | * The senior annual Bonus Plan and Croda Europe Discretionary Bonus Scheme did not pay out for 2019 (payable in 2020) or 2020 (payable in 2021). A small number of employees received a sales bonus but the median bonus for both female and male employees was zero giving a median bonus gap of 0%. We are confident that our gender pay gap is not an equal pay issue but is a result of a lack of female representation across our business at senior levels and particularly in production roles which represent the bulk of the workforce between the 25th and 75th percentile. Addressing this issue will require a long-term approach but we have already begun work to increase the number of females working in production and in senior positions. The number of women in leadership positions is now 36%. We are also pleased to report that we have 43 women working as process operators across 13 of our sites globally. Over 2020 and 2021 only 40% of hires and promotions to leadership positions were female. At this rate we will not meet our 2030 target to achieve gender balance across our leadership. Therefore, we have included a 'People Positive' target in our 2022 PSP. This target relates to the gender balance of appointments and promotions to our most senior grades. Other actions taken to address the gender pay gap include: - Ensuring we have a balanced shortlist for all positions that we are recruiting for; we have a target of achieving balanced shortlists for 80% of roles by 2023. - Further improving our talent and succession planning processes to help identify and nurture talent early in their career. - Finding ways to reduce shift work (especially night work) and to examine the feasibility of part-time and job share arrangements in our production facilities. - Changing the way we advertise production roles to ensure we reach a diverse population. - Improving family-friendly policies; in 2019 we introduced a new Global Parental Leave Policy and in 2020 we launched new Flexible Working guidance. All locations have implemented this and have local policies in place. - Continuing to invest in our STEM activities to encourage a wide range of applicants to apply for roles in our business. More information is available on the Croda website. ### UK CEO pay ratio The table below sets out the ratio of the CEO's 'single figure' total remuneration to the 25th, 50th and 75th percentile full-time equivalent total remuneration of the Company's UK employees. The pay ratios are calculated on a Group-wide basis by reference to UK employees only. Under the regulations, there are three methodologies that companies can choose to report their pay ratio, known as Option A, B and C. For 2021 we have chosen to continue to use the Government's preferred option, Option A. Using this methodology, we have determined the full-time equivalent total remuneration for all UK employees and have ranked this data to identify employees whose remuneration places them at the 25th, 50th and 75th percentile. The pay ratios are then calculated by comparing total remuneration for these three employees against our CEO 'single figure' total remuneration. | | Methodology | 25th percentile | 50th percentile | 75th percentile | | --- | --- | --- | --- | --- | | FY 2021 | A | 132:1 | 96:1 | 80:1 | | FY 2020* | A | 48:1 | 37:1 | 31:1 | | FY 2019 | A | 57:1 | 44:1 | 37:1 | | FY 2018** | C | 85:1 | 67:1 | 57:1 | 1. Calculations for the workforce exclude severance pay, notice pay, SIP repayments, fractional share payments, SAR payments and relocation expenses. 2. The calculations for the workforce exclude the value of the defined benefit pension plan due to the difficulty of calculating these figures for our complex historical pension arrangements. 3. Excludes Non-Executive Directors, contractors and employees who left during the relevant year. 4. New starters, part-time employees and employees on long-term sick and maternity are included; their salary has been amended to reflect a full-time and full-year salary. * The ratio for 2020 has been restated to reflect the updated CEO 'single figure' total remuneration for 2020. This was due to the 2020 PSP award being updated to reflect the actual share price at vesting. ** The CEO pay ratio for 2018 was calculated using Option C, which enabled us to calculate, on an indicative basis, the total remuneration packages of three individual UK employees at the 25th, 50th and 75th percentile. Option C was used in 2018 because the full administrative process to enable us to calculate the equivalent total remuneration for UK employees was not in place. Croda International Plc Annual Report and Accounts 2021 93 Directors' report ## Remuneration Report (continued) The CEO pay ratio is calculated based on the total remuneration payable to the CEO, which could include payments under the senior annual Bonus Plan and PSP. The outcomes of these elements are directly linked to performance, with the value of the PSP also incorporating share price growth. It is therefore expected that the ratios will fluctuate significantly year-on-year to reflect Croda's performance. In respect of the 2021 figures, as this has been an outstanding year for performance both the senior annual Bonus Plan and PSP have paid out at high levels. As the senior annual Bonus Plan did not pay out last year this represents a large increase in remuneration for the CEO; the PSP has also paid out at a higher level, from 40% in 2020 to 97.4% in 2021. ### Employee total remuneration | | Actual base salary 2021 | Total remuneration 2021 | | --- | --- | --- | | 75^{th} percentile | £48,904 | £55,440 | | 50^{th} percentile | £30,603 | £46,050 | | 25^{th} percentile | £27,865 | £33,654 | We believe that our CEO pay ratio is consistent with our pay, reward and progression policies. The sharing of success has been a strong theme in 2021 and although the CEO pay ratios have widened, employees have also benefited from a strong performing year. The newly launched 'Free Share Plan' will pay out for 2021, rewarding our most junior employees proportionally the most, annual bonus plans will pay out globally and we awarded over double the amount of RSP awards compared to previous years. ## 8. Remuneration Committee year ended 31 December 2021 ### Responsibilities The Committee determines and agrees with the Board the Company's Remuneration Policy and framework, which should: - Support the Company's strategy and promote long-term sustainable success; and - Ensure that the senior management of the Company are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Company. The Committee also determines the remuneration packages for all Executive Directors, members of the Executive Committee, including the Company Secretary, and the Chair of the Board and recommends and monitors the level and structure of remuneration for senior managers. ### Key responsibilities Detailed responsibilities are set out in the Committee's terms of reference, which can be found at croda.com/en-gb/investors/governance/boardcommittees/remuneration-committee. A summary is provided below: - Determine and agree with the Board the framework or broad policy for the remuneration of the Company's Chair, the Group Chief Executive, the Executive Directors, the Company Secretary and other members of senior management - In determining such policy, take into account factors which it deems necessary, including relevant legal and regulatory requirements, the provisions and recommendations of the UK Corporate Governance Code and associated guidance - Review workforce remuneration and related policies and the alignment of incentives and rewards with culture, taking these into account when setting the Remuneration Policy for Directors - Feedback to the Board on workforce reward, incentives and conditions in support of the Board's monitoring of whether the workforce policies and practices of the Company are aligned with its Purpose, values and strategy - Review the ongoing appropriateness and relevance of the Remuneration Policy - Establish the selection criteria, select, appoint and set the terms of reference for any remuneration consultants who advise the Committee and obtain reliable, up-to-date information about remuneration in other companies - Oversee any major changes in employee benefits structures throughout the Group. ### Key focus areas #### Remuneration outcomes for 2020 and approach for 2021: - Remuneration outcomes for 2020, including vesting of 2018 PSP awards - Establishing the senior annual Bonus Plan and PSP targets for 2021 - Granting of 2021 PSP awards and Restricted Share Plan awards #### Wider workforce: - Introduction of Free Share Plan - Feedback from employee listening groups attended by the Remuneration Committee Chair - Annual review of wider workforce remuneration #### Remuneration approach for 2022: - Review of latest market and governance developments - Consideration of approach for 2022, including new sustainability targets - Approval of salary increase for the CEO and Group Finance Director effective 1 January 2022 - Approval of Chair fee increase effective 1 January 2022 94 Croda International Plc Annual Report and Accounts 2021 Directors' report ## 9. Executive Directors' remuneration for the year ending 31 December 2022 Key component Implementation in 2022 | **Basic salary** | Executive Directors' base salaries were reviewed during the final quarter of the financial year ended 31 December 2021. Salaries for 2022 are as follows: | | | | --- | --- | --- | --- | | | Salary at Jan 2022 | Salary at Jan 2021 | % Increase | | Steve Foots | £716,457 | £682,340 | 5% | | Jez Maiden | £494,108 | £470,579 | 5% | | **Commentary** | | | | | | - For 2022, the general salary increase set for the UK workforce is 5%, with additional funds available to address specific market issues. - The Committee considered the salaries of the Executive Directors in the context of the UK workforce increases, low positioning against market benchmarks, Croda's overall strong performance and the strong performance of the Executive Directors, and concluded that the 2022 salary increase for Executive Directors should be in line with that of the UK workforce. | | | | **Other benefits** | Other benefits such as company cars or car allowances, fuel allowance and health benefits are made available to Executive Directors. | | | | **Performance-related Annual Bonus Plan** | **Steve Foots 150% of salary** | **Jez Maiden 125% of salary** | | | | The targets for the awards are set out below: | | | | | **Level of award** | ***Bonusable Profit** | **% of bonus payable** | | | Threshold | Equivalent to 2021 actual | 0% | | | Maximum | 2021 actual plus 10% | 100% | | * Bonusable Profit is the growth in underlying profitability (defined for bonus purposes as Group EBITDA for continuing operations before exceptional items and any charges or credits under IFRS 2 Share-based Payments) less a notional interest charge on working capital employed during the year. Target is measured after providing for the cost of bonuses on a constant currency basis. For 2022, considering the unique nature of the business, the profit from our lipid system sales for our principal COVID-19 vaccine contract, will be excluded from the Bonusable Profit calculation. | | | | | **Commentary** | | | | | | - No change to maximum award levels or performance measures from last year. - When determining bonus outcomes, the Committee applies the Discretion Framework which includes a range of factors, see page 89. - The Committee remains comfortable that the structure of the senior annual Bonus Plan does not encourage inappropriate risk-taking and that the mandatory deferral of one third of bonus into shares provides clear alignment with shareholders and fosters a longer-term link between annual performance and reward. - Malus and clawback provisions apply. - One third of any bonus paid will be deferred into shares for a three-year period. - Full retrospective disclosure of targets and actual performance against these will be made in next year's Annual Report on Remuneration. - The Committee considers the targets set for 2022 to be at least as demanding as in previous years and were set after taking due account of the Company's commercial circumstances and inflationary expectations. | | | Croda International Plc Annual Report and Accounts 2021 95 ### Remuneration Report (continued) Performance Steve Foots 225% of salary Jez Maiden 175% of salary share plan The targets for the awards are set out below: Performance measure (weighting) Threshold vesting Maximum vesting 1 EPS (35%) 5% p.a. 11% p.a. 2 TSR (35%) Median Upper quartile Sustainability • NPP (15%) – NPP sales to grow at twice the rate of non-NPP, subject to overall positive Group profit growth metrics (30%) and a minimum average of 3% NPP growth per year (25% vesting), with payments being made on a sliding scale up to 5% growth per year (maximum vesting). • ‘Climate Positive’ (7.5%) – a reduction target specifically aimed at Scope 1 and 2 emissions and aligned with our external commitment to achieve a Science Based Target (SBT) in line with a 1.5°C pathway. Over the 3 three-year PSP performance period the target is a 25.2% reduction compared to a 2018 baseline with any award paid in defined ranges between: • a reduction of 25.2% and above would result in maximum vesting • a reduction of 21% would result in 50% vesting, with no vesting below this. • ‘People Positive’ (7.5%) – a target aimed at increasing the number of women in leadership positions, aligned to our gender balance ambition. Over the three-year performance period the target is to appoint or promote women in more than 50% of available leadership roles with any award paid in defined ranges between: • 55% or above leadership roles hired being filled by women would result in maximum vesting • 40% of leadership roles being filled by women would result in 25% vesting, with no vesting below this. An EVA underpin applies across the whole PSP award, such that vesting is subject to satisfactory EVA performance in the performance period, as determined by the Committee. 1. EPS growth p.a. is calculated on a simple average basis over the 2. TSR peer group constituents: AzkoNobel, Albermarle, Ashland, BASF, three-year period and therefore growth of 33% or more over Clariant, Koninklijke DSM, Eastman Chemicals, Elementis, Evonik Industries, three years is required for maximum vesting. Givaudan, Johnson Matthey, Kemira, Lanxess, Novozymes, Solvay, Symrise, Synthomer, Victrex. 3. 2018 baseline of 208,992 MTCO 2 e has been independently verified by Avieco. As of 2021 a reduction of 12.7% has been achieved. Commentary • No changes to maximum award levels from • Revision to the EVA underpin to a more discretionary basis, taking into last year. account the changes to the capital allocation strategy following the • No change to the balance of sustainability metrics divestment of the majority of the PTIC businesses. from last year. NPP and sustainability targets • When assessing outcomes, the Committee applies the Discretion remain equally weighted at 15% of the total PSP. Framework which considers, for example, the management of ROIC, Sustainability targets aligned to key 2030 health and safety and sales growth and may adjust awards if it considers | sustainability ambitions. | appropriate. | | --- | --- | | • Performance period 1 January 2022 to | • An additional two-year holding period will apply for any shares vesting. | | 31 December 2024. | • Malus and clawback provisions apply. | Pension 20% of salary as pension supplement aligned to UK workforce. Croda International Plc ## 96 Annual Report and Accounts 2021 ### D. Directors’ remuneration for the year ended 31 December 2021 – Auditedinformation ### Directors’ report In this section | 1. Directors’ remuneration for the year ended 31 December 2021 | 8. Board Chair and other Non-Executive Directors’ fees 2021 | | --- | --- | | 2. Pension | and 2022 | | 3. Payments for cessation of office | 9. Non-Executive Directors’ remuneration | | 4. Payments to past Directors | 10. Service contracts and outside interests | | 5. Share interests | 11. Remuneration Committee attendance and advisers | | 6. Performance graph | 12. Other disclosures | | 7. Ten-year remuneration figures for Group Chief Executive | 13. Statement of voting | ### 1. Directors’ remuneration for the year ended 31 December 2021 Elements of remuneration Executive Directors’ remuneration Executive Director Steve Foots Jez Maiden 2021 2020 2021 2020 Salaries £682,340 £675,584 £470,579 £465,920 1 Benefits £24,939 £33,642 £20,126 £20,117 2 Pension supplement £136,218 £130,992 £94,116 £93,184 3 Pension £417 £7,500 – – Total fixed pay £843,914 £847,718 £584,821 £579,221 Annual bonus £1,023,510 – £588,224 – 4A-B Long-term incentives £2,556,242 £692,540 £1,322,175 £358,215 5 Other £3,618 £3,119 £3,975 £1,830 Total variable pay £3,583,370 £695,659 £1,914,374 £360,045 Single total figure of remuneration £4,427,284 £1,543,377 £2,499,195 £939,266 1. Benefits include benefit-in-kind for company car or cash allowance, benefit-in-kind for private medical insurance and private fuel allowance. 2. This represents the 20% of salary supplement. For January 2021 the supplement for Steve Foots was only in relation to benefits provided above the salary pension cap. 3. 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. This methodology can result in year-on-year fluctuations due to underlying inflation inputs. In 2020, the calculation methodology was amended to align the revaluation rate that is applied to value Steve Foots’ Croda Pension Scheme benefits to the inflation rate that is allowed for within the calculation of the disclosable benefit. This reduces the level of volatility in the calculated figure from year to year. Steve Foots was only an active member of the Croda Pension Scheme for one month in 2021. 4. A. The PSP awards granted in March 2019 reached the end of their performance period on 31 December 2021. The awards will vest at 97.4% of maximum (see page 98). The values included in the table above are based on the three-month average price to 31 December 2021 of 9545.7p. Of these values, £1,266,031 and £654,834 is attributable to share price growth for Steve Foots and Jez Maiden, respectively. These values will be updated in next year’s Annual Report based on the share price at vesting which will take place on 14 March 2022. B. The PSP award included in the 2020 single figure (the 2018-20 PSP award) has been updated to reflect the actual share price at vesting of 6205p. Of these values, £178,130 and £92,137 is attributable to share price growth for Steve Foots and Jez Maiden, respectively. 5. Represents the value received in the year from participation in all-employee share schemes. Steve Foots and Jez Maiden received 24 and 23 matching shares respectively as part of the Share Incentive Plan (SIP) with a transaction value of £1,823 and £1,742. Steve Foots and Jez Maiden also participated in the 2021 Sharesave Scheme and were granted 98 and 122 shares respectively at a discounted rate of 7327p. The share price on the date of grant was 9158p representing a 20% discount. Annual bonus The annual bonus for Executive Directors in 2021 was calculated by reference to the amount by which the profit for the year exceeded the profit for 2020 (the ‘Bonusable Profit’). Bonuses for 2021 are payable against a graduated scale once the Bonusable Profit exceeds the base profit with bonus targets set, and performance measured, based on constant currency actual exchange rates. Considering the unique nature of the business, the profit from our lipid system sales for our principal COVID-19 vaccine contract contract, has been excluded from the Bonusable Profit calculation. In line with our usual practice, profit contributions from in-year acquisitions (e.g. Parfex and Alban Muller) are excluded from the calculation to ensure a like-for-like comparison with the base year. Bonus outcome Executive Director Threshold target Maximum target Actual (% of maximum) Bonusable Profit £384.8m £423.3m £477.5m 100% The Remuneration Committee has discretion to reduce (including to zero) the amount of any payment under the scheme if it considers the safety, health or environment (SHE) performance is in serious non-compliance with the Croda SHE policy statement document of minimum standards. In addition, the Committee can also reduce any payment (including to zero) if it considers the underlying business performance of the Company is not sufficient to support the payment of any bonus. The Committee also applies the Discretion Framework, a rigorous framework for the application of judgement and discretion, when reviewing awards (see page 89). The Committee used the Discretion Framework to satisfy itself that performance was robust and sustainable. The Committee therefore determined that 100% of the senior annual Bonus Plan was payable. One third of the bonus payable will be deferred into shares for three years. Croda International Plc ## Annual Report and Accounts 2021 97 ### Remuneration Report (continued) PSP PSP awards vesting in March 2022 The PSP awards granted in March 2019 reached the end of their three-year performance period on 31 December 2021. Out-turn | Measure Weighting Threshold Maximum Actual performance | | | | | | | | (% of max element) | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Relative TSR versus | | | Median | | Upper quartile | | 89.4 | | | | 1 | | | th | | th | | | | bespoke peer group | | 40% | (50 | percentile) | (75 | percentile) | percentile 100% | | Adjusted annual average EPS growth 2 over three years 40% 5% p.a. 11% p.a. 10.5% p.a. 93.5% Target vesting for NPP sales growth to be at least twice non-NPP sales, subject to a minimum average of 5% growth per year and NPP 20% overall positive Group profit growth. 3.8x 100% Total out-turn 97.4% 1. TSR peer group constituents: AkzoNobel, Albemarle, Arkema, Ashland, BASF, Clariant, Koninklijke DSM, Eastman Chemicals, Elementis, Evonik Industries, Givaudan, Johnson Matthey, Kemira, Lanxess, Novozymes, Solvay, Symrise, Synthomer, Victrex. 2. EPS growth p.a. is calculated on a simple average basis over the three-year period; and therefore growth of 33% or more over three years is required for maximum vesting. As well as considering the EPS, TSR and NPP targets, under the rules of the PSP, the Remuneration Committee is obliged to consider the underlying performance of the Company over the performance period, which it did using the Discretion Framework on page 89. On review, the Committee considered the outcome of the PSP consistent with overall Company performance over the three-year performance period. The forecast vesting value of the awards made in March 2019, subject to the above performance targets, is included in the 2021 single figure table on page 97. Any shares vesting will be subject to a two-year holding period. Gains made on exercise of share options and PSP The gains are calculated according to the market price of Croda International Plc ordinary shares on the date of exercise, although the shares may have been retained. Executive Director Exercise date Shares exercised Scheme Exercise price Market price Gain (before tax) Steve Foots 15 Mar-21 11,161 PSP 0 6205p £692,540 15 Mar-21 5,581 DBSP 0 6205p £346,301 22 Mar-21 174 Sharesave 3092p 6257p £5,507 01 Nov-21 173 Sharesave 4144p 9432p £9,148 09 Mar-20 19,616 PSP 0 4259p £835,445 09 Mar-20 7,593 DBSP 0 4259p £323,386 Jez Maiden 15 Mar-21 5,773 PSP 0 6205p £358,215 15 Mar-21 3,207 DBSP 0 6205p £198,994 01 Nov-21 217 Sharesave 4144p 9432p £11,475 09 Mar-20 10,146 PSP 0 4259p £432,118 09 Mar-20 4,187 DBSP 0 4259p £178,324 PSP awards granted in 2021 The PSP awards granted on 24 March 2021 were as follows: Number of PSP Basis of award Face/maximum value of % of award vesting 1 Executive Director shares awarded granted (% of salary) awards at grant date at threshold (maximum) Performance period Steve Foots 24,422 225% £1,535,240 25% (100%) 01.01.21 – 31.12.23 Jez Maiden 13,100 175% £823,505 25% (100%) 01.01.21 – 31.12.23 1. Face value/maximum value is calculated based on a share price of 6286.3p, being the average mid-market share price of the three dealing days prior to the date of grant. The 2021 PSP awards are subject to a performance condition which is split into three parts: 35% EPS, 35% TSR, and 30% sustainability metrics, including NPP. Performance targets were disclosed in full last year, see page 90 of our Annual Report and Accounts 2020. Vesting will take place on a sliding scale. An EVA underpin applies across the entire award, also detailed on page 90 of our Annual Report and Accounts 2020. Any shares vesting will be subject to a two-year holding period. Croda International Plc ## 98 Annual Report and Accounts 2021 All-employee share plans Executive Directors are invited to participate in the HMRC tax-approved UK Sharesave Scheme and the Croda Share Incentive Plan (SIP) in line with, and on the same terms as, the wider UK workforce. ### Directors’ report SIP Details of shares purchased and awarded to Executive Directors under the SIP are shown in the table below. A brief description of the SIP is set out in note 23 on page 156. | | | | | | | | SIP shares that | | Total unrestricted | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | SIP shares held | | Partnership shares | Matching shares | Total shares | became unrestricted | | | SIP shares held | | | Executive Director | | 01.01.21 | acquired in year | awarded in year | 31.12.21* | | | in the year | | at 31.12.21 | Steve Foots 5,794 24 24 5,842 78 5,540 Jez Maiden* 429 23 23 481 103 107 There have been no changes in the interests of any Director between 31 December 2021 and the date of this report, except for the purchase of 4 SIP shares and the award of 4 matching shares by Steve Foots and Jez Maiden during January and February 2022. * Jez Maiden also had six additional shares acquired through the Dividend Reinvestment Plan. Sharesave Details of awards made under the UK Sharesave Scheme are set out below: Earliest Exercise Number at Granted Exercised in Number at Date of grant exercise date Expiry date Face value* price 01.01.21 in year the year 31.12.21 Steve Foots 13 September 2017 01 November 2020 30 April 2021 £6,725 3092p 174 – 174 – 27 September 2018 01 November 2021 30 April 2022 £8,960 4144p 173 – 173 – 12 September 2019 01 November 2022 30 April 2023 £6,723 3898p 138 – – 138 10 September 2020 01 November 2023 30 April 2024 £6,724 4804p 112 – – 112 16 September 2021 01 November 2024 30 April 2025 £8,975 7327p – 98 – 98 597 98 347 348 Jez Maiden 27 September 2018 01 November 2021 30 April 2022 £11,238 4144p 217 – 217 – 12 September 2019 01 November 2022 30 April 2023 £11,206 3898p 230 – – 230 16 September 2021 01 November 2024 30 April 2025 £11,173 7327p – 122 – 122     447 122 217 352 During 2021, the highest mid-market price of the Company’s shares was 10365p and the lowest was 6095p. The year-end closing price was 10120p. The year-end mid-market price was 10045p. * Face value is calculated using the market value on the day before the date of grant, multiplied by the number of shares awarded. ### 2. Pension The pension rights that accrued during the year in line with the policy on such benefits as set out in the Policy Report were as follows: Single remuneration Normal retirement date Total accrued pension Single remuneration Single remuneration pension figure 2021 Executive Director under the CPS at 31.12.21 (p.a.) pension figure 2021 pension figure 2020 excluding supplement Steve Foots 14 September 2033 £128,740 £136,635 £138,492 £417* Jez Maiden N/A – £94,116 £93,184 – * Steve Foots was only an active member of the Croda Pension Scheme for one month in 2021. Note: Members of the Croda Pension Scheme (CPS) have the option to pay voluntary contributions. Neither the contributions nor the resulting benefits are included in this table. During 2021, Steve Foots was paid £136,218 (2020: £130,992) and Jez Maiden was paid £94,116 (2020: £93,184) in addition to their basic salary to enable them to make independent provision for their retirement. Croda has a number of different pension plans in the countries in which we operate. Pension entitlements for Executive Directors are tailored to local market practice, length of service and the participant’s age. In 2016, a Career Average Revalued Earnings (CARE) scheme was introduced with a cap applied to pension benefits; at this time the cap was set at £65,000. The cap is increased each year in line with inflation, and from April 2022 will be £72,966. Employees who earn in excess of the pension cap or who cannot be members of the plan due to tax limitations receive a pension supplement. For Executive Directors this supplement is up to 20% of salary in line with the wider UK workforce. Steve Foots’ pension provision th Steve Foots accrued pension benefits under the CPS up to 31 January 2021 with a CARE accrual rate of 1/60 and an entitlement to retire at age 60. From 6 April 2011 onwards, pension benefits accruing were based on a capped salary. This cap was £187,500 until April 2014 at which point it reduced to £150,000, and due to annual allowance regulations and changes to the pension scheme, reduced to £37,500 in April 2016 (reduced from the scheme cap of £65,650 due to annual allowance regulations) and reduced again in April 2020 to £15,000 following new annual allowance regulations. If Steve Foots retires before the age of 60, a reduction will be applied to the element of his pension accrued before 6 April 2006, unless he is retiring at the Company’s request. In the event of death, a pension equal to two thirds of the Director’s pension would become payable to the surviving spouse. Steve Foots’ pension in payment is guaranteed to increase in line with the rate of inflation up to a maximum of 10% per annum for benefits accrued before 6 April 2006, and in line with inflation up to a maximum of 2.5% per annum for benefits accrued from 6 April 2006 onwards. Steve Foots is entitled to death-in-service benefits from an Excepted Life Policy. Steve Foots elected to opt out of the Croda Pension Scheme from 31 January 2021 and therefore only now receives a pension supplement of 20% of salary. For January 2021 he also received a pension supplement at 20% of salary above his personal pension benefit cap in line with the wider UK workforce. Jez Maiden’s pension provision Jez Maiden has elected not to join the Croda Pension Scheme and was therefore paid a pension supplement of 20% of salary in 2021. He is entitled to death-in-service benefits from an Excepted Life Policy. Croda International Plc ## Annual Report and Accounts 2021 99 ## Remuneration Report (continued) ### 3. Payments for cessation of office There were no payments for loss of office during the year under review. ### 4. Payments to past Directors There were no payments to past Directors during the year under review. ### 5. Share interests The interests of the Directors who held office at 31 December 2021 are set out in the table below: | | Legally owned^{1} | | PSP (unvested) | DBSP (unvested) | Sharesave (unvested) | SIP | | Total 31.12.21 | % of salary held under shareholding guideline | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 31.12.20 | 31.12.21 | | | | Restricted | Unrestricted | | | | **Executive Director** | | | | | | | | | | | Steve Foots | 163,912 | 173,115 | 83,449 | 2,526 | 348 | 302 | 5,540 | 265,280 | >225% target | | Jez Maiden | 27,167 | 21,106 | 44,235 | 1,449 | 352 | 374 | 107 | 67,623 | >175% target | | **Non-Executive Director** | | | | | | | | | | | Roberto Cirillo | – | – | – | – | – | – | – | – | – | | Jacqui Ferguson | 76 | 76 | – | – | – | – | – | 76 | – | | Anita Frew | 9,425 | 9,425 | – | – | – | – | – | 9,425 | – | | Helena Ganczakowski | 361 | 361 | – | – | – | – | – | 361 | – | | Keith Layden | 80,314 | 60,339 | – | – | – | – | – | 60,339 | – | | John Ramsay | 2,000 | 2,000 | – | – | – | – | – | 2,000 | – | | Julie Kim* | – | 60 | – | – | – | – | – | 60 | – | \* Julie Kim appointed 1 September 2021, holding on appointment Nil. 1. Including connected persons. Post-employment shareholding guidelines also apply for two years after leaving employment. These are set at 100% of the in-employment guideline for the first year after leaving employment, tapering to 0% by the end of year two. This policy applies to shares from awards that vest in 2020 and beyond. The Committee is implementing structures to ensure that post-employment shareholding guidelines are adhered to, by the placing of restrictions on the sale of shares via our third-party share plan administrator. ### 6. Performance graph (unaudited information) Ten year Total Shareholder Return chart ![img-16.jpeg](img-16.jpeg) Source: Thomson Reuters Datastream 100 **Croda International Plc** Annual Report and Accounts 2021 ## 7. Ten year remuneration figures for Group Chief Executive (unaudited information) The total remuneration figure includes the annual bonus and long-term incentive awards which vested based on performance in those years. The annual bonus and long-term incentive award percentages show the payout for each year as a percentage of the maximum. | | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020^{1} | 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Total remuneration (£) | 1,364,048 | 1,427,156 | 769,414 | 1,374,046 | 2,404,441 | 3,570,251 | 3,311,700 | 1,693,242 | 1,543,377 | **4,427,284** | | Annual bonus (%) | 28% | 0% | 0% | 76.38% | 100% | 78.36% | 36.19% | 0% | 0% | **100%** | | Long-term incentives vesting (%) | 100% | 81.8% | 0% | 0% | 43% | 100% | 100% | 56.2% | 40% | **97.4%** | 1. The 2020 total remuneration figure has been updated to reflect the value of the 2020 PSP award at vesting. ## 8. Board Chair and other Non-Executive Directors' fees 2021 and 2022 (unaudited information) The fees paid to the Non-Executive Directors (including chairing of Committees) and to the Senior Independent Director were reviewed in December 2021 and increased by 5%, in line with the UK workforce. These changes took effect from 1 January 2022. The revised fee structure for the Board Chair and other Non-Executive Directors for 2022 is detailed below. | Position | 2021 fee £ | 2022 fee £ | | --- | --- | --- | | Board Chair (all-inclusive fee) | 303,909 | 319,104 | | Non-Executive Director base fee | 63,872 | 67,066 | | **Additional fees** | | | | Senior Independent Director | 10,611 | 11,142 | | Committee Chairs (Audit and Remuneration) | 15,453 | 16,226 | ## 9. Non-Executive Directors' remuneration The remuneration of Non-Executive Directors for the year ended 31 December 2021 payable by Group companies is detailed below; this table reflects actual payments in 2021. | | | Non-Executive Director fees £ | Benefits^{1} £ | Total £ | | --- | --- | --- | --- | --- | | **Anita Frew** | **2021** | **303,909** | **11** | **303,920** | | | 2020 | 300,900 | – | 300,900 | | **Alan Ferguson^{2}** | **2021** | – | – | – | | | 2020 | 28,084 | – | 28,084 | | **Helena Ganczakowski^{3}** | **2021** | **89,937** | **456** | **90,393** | | | 2020 | 85,789 | – | 85,789 | | **Jacqui Ferguson** | **2021** | **63,873** | **169** | **64,042** | | | 2020 | 63,240 | – | 63,240 | | **Roberto Cirillo** | **2021** | **63,873** | **903** | **64,776** | | | 2020 | 63,240 | – | 63,240 | | **Keith Layden** | **2021** | **63,873** | **89** | **63,962** | | | 2020 | 63,240 | – | 63,240 | | **John Ramsay^{3,4}** | **2021** | **79,326** | **794** | **80,120** | | | 2020 | 73,793 | – | 73,793 | | **Julie Kim^{5,6}** | **2021** | – | **11,142** | **11,142** | | | 2020 | – | – | – | 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. 2. Alan Ferguson retired on 23 April 2020. His fees were pro-rated accordingly. 3. Following Alan Ferguson's retirement, Helena Ganczakowski was appointed as the Senior Independent Director and John Ramsay was appointed as the Chair of the Audit Committee. Their fees were pro-rated accordingly. 4. John Ramsay was appointed to the Board on 1 January 2020. 5. Julie Kim was appointed to the Board on 1 September 2021 and has voluntarily decided to waive her fees. 6. The benefits figure for Julie Kim relates to the undertaking of long-haul business travel and ensuring she is not out of pocket for the related tax. Directors' report Croda International Plc Annual Report and Accounts 2021 101 ## Remuneration Report (continued) ### Non-Executive Directors' appointment The effective dates of the letters of appointment for the Board Chair and each Non-Executive Director who served during 2021 are shown in the table below: | Non-Executive Director | Original appointment date | Expiry date of current term | | --- | --- | --- | | Anita Frew | 05 March 2015 | 05 March 2023 | | Roberto Cirillo | 26 April 2018 | 26 April 2024 | | Jacqui Ferguson | 01 September 2018 | 01 September 2024 | | Helena Ganczakowski | 01 February 2014 | 31 January 2023 | | Keith Layden | 01 May 2017 | 01 May 2023 | | John Ramsay | 01 January 2020 | 01 January 2023 | | Julie Kim | 01 September 2021 | 01 September 2024 | ### 10. Service contracts and outside interests (unaudited information) The Executive Directors have service contracts as follows: | Executive Director | Contract date | Termination provision | | --- | --- | --- | | Steve Foots | 16 September 2010 | by the Company 12 months, by the Director 6 months | | Jez Maiden | 09 October 2014 | by the Company 12 months, by the Director 6 months | ### External directorships Executive Directors are permitted to accept external appointments with the prior approval of the Board. It is normal practice for Executive Directors to retain fees provided for Non-Executive Director roles. Neither Executive Director held any external directorships during 2021. ### 11. Remuneration Committee attendance and advisers (unaudited information) The following Directors served as members of the Committee during 2021: - Helena Ganczakowski (Chair) - Roberto Cirillo - Jacqui Ferguson - John Ramsay - Julie Kim (From 01 September 2021) See page 72 for details of attendance at meetings during the year. In addition, the Committee invites individuals to attend meetings to ensure that decisions are informed and take account of pay and conditions in the wider Group. During 2021, invitees included other Directors and employees of the Group and the Committee's advisers (see page 103), including Anita Frew (Company Chair), Steve Foots (Group Chief Executive), Jez Maiden (Group Finance Director), Keith Layden (Non-Executive Director), Tracy Sheedy (Group HR Director), Tom Brophy (Group General Counsel and Company Secretary) and Caroline Farbridge (Deputy Company Secretary). Attendees at Committee meetings are excluded from discussions that determine their own remuneration. 102 Croda International Plc Annual Report and Accounts 2021 Directors' report # Summary of Remuneration Committee meetings | January 2021 | Approved Chair fee increase for 2021 Reviewed the draft Directors' Remuneration Report Considered shareholder feedback on executive remuneration arrangements ahead of implementation in 2021 Considered the sustainability targets for 2021 PSP awards | | --- | --- | | February 2021 | Reviewed the draft Directors' Remuneration Report Approved the calculation of the 2020 senior annual Bonus Plan award Approved the senior annual Bonus Plan targets for 2021 Approved the vesting outcome for the 2018 PSP awards Approved the PSP targets for 2021 and the grant of PSP awards for 2021 Approved the vesting of the 2018 Restricted Share Plan awards and the grant of Restricted Share Plan awards for 2021 Reviewed feedback from employee listening groups attended by the Remuneration Committee Chair Approved the introduction of the Free Share Plan Reviewed Executive Committee salary increases Reviewed the update on ABI headroom limits as they apply to the business Reviewed share ownership guidelines Reviewed the Committee's Terms of Reference Considered the mechanism for enforcement of the post-employment shareholding guideline | | April 2021 | Reviewed shareholder feedback on Directors' Remuneration Report Reviewed an update on PSP sustainability targets Reviewed the rules of the Free Share Plan and timeline for grant Gave authority for UK employees to join the UK Sharesave Scheme and non-UK employees to join the International Sharesave Scheme Agreed dividend enhancement to the Deferred Bonus Share Plan | | November 2021 | Considered mechanism for enforcement of the post-employment shareholding guideline Considered Free Share Plan accounting treatment Reviewed forecast outcomes for 2021 Considered and reviewed remuneration trends Reviewed quality assessment process for 2020 sustainability targets Reviewed workforce remuneration Agreed dividend enhancement to the Deferred Bonus Share Plan Gave authority for the execution of actions in relation to the 2018 Sharesave maturity Approved amendments to International Sharesave Plan rules | | December 2021 | Reviewed initial draft of the Chair's letter for inclusion in the Directors' Remuneration Report Reviewed proposed targets for the 2022 senior annual Bonus Plan and PSP award Approved salary increases for Chief Executive and Executive Committee Considered and reviewed proposed treatment of incentives for employees transferring out of the business following the sale of the majority of the PTIC businesses Considered the Committee's effectiveness review | # Remuneration Committee advisers (unaudited information) Deloitte LLP were retained as the appointed adviser to the Committee for the whole of 2021 having been appointed in October 2017, following a tender and selection process led by the Chair and including Committee members. As well as providing advice in relation to Executive remuneration and Non-Executive fees, Deloitte LLP also provide advice to the Group in relation to global employer services, global business tax services, indirect tax and M&A. Deloitte LLP is a signatory to the Remuneration Consultants Group Code of Conduct. The lead engagement partner has no other connection with the Company or individual Directors. The total fees paid to Deloitte LLP for its services during the year in relation to Executive remuneration and Non-Executive fees were £36,650 (excluding VAT). The Committee regularly reviews the external adviser's relationship and is comfortable that the advice it is receiving remains objective and independent. Croda International Plc Annual Report and Accounts 2021 103 ### Remuneration Report (continued) ### 12. Other disclosures (unaudited information) Percentage change in remuneration levels The following chart shows the movement in salary/fees, benefits and annual bonus for each of the Group’s Directors between the current and previous financial year compared with that of the average employee of the Group’s parent Company. The movement for the average UK employee is also provided for additional reference given the small number of employees employed by the Group parent Company. | % change in | | % change in | | | % change in | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 | | | 2 | | | 3,4 | | salary / fees | | | benefits | | | bonus | | 5 Average employee of the Group’s parent Company 2021 -5.12% -25.04% – 2020 3.66% -0.06% 0.00% 5 Average UK employee 2021 0.68% -8.63% – 2020 3.43% -3.27% 27.96% Executive Directors Steve Foots 2021 1.00% -25.87% – 2020 2.00% 0.50% 0.00% Jez Maiden 2021 1.00% 0.04% – 2020 2.00% 2.29% 0.00% Non-Executive Directors Anita Frew 2021 1.00% – – 2020 2.00% -100.00% – Roberto Cirillo 2021 1.00% – – 2020 2.00% -100.00% – 6 Alan Ferguson 2021 -100.00% – – 2020 -67.83% -100.00% – Jacqui Ferguson 2021 1.00% – – 2020 2.00% -100.00% – 7 Helena Ganczakowski 2021 4.84% – – 2020 11.41% -100.00% – Keith Layden 2021 1.00% – – 2020 2.00% -100.00% – 7,8 John Ramsay 2021 7.50% – – 2020 – – – 9 Julie Kim 2021 – – – 2020 – – – 1. Employees of the Group’s parent Company and UK employees received a 1% pay increase in 2021; an additional 1% increase was awarded to the majority of the UK workforce in July 2021, excluding all Board Directors and those in our most senior grades. Executive Directors and Non-Executive Directors received a 1% pay increase. The % decrease in the salary of the Average employee of the Group’s parent Company relates to an increase in headcount of the Group’s parent Company. This increase in headcount of more junior employees has driven the average salary down. 2. The benefits for Non-Executive Directors relate to the undertaking of business travel on behalf of Croda and ensuring the Directors are not out of pocket for related tax. No taxable business travel expenses were claimed by Non-Executive Directors in 2020 due to the COVID-19 pandemic and therefore there are no comparable figures to give a % change in 2021. To see the actual value of benefits for Non-Executive Directors in 2021 please see page 101. 3. For 2021, the senior annual Bonus Plan and Croda Europe Discretionary Board Scheme both paid out in full. These schemes however did not pay out for 2019 or 2020 and therefore there is no comparable figure to give a % change in 2021 for Executive Directors or the Average employee of the Group’s parent Company. In respect of the Average UK employee, the % change in 2020 relates to a small number of employees who received a sales bonus. As the senior annual Bonus Plan and Croda Europe Discretionary Bonus Scheme paid out in full for 2021, the actual amount received by the average UK employee is significantly higher and as such the % change would be misleading. 4. Bonus including annual bonus, DBSP and sales bonus. 5. Excluding Executive Directors and Non-Executive Directors. 6. Alan Ferguson retired on 23 April 2020. 7. In 2020 following Alan Ferguson’s retirement, Helena Ganczakowski was appointed as the Senior Independent Director and John Ramsay was appointed as the Chair of the Audit Committee. Their fees were pro-rated accordingly. 8. John Ramsay was appointed to the Board on 1 January 2020 and therefore has no comparable remuneration figures for 2019. 9. Julie Kim appointed to the Board 1 September 2021 and therefore has no comparable remuneration figures for 2020. Croda International Plc ## 104 Annual Report and Accounts 2021 ### Relative importance of the spend on pay The chart below shows the movement in spend on staff costs versus that in dividends and adjusted profit after tax. ![img-17.jpeg](img-17.jpeg) 1. Employee remuneration costs, as stated in the notes to the Group accounts on page 138. These comprise all amounts charged against profit in respect of employee remuneration for the relevant financial year, less redundancy costs and share-based payments, both of which can vary significantly from year to year. 2. Dividends are the amounts payable in respect of the relevant financial year. 3. Adjusted profit after tax is profit for the relevant year adjusted for exceptional items, acquisition costs, amortisation of intangible assets arising on acquisition and the tax thereon. ### 13. Statement of voting (unaudited information) | | Remuneration Policy 2020 AGM | | Annual Report on Remuneration 2021 AGM | | | --- | --- | --- | --- | --- | | | number of votes | % of votes | number of votes | % of votes | | Votes cast in favour | 97,230,580 | 97.55% | 109,189,937 | 98.82% | | Votes cast against | 2,445,834 | 2.45% | 1,306,221 | 1.18% | | Total votes cast | 99,676,414 | 100% | 110,496,158 | 100% | | Withheld | 152,926 | | 16,449 | | I will be available at the AGM to respond to any questions shareholders may raise on the Committee's activities. On behalf of the Board Helena Ganczakowski Chair of the Remuneration Committee 28 February 2022 Croda International Plc Annual Report and Accounts 2021 105 Directors' report ### Remuneration Report (continued) ### E. Summary of the Remuneration Policy An updated Remuneration Policy was presented and approved by shareholders at the 2020 AGM. It is intended that this will operate until the AGM in 2023. The full Remuneration Policy can be found on pages 77 to 83 of our Annual Report & Accounts 2019. Main components of the Remuneration Policy Framework used to assess performance and Operation Maximum opportunity for the recovery of sums paid Basic salary – to assist in the recruitment and retention of high-calibre Executives | Normally reviewed annually with increases | • Salaries may be increased each | • The Committee considers individual salaries taking due | | --- | --- | --- | | effective from 1 January. Base salaries will be | year in percentage of salary | account of the relevant factors set out in this Policy, | | set by the Committee, considering: | terms. | which includes individual performance. | | • The performance and experience of the | • The Committee will be guided by | | | individual concerned | the salary increase budget set in | | each region and across the • Any change in scope, role and/or workforce generally. responsibilities • Increases beyond those linked • Pay and employment conditions elsewhere to the region of the Executive in the Group Director or the workforce as a • Rates of inflation and market-wide wage whole (in percentage of salary increases across international locations terms) may be awarded by the • The geographical location of the Executive Committee at its discretion. For Director example, where there is a change • Rates of pay in international manufacturing in responsibility, experience or a and pan-sector companies of a comparable significant increase in the scale of size and complexity. the role and/or size, value or complexity of the Group. • The Committee retains the flexibility to set the salary of a new hire at a discount to the market level initially, and to implement a series of planned increases in subsequent years, in order to bring the salary to the desired positioning, subject to individual performance. Benefits – to provide competitive benefits to act as a retention mechanism and reward service The Group typically provides the following • The cost of benefits is not None. benefits: pre-determined and may vary from year to year based on the • Company car (or cash allowance) cost to the Group. • Private fuel allowance • Private health insurance and other insured benefits • Other ancillary benefits, including relocation expenses/arrangements (including tax thereon) as required. Additional benefits might be provided from time to time (for example in circumstances where an Executive Director is deployed to, or recruited from overseas). The Committee will consider whether the payment of any additional benefits is appropriate and proportionate when determining whether they are paid. Croda International Plc ## 106 Annual Report and Accounts 2021 Framework used to assess performance and Operation Maximum opportunity for the recovery of sums paid Performance-related annual bonus – to incentivise and reward delivery of the Group’s key annual objectives and to contribute to longer-term ### Directors’ report alignment with shareholders | Normally one third of any bonus paid is | Group Chief Executive: | • Bonus will typically be based on challenging financial | | --- | --- | --- | | compulsorily deferred into shares for three years | 150% of salary. | targets set in line with the Group’s KPIs (for example profit | | through the Deferred Bonus Share Plan (DBSP). | | growth targets). | Other Executive Director: | The Committee has the discretion to permit | 125% of salary. | • The Committee has the flexibility to include, for a minority | | --- | --- | --- | | DBSP awards to benefit from dividends on | | of the bonus, targets related to other Group measures | | shares that vest. | | where this is considered appropriate. | • For a profit measure, bonus normally starts to accrue The balance of the bonus is paid in cash. once the threshold target is met (0% payable) rising on a graduated scale to 100% for outperformance. Were an additional KPI metric to be introduced, the threshold would not exceed 25%. • The Committee applies a Discretion Framework, which includes health, safety and environmental performance when determining the actual overall level of individual bonus payments and it may adjust the bonus awards if it considers it appropriate to do so. • Bonuses paid are subject to provisions that enable the Committee to recover value overpaid through the withholding of variable pay previously earned or granted (malus) or through requesting a payment from an individual (clawback) in the event of a misstatement of results, serious misconduct, serious reputational damage or material corporate failure. The provisions will operate for a three-year period following the date on which the bonus is paid. Performance Share Plan (PSP) – to incentivise and reward the execution of business strategy over the longer term and to reward sustained growth in profit and shareholder value The PSP provides for awards of free shares (i.e., Normal maximum opportunity of: • Granted subject to a blend of challenging financial (eg either conditional shares or nil-cost options) EPS), shareholder return (eg relative TSR) and strategic • Group Chief Executive: normally made annually which vest after three targets (eg sustainability). The performance targets may 225% of salary years subject to continued service and the also include an additional underpin (eg an EVA underpin). • Other Executive Director: achievement of challenging performance • Targets will normally be tested over three years. 175% of salary. conditions. Shares are subject to a two-year • In relation to financial targets (eg EPS growth and TSR) In exceptional circumstances (eg post-vesting holding period. 25% of awards subject to such targets will vest for recruitment), awards may be The Committee has the discretion to permit threshold performance with a graduated scale operating granted up to 300% of salary to awards to benefit from the dividends paid on through to full vesting for equalling, or exceeding, compensate for value forfeited from shares that vest. the maximum performance targets (no awards vest for a previous employer. performance below threshold). In relation to strategic targets or underpin targets, the structure of the target will vary based on the nature of target set (eg for milestone strategic targets it may not always be practicable to set such targets using a graduated scale and so vesting may take place in full for strategic targets if the criteria are met in full). • Vesting is also dependent on application of the Discretion Framework, including satisfactory underlying financial performance of the Group over the performance period and the Committee may adjust outcomes if it considers it appropriate to do so. • There are also provisions that enable the Committee to recover value overpaid through the withholding of variable pay previously earned or granted (malus) or through requesting a payment from an individual (clawback) in the event of a misstatement of results, serious misconduct, serious reputational damage or material corporate failure. The provisions will operate for a three-year period following the date on which the PSP awards vest. Croda International Plc ## Annual Report and Accounts 2021 107 ### Remuneration Report (continued) Framework used to assess performance and Operation Maximum opportunity for the recovery of sums paid All-employee share plans – to encourage retention and long-term shareholding in the Company and to provide all employees with the opportunity to become shareholders in the Company on similar terms • Periodic invitations are made to participate in • In relation to HMRC plans • There are no post-grant targets currently applicable to the Group’s Sharesave scheme and Share (or equivalent) the maximum the Group’s Sharesave and Share Incentive Plan. Incentive Plan. participation level is as per HMRC • Shares acquired through these arrangements limits. For any other all-employee have significant tax benefits in the UK subject plan the maximum will be to satisfying certain HMRC requirements. equivalent to the maximum applying to all employees. • The plans can only operate on an all- employee basis. • The plans operate on similar terms but on a non tax-favoured basis outside the UK as appropriate. • In the event that Croda were to introduce an all-employee plan similar in nature to the current Sharesave and Share Incentive Plan, the Committee retains the discretion to allow Executive Directors to participate on the same basis as other employees. Pension – to provide competitive long-term retirement benefits and to act as a retention mechanism and reward service Pension benefits are typically provided either • Career average revalued earnings None. through (i) participation in the UK’s defined scheme (CARE) with a maximum th | benefit pension plan with a cash supplement | 1/60 | accrual up to a capped | | --- | --- | --- | | provided above any pension salary cap or (ii) a | salary plus cash allowance of | | | cash supplement provided in lieu of pension. | 20% of salary above the cap or | | cash allowance of 20% of salary. Only basic salary is pensionable. Legacy arrangements For the current CEO, and in line with other employees, there is a legacy capped defined benefit pension scheme. While there are no future accruals, the arrangement remains inflation-linked. Croda International Plc ## 108 Annual Report and Accounts 2021 ### Directors’ report ### Other disclosures against its Directors. The Company has also without regard to the pre-emption provisions of granted indemnities to each of its Directors the Companies Act 2006. Both of these Pages 58 to 111 inclusive, together with the and the Company Secretary, which represent authorities expire on the date of the 2022 AGM, sections of the Annual Report and Accounts ### ‘qualifying third party indemnity provisions’ (as that is 20 May 2022, and so the Directors Directors’ report incorporated by reference, constitute a defined by Section 234 of the Companies Act propose to renew them for a further year. Directors’ report that has been drawn up 2006), in relation to certain losses and liabilities and presented in accordance with applicable Substantial Shareholdings that the Directors or Company Secretary may English company law; the liabilities of the As at 31 December 2021 in accordance incur to third parties in the course of acting as Directors in connection with that report are with DTR 5 the holders of notifiable interests Directors or the Company Secretary or as subject to the limitations and restrictions in the Company’s share capital had not employees of the Company or of any provided by that law. changed since the information declared associated company. In addition, such in the 2020 Annual Report and are shown Research and development indemnities have been granted to other officers in the table below. | Research and development activities are | of the Company who are Directors of subsidiary | | | | | | --- | --- | --- | --- | --- | --- | | | | Number of | | % of issued | | | undertaken with the prospect of gaining | companies within the Group. Such indemnities | | | | | | | | | shares | | capital | | new scientific or technical knowledge | were in place during 2021 and at the date | | | | | Massachusetts and understanding. of approval of the Group financial statements. Financial Services Dividends Share capital Company 12,551,036 9.73% The Directors are recommending a final At the date of this report, 142,536,884 Ordinary BlackRock, Inc. 8,534,795 6.62% dividend of 56.5p per share (2020: 51.5p). Shares of 10.609756p each have been issued Mawer Investment If approved by shareholders, total dividends and are fully paid up and quoted on the London Management Limited 6,438,386 4.99% for the year will amount to 100.0p per share Stock Exchange. At the date of this Report, the Royal Bank of Canada 5,212,886 4.04% | (2020: 91.0p). Details of dividends are shown in | Company has issued and fully paid up 21,900 | | | | | | | --- | --- | --- | --- | --- | --- | --- | | note 8 on page 137; details of the Company’s | 7.5% Cumulative Preference Shares, 498,434 | Since the year end and up to the date of this | | | | | | Dividend Reinvestment Plan can be found on | 6.6% Cumulative Preference Shares and | report the following information has been | | | | | | page 171. The Company has established | 615,562 5.9% Cumulative Preference Shares, | received. | | | | | | various Employee Benefit Trusts (EBTs) in | all of £1 each (the Preference Shares). | | | | | | | | | | Number of | | % of issued | | | connection with the obligation to satisfy future | The rights and obligations attached to the | | | shares | | capital | | share awards under employee share incentive | Company’s Ordinary Shares and Preference | | | | | | Royal Bank of Canada 5,093,443 3.65% schemes. The trustees of the EBTs have Shares are set out in the Articles, copies of Norges Bank 4,186,185 3.00% waived their rights to receive dividends on which can be obtained from Companies House certain Ordinary Shares of the Company held in the UK or by writing to the Company Employees in the EBTs. Such waivers represent less than Secretary. There are no restrictions on the Diversity: We are committed to the principle 1% of the total dividend payable on the voting rights attached to the Company’s of equal opportunity in employment and to Company’s Ordinary Shares. Further details of Ordinary Shares or on the transfer of securities ensuring that no applicant or employee receives the EBTs can be found in note 25 on page 160. in the Company. The 7.5% Cumulative less favourable treatment on the grounds of any Directors Preference Shares do not confer on the holders protected characteristic or is disadvantaged by any right to receive notice of or to be present or conditions or requirements that cannot be The Company’s Articles of Association (Articles) to vote at any general meeting of the Company shown to be justified. Group human resources give the Directors power to appoint and replace unless the cumulative preferential dividend on policies are clearly communicated to all of Directors. Under the terms of reference of the such shares is more than 12 calendar months our employees and are available through the Nomination Committee, any appointment must in arrears. The 6.6% and 5.9% Cumulative Company intranet. be recommended by the Nomination Preference Shares do not confer on the holders Committee for approval by the Board of Recruitment and progression: It is established any right to receive notice of or to be present or Directors. The present Directors of the policy throughout the Business that decisions to vote at any general meeting of the Company, Company are shown on pages 62 and 63. on recruitment, career development, promotion unless the cumulative preferential dividend on In line with the 2018 UK Corporate Governance and other employment related issues are made such shares is more than six calendar months Code, each Director will be standing for election solely on the grounds of individual ability, in arrears or the business of the general or re-election at the AGM. Details of the achievement, expertise and conduct. meeting includes the consideration of a Directors’ service contracts are given in the We give full and fair consideration to resolution for reducing the share capital of the Directors’ Remuneration Report on page 102. applications for employment from people with Company, to sell the undertaking of the Apart from the share option schemes, long disabilities, having regard to their particular Company or to alter the Articles. No person term incentive schemes and service contracts, aptitudes and abilities. Should an employee holds securities in the Company that carry no Director had any beneficial interest in any become disabled during their employment with special rights with regard to control of the contract to which the Company or a subsidiary the Company, they are fully supported by our Company. The Company is not aware of any was a party during the year. A statement Occupational Health provision. Efforts are made agreements between holders of securities that indicating the beneficial and non-beneficial to continue their employment with reasonable may result in restrictions on the transfer of interests of the Directors in the share capital adjustments being made to the workplace and securities or on voting rights. of the Company, including share options, role where feasible. Retraining is provided if Power to issue or buy back shares is shown in the Directors’ Remuneration necessary. At the 2021 AGM, authority was given to the Report on page 100. Development and learning: The Company Directors to allot unissued shares in the The Directors are responsible for managing the recognises that the key to future success lies Company up to a maximum amount equivalent business of the Company and may exercise all in the skills and abilities of its dedicated global to approximately one third of the issued share the powers of the Company subject to the workforce. The continuous development of all capital, excluding shares held in treasury, for provisions of relevant statutes, the Company’s of our employees is key to meeting the future general purposes, plus up to a further one third Articles and any directions given by demands of our customers, especially in of the Company’s issued share capital, special resolution. relation to enhanced creativity, innovation and excluding shares held in treasury, but only in customer service. Directors’ indemnities the case of a rights issue. Involvement: We are committed to ensuring that The Company maintains Directors’ and A further special resolution passed at that employees share in the success of the Group. Officers’ liability insurance that gives meeting granted authority to the Directors to Owning shares in the Company is an important appropriate cover for any legal action brought allot equity securities in the Company for cash, Croda International Plc ## Annual Report and Accounts 2021 109 ### Directors’ report (continued) | way of strengthening involvement in the | Mandatory XBRL tagging | There have been no events affecting the | | --- | --- | --- | | development of the Business and bringing | The Board reviewed the process that had been | Company since the financial year end to report | | together employees and shareholders’ interests. | developed to ensure that the primary financial | to shareholders in accordance with the | | In 2021, 84% of our UK employees and 60% of | statements had been tagged in line with | Accounts Regulations and Disclosure Guidance | | our non-UK employees participated in one of our | required taxonomy. | and Transparency Rules. | all-employee share plans, indicating employees’ Other disclosures For the purposes of Listing Rule (LR) 9.8.4R, continued desire to be involved in the Company. the information required to be disclosed by Certain information that is required to be Employees are kept informed of matters of interest LR 9.8.4R can be found in the table below. included in the Directors’ Report can be found to them in a variety of ways, including the elsewhere in this document as referred to All the information cross referenced above Company magazine, Croda Way; quarterly below, each of which is incorporated by is incorporated by reference into the Directors’ updates; the Company intranet, Connect; team reference into the Directors’ Report: Report. briefings, podcasts, webinars, Yammer and Croda • Information on greenhouse gas emissions References in this document to other Now email messages. These communications can be found on page 39. documents on the Company’s website, such help achieve a common awareness of the financial • Information on energy consumption can be as the Sustainability Report, are included as an and economic factors affecting the performance of found on page 39. aid to their location and are not incorporated by Croda and of changes within the Business. We reference into any section of the Annual Report are committed to providing employees with • Information on energy efficiency can be and Accounts. | opportunities to share their views and provide | found on page 39. | | | --- | --- | --- | | feedback on issues that are important to them. | • Information on gas emissions, energy | Independent auditors | | The Directors maintain oversight of employee | consumption and energy efficiency - other | Our auditors, KPMG, have indicated their | | matters through the Board and committee | disclosures can be found on page 39. | willingness to continue in office and, on the | | meeting processes and information flows, | • For the purposes of Listing Rule (LR) | recommendation of the Audit Committee, a | | including regular updates on employee matters | 9.8.6R(8) the information on climate-related | resolution regarding their reappointment and | | and employee feedback received through | financial disclosures consistent with the | remuneration will be submitted to the AGM on | | employee engagement surveys. How the Directors | TCFD recommendation and the TCFD | 20 May 2022. | | have engaged with employees and have | recommended disclosure can be found on | | Audit information considered their interests when taking key pages 40 to 41. The Directors confirm that, so far as they are decisions is further detailed on pages 69 and 70. | | • Further details of the actions which the | aware, there is no relevant audit information of | | --- | --- | --- | | Non-financial reporting directive | Group is taking to reduce emissions can also | which the Company’s auditors are unaware, | | The Companies, Partnerships and Groups | be found in the Sustainability Report and at | and that they have each taken all the steps they | | (Accounts and Non-Financial Reporting) | www.Croda.com. | ought to have taken as a Director in order to | | Regulations 2016 (the Regulations) require | • An indication of likely future developments in | make themselves aware of any relevant audit | | companies to disclose non-financial information | the Group’s business can be found | information and to establish that the Company’s | | necessary to provide investors and other | throughout the Strategic Report, starting on | auditors are aware of that information. | | stakeholders with a better understanding of a | page one. | | Articles of Association company’s development, performance, position • The long-term viability statement can be Unless expressly specified to the contrary in and impact of its activity. Throughout this found on pages 56 and 57. the Articles, the Company’s Articles may be Annual Report the Directors have disclosed a • Information on the appropriateness of amended by a special resolution of the mix of financial and non-financial KPIs which adopting the going concern basis of the Company’s shareholders. they believe best reflect the Group’s strategic accounts can be found on page 125. A copy of the Articles is available at priorities, and which will help to convey an • Our approach to risk management can be www.croda.com understanding of the culture of the business found on pages 50 to 55. and the drivers which contribute to the ongoing • Details of the services provided to success of the Company. Please see the shareholders can be found on pages 171 to non-financial information statement on page 38 172 and on the Company’s website. which sets out where stakeholders can find • An indication of the Company’s overseas information relating to non-financial matters. branches are on pages 168 to 170. Listing Rule (LR) 9.8.4R information Section Topic Page reference (1) Capitalised interest Page 111 (2) Publication of unaudited financial information Not applicable (3) Smaller related party transactions Not applicable (4) Details of long term incentive schemes established specifically to recruit or retain a Director Not applicable (5) (6) Waiver of emoluments by a Director Page 101 (7) (8) Allotments of equity securities for cash Not applicable (9) Participation in a placing of equity securities Not applicable (10) Contracts of significance Page 111 (11) (14) Controlling shareholder disclosures Not applicable (12) (13) Dividend waiver Page 109 Croda International Plc ## 110 Annual Report and Accounts 2021 | Significant contracts and change of control | conditions. None of the Executive Directors’ | Political donations | | | --- | --- | --- | --- | | The Group has borrowing facilities which may | service contracts contains provisions that are | No donations were made for political purposes | | | require the immediate repayment of all | affected by a change of control and there are | during the year (2020: £nil). | | | outstanding loans together with accrued | no other agreements that the Company is party | | Directors’ report | Financial risk management interest in the event of a change of control. The to that take effect, alter or terminate in the The Group’s exposure to and management of rules of the Company’s employee share plans event of a change of control of the Company, capital, liquidity, credit, interest rate and foreign set out the consequences of a change in which are considered to be significant in terms currency risks are contained in note 20 on control of the Company on participants’ rights of their potential impact on the Group. The pages 153 to 154. under the plans. Generally, such rights will vest Company does not have any contractual or other arrangements that are essential to the Capitalised interest and become exercisable on a change of control subject to the satisfaction of performance business of the Group. The Group’s policy for capitalising borrowing costs directly attributable to the purchase or construction of fixed assets is set out on page 130. ### Statement of Directors’ responsibilities in respect of the Annual Report and the financial statements The Directors are responsible for preparing • for the parent Company financial statements, The Directors are responsible for the the Annual Report and the Group and parent state whether applicable UK accounting maintenance and integrity of the corporate Company financial statements in accordance standards have been followed, subject to any and financial information included on the with applicable law and regulations. material departures disclosed and explained Company’s website. Legislation in the UK in the parent Company financial statements; governing the preparation and dissemination Company law requires the Directors to • assess the Group and parent Company’s of financial statements may differ from prepare Group and parent Company ability to continue as a going concern, legislation in other jurisdictions. financial statements for each financial year. Under that law they are required to prepare disclosing, as applicable, matters related to Responsibility statement of the Directors the Group financial statements in going concern; and in respect of the annual financial report accordance with international accounting • use the going concern basis of accounting We confirm that to the best of our knowledge: standards in conformity with the unless they either intend to liquidate the • the financial statements, prepared in requirements of the UK-adopted Group or the parent Company or to cease accordance with the applicable set of international accounting standards and operations, or have no realistic alternative but accounting standards, give a true and fair applicable law and have elected to prepare to do so. view of the assets, liabilities, financial the parent Company financial statements in The Directors are responsible for keeping position and profit or loss of the Company accordance with UK accounting standards adequate accounting records that are sufficient and the undertakings included in the and applicable law, including FRS 101 to show and explain the parent Company’s consolidation taken as a whole; and Reduced Disclosure Framework. transactions and disclose with reasonable • the Strategic Report includes a fair review Under Company law the Directors must not accuracy at any time the financial position of the of the development and performance of approve the financial statements unless they parent Company and enable them to ensure that the business and the position of the are satisfied that they give a true and fair its financial statements comply with the issuer and the undertakings included in view of the state of affairs of the Group and Companies Act 2006. They are responsible for the consolidation taken as a whole, parent Company and of the Group’s profit such internal control as they determine is together with a description of the principal or loss for that period. In preparing each of necessary to enable the preparation of financial risks and uncertainties that they face. the Group and parent Company financial statements that are free from material We consider the Annual Report and statements, the Directors are required to: misstatement, whether due to fraud or error, and accounts, taken as a whole, is fair, balanced have general responsibility for taking such steps • select suitable accounting policies and and understandable and provides the as are reasonably open to them to safeguard the then apply them consistently; information necessary for shareholders to assets of the Group and to prevent and detect • make judgements and estimates that are assess the Group’s position and fraud and other irregularities. reasonable, relevant, reliable and prudent; performance, business model and strategy. Under applicable law and regulations, the • for the Group financial statements, state Directors are also responsible for preparing a whether they have been prepared in Strategic Report, Directors’ Report, Directors’ accordance with international accounting Remuneration Report and Corporate standards in conformity UK-adopted Governance Statement that complies with that international accounting standards; law and those regulations. The Directors’ Report and the Strategic Report, including the sections of the Annual Report and Accounts incorporated by reference, is the ‘management report’ for the purposes of the Financial Conduct Authority Disclosure Guidance and Transparency Rules (DTR 4.1.8R). It was approved by the Board on 28 February 2022 and is signed on its behalf by Tom Brophy Group General Counsel and Company Secretary 28 February 2022 Croda International Plc ## Annual Report and Accounts 2021 111 ### Financial statements ### Independent Auditor’s Report to the Members of Croda International Plc | 1. Our opinion is unmodified | Overview | | | | --- | --- | --- | --- | | We have audited the financial statements of Croda International Plc | | Group financial | 16m (2020: £15m) | | (“the Company”) for the year ended 31 December 2021 which | | | % (2020: 5.0%) of normalised | | comprise the Group Income Statement, the Group Statement of | | | roup profit before tax | Comprehensive Income, the Group and Company Balance Sheets, the Group Statement of Cash Flows, the Group and Company Statements of Changes in Equity, and the related notes, including the accounting before tax policies on pages 125 to 131 and on page 164. In our opinion: • the financial statements give a true and fair view of the state vs 2020 of the Group’s and of the parent Company’s affairs as at 31 December 2021 and of the Group’s profit for the year obligation then ended; • the Group financial statements have been properly prepared impairment i n accordance with UK-adopted international accounting standards ; • the parent Company financial statements have been properly prepared in accordance with UK accounting standard s, ompany’s investment in i ncluding FRS 101 Reduced Disclosure Framework; and intercompany • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the Audit Committee. We were first appointed as auditor by the shareholders on 25 April 2018. The period of total uninterrupted engagement is for the four financial years ended 31 December 2021. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided. Recoverability of parent Croda International Plc | Coverage Materiality: £ 85% (2020: 84%) of the total of the C | | | | --- | --- | --- | | | 112 | Annual Report and Accounts 2021 | | statements as a whole 4.9 profits and losses that made up Recurring risks Valuation of defined benefit subsidiaries and | | | | G Group profit pension scheme Goodwill debtors Key audit matters | | | Croda International Plc ## 112 Annual report and Accounts 2021 ### Financial statements ### Financial statements ### 2. Key audit matters: our assessment of risks of material misstatement Independent Auditor’s Report to the Members of Croda International Plc Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We Overview summarise below the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key ### 1. Our opinion is unmodified audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were We have audited the financial statements of Croda International Plc Group financial 16m (2020: £15m) addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial (“the Company”) for the year ended 31 December 2021 which % (2020: 5.0%) of normalised statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate comprise the Group Income Statement, the Group Statement of roup profit before tax opinion on these matters. Comprehensive Income, the Group and Company Balance Sheets, the Group Statement of Cash Flows, the Group and Company Statements of Changes in Equity, and the related notes, including the accounting before tax policies on pages 125 to 131 and on page 164. | | | | | The Group has two defined benefit pension | Benchmarking assumptions: we challenged key assumptions | | --- | --- | --- | --- | --- | --- | | In our opinion: | | obligation | | schemes that are material in the context of | applied (discount rate, inflation rate, and mortality rate) with the | | • the financial statements give a true and fair view of the state | vs 2020 | | | the overall balance sheet and the results of | support of our own actuarial specialists, including a comparison | | of the Group’s and of the parent Company’s affairs as at | | 1,309.0m; | | the Group. | of key assumptions against market data. | | 31 December 2021 and of the Group’s profit for the year | | | , | Significant estimates, including the discount | Actuary’s credentials: we assessed the competence, | obligation then ended; rate, the inflation rate and the mortality rate, capabilities and objectivity of the Group’s actuarial expert. • the Group financial statements have been properly prepared are made in valuing the Group’s defined Sensitivity analysis: we assessed the sensitivity of the defined impairment in accordance with UK-adopted international accounting standards; benefit pension obligations (before deducting benefit obligation to changes in certain assumptions. • the parent Company financial statements have been properly the schemes’ assets). The UK scheme is also Assessing transparency: we considered adequacy of the prepared in accordance with UK accounting standards, ompany’s investment in still open to future accrual and new members, Group’s disclosures in respect of the sensitivity of the gross including FRS 101 Reduced Disclosure Framework; and intercompany and small changes in the assumptions and obligation to changes in key assumptions. • the financial statements have been prepared in accordance with the estimates with respect to the obligation would the UK scheme requirements of the Companies Act 2006. have a significant effect on the financial position of the Group. The Group engages Basis for opinion external actuarial specialists to assist them in We conducted our audit in accordance with International Standards on edures described. selecting appropriate assumptions and Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are calculate the obligations. described below. We believe that the audit evidence we have obtained The effect of these matters is that, as part of We found the valuation of the defined benefit pension scheme is a sufficient and appropriate basis for our opinion. Our audit opinion is our risk assessment, we determined that the obligation to be acceptable (2020 result: acceptable). consistent with our report to the Audit Committee. valuation of the defined benefit obligations We were first appointed as auditor by the shareholders on 25 April has a high degree of estimation uncertainty, 2018. The period of total uninterrupted engagement is for the four with a potential range of reasonable financial years ended 31 December 2021. We have fulfilled our ethical outcomes greater than our materiality for the Valuation of defined Subjective valuation: Our procedures included: ion responsibilities under, and we remain independent of the Group in financial statements as a whole, and possibly benefit pension • • accordance with, UK ethical requirements including the FRC Ethical many times that amount. The financial scheme Standard as applied to listed public interest entities. No non-audit statements (note 11) disclose the sensitivity (Gross defined benefit | services prohibited by that standard were provided. | | | estimated by the Group. | | --- | --- | --- | --- | | | obligation £ | -end | | | | 2020: £1,544.4m) • • | | | although this specific risk is only associated with the • UK scheme (£1,162.6m) and US scheme • 82 (Audit (£126.8m). In prior year the risk related (accounting policy) to We performed the tests above rather than seeking to rely on any 11 on pages 139 (£1,178.5m), US scheme of the Group’s controls because the nature of the balance is such 143 (financial (£133.9m) and that we would expect to obtain audit evidence primarily through Netherlands scheme the detailed proc (£212.3m). During the year Our results the material scheme held • • in the Netherlands has been converted into a collective defined contribution scheme, and therefore the related defined benefit obligat has crystallised and been derecognised from the balance sheet. Accordingly, the year risk relates only to the ongoing UK and US schemes. Refer to page Committee Report), page Recoverability of parent 128 Croda International Plc | | | | Coverage Materiality: | C | £ 85% (2020: 84%) of the total of the | and note | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | Annual Report and Accounts 2021 | | 113 | | | | | statements as a whole Recurring risks | Valuation of defined benefit subsidiaries and | 4.9 profits and losses that made up | to | | | | | | | | | Key audit matters | pension scheme Goodwill debtors | G Group profit | disclosures). Group The risk Our response | | | | | | | Croda International Plc | | | | | | Croda International Plc | | | | | 112 | Annual report and Accounts | 2021 | | | | 113 | | Annual report and Accounts | 2021 | | ### Financial statements (continued) ### Independent Auditor’s Report to the Members of Croda International Plc (continued) | | £852.0m (2020: | The Group has, over recent years, acquired | Assessing methodology: we obtained the discounted value in | | --- | --- | --- | --- | | | , although this | a number of companies which has led to a | use cash flow models and assessed the methodology, principles | | | risk is only associated | material increase in the goodwill balance. | and integrity of each model. | | | Iberchem Fragrances | Some of these acquisitions, and in particular | Sector experience: we involved our own valuation specialists | | 242.2m) and Iberchem | | Iberchem, are still at an early stage of their | to assist us in challenging the appropriateness of the discount | | | (£123.6m) Cash | integration into the Group and are therefore | rate assumption. | | | | subject to greater levels of estimation | Benchmark assumptions: we challenged the Group’s forecast | | | | uncertainty in respect of the underlying | assumptions for cash flow projections, including the rate of sales | the prior year, risk related to | | impairment model assumptions. | growth and operating profit growth in the short to medium term, the | | --- | --- | --- | | | The headroom in respect of the | long-term growth rates and the appropriateness of discount rates, | | | impairment test on the Iberchem | with reference to internally and externally derived sources. | | | Fragrances and Iberchem Flavours Cash | Historical comparisons: we assessed the Group’s historical | | | Generating Units is relatively small, and | forecasting accuracy by comparing forecasts from prior years | | | small changes in the assumptions applied | with actual results in those years. | | | in the value in use calculations could | Sensitivity analysis: we performed breakeven analysis on the | | | impact management’s conclusions about | key assumptions including the discount rate and growth rates. | | | the carrying value of goodwill and how | Assessing transparency: we considered the adequacy of the | | | this compares to the recoverable amount. | Group’s disclosures in respect of impairment testing and | | | The effect of this matter is that, as part of | whether disclosures about the sensitivity of the outcome of the | | | our risk assessment, we determined that | impairment assessment to changes in key assumptions properly | | 82 (Audit | impairment assessments in respect of the | | reflect the risks inherent in the valuations of goodwill. 127 Iberchem Fragrances and Iberchem formed the tests above rather than seeking to rely on any of Flavours Cash Generating Units have a high on pages 143 to 145 degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial results statements as a whole. The financial statements (note 12) disclose the We found the Group’s conclusion that there is no impairment of sensitivities estimated by the Group. goodwill in the Iberchem Fragrances and Iberchem Flavours Cash Generating Units to be acceptable (2020 result Sipo and Biosector Cash Generating Units: acceptable). luded: | | Company’s | The carrying amount of the parent | Tests of detail: we assessed 100% of intercompany debtors to | | --- | --- | --- | --- | | | | Company’s intercompany debtors, held | identify, with reference to the relevant debtors’ draft balance sheet, | | | intercompany debtors | at cost less impairment, represents 48% | whether they have a positive net asset value and therefore coverage | | | | (2020: 51%) and the carrying value of | of the debt owed, as well as assessing whether those debtor | | | | investments in subsidiaries represents | companies have historically been profit-making. | | Goodwill impairment Forecast based assessment: Our procedures included: | | | | | | £1,325.2m (2020: | 50% of the parent Company’s total | Test of detail: we compared the carrying amount of 100% of | | Goodwill: • • | | | | | | | assets. | investments with the relevant subsidiaries’ draft balance sheet to | £866.7m) do not consider the recoverable amount identify whether their net assets, being an approximation of their specific amounts to be at a high risk of minimum recoverable amount, were in excess of their carrying with the • amount and assessing whether those subsidiaries have (£ significant level of judgement. However, historically been profit-making. Recoverability of Low risk, high value: Our procedures inc Flavours parent Assessing subsidiary audits: we assessed the work performed by • • Generating Units. • investments in subsidiaries the subsidiary audit team, and considering the results of that work, In and the investments in on those net assets, including assessing the ability of the subsidiary Sipo and Biosector Cash to obtain liquid funds and therefore the ability of the subsidiary to Investments in subsidiaries • Generating Units. However, fund the repayment of the receivable. £1,385.6m and intercompany these CGUs are no longer debtors • • considered as part of the key £1,452.2m) 82 (Audit parent Company’s controls because the nature of the balance audit matter in the year as the | We | | 130 | ailed testing is inherently the most effective means of | | --- | --- | --- | --- | | The parent company funds estimated recoverable amount | | | | | • of these subsidiaries through a | (accounting policy) | | | prepared by the Directors for significant misstatement, or to be subject to combination of equity and notes F and G on pages these CGUs indicate | a • intercompany loans and | 5 and 166 (financial | | | --- | --- | --- | | significantly improved | | Group’s assessment of the recoverability of | | due to their materiality in the context of the • following additions associated headroom. | | | | • parent Company financial statements as a with the acquisition of | | | acceptable (2020 result: acceptable). whole, this is considered to be the area Iberchem Refer to page which had the greatest effect on our overall The identification and valuation of intangible assets acquired in respect of the Avanti and Iberchem business combinations was a key audit matter in subsidiaries balance is now Committee Report), page parent Company audit. the prior year. We continue to perform procedures over identification and valuation of intangible assets acquired in business combinations, however, also considered as part of the We per (accounting policy) and note the degree of subjectivity in assessing the assumptions applied by the Group has reduced given the smaller size of the two business combinations in key audit matter in the year. We performed the tests above rather than seeking to rely on any of the Group’s controls because the nature of the balance is such that | 12 | 2021, and as such we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately | | --- | --- | | the we would expect to obtain audit evidence primarily through the Refer to page | | | (financial disclosures). | identified in our report this year. | | meant that det detailed procedures described. Committee Report), page | | | obtaining audit evidence. and 164 | | Our and Our results • 16 Croda International Plc We found the ## 114 Annual Report and Accounts 2021 disclosures). investment in subsidiaries and the intercompany debtors balance to be Group The risk Our response Parent Company The risk Our response Croda International Plc ## 114 Annual report and Accounts 2021 ### Financial statements (continued) ### Financial statements ### 3. Our application of materiality and an overview Independent Auditor’s Report to the Members of Croda International Plc (continued) of the scope of our audit before tax £16m (2020: £15m) Materiality for the Group financial statements as a whole was £16m set at £16.0m (2020: £15.0m), determined with reference to a Whole financial statements benchmark of normalised Group profit before tax (PBT) of £328.6m materiality (2020: £15m) (2020: £300.2m), of which it represents 4.9% (2020: 5.0%). £12m We normalised PBT by adding back adjustments that do not represent | £852.0m (2020: | The Group has, over recent years, acquired | Assessing methodology: we obtained the discounted value in | | | Whole financial statements | | --- | --- | --- | --- | --- | --- | | | | | the normal, continuing operations of the Group and by averaging over | | performance materiality | | , although this | a number of companies which has led to a | use cash flow models and assessed the methodology, principles | | | | | | | | three years. The items we adjusted were exceptional curtailment gains | | (2020: £11.3m) | | risk is only associated | material increase in the goodwill balance. | and integrity of each model. | | £328.6m | | and redundancy costs as disclosed in notes 3 and 11. Iberchem Fragrances Some of these acquisitions, and in particular Sector experience: we involved our own valuation specialists (2020: £300.2m) £9m Range of materiality at 242.2m) and Iberchem Iberchem, are still at an early stage of their to assist us in challenging the appropriateness of the discount Materiality for the parent Company financial statements as a whole was 16 components (£0.9m to £9m) (£123.6m) Cash integration into the Group and are therefore rate assumption. set at £8.7m (2020: £8.7m), which is the component materiality for the (2020: £0.45m to £8.7m) subject to greater levels of estimation Benchmark assumptions: we challenged the Group’s forecast parent company determined by the Group audit engagement team. This uncertainty in respect of the underlying assumptions for cash flow projections, including the rate of sales is lower than the materiality we would otherwise have determined with the prior year, risk related to impairment model assumptions. growth and operating profit growth in the short to medium term, the reference to a benchmark of parent Company total assets of £2,778.0m The headroom in respect of the long-term growth rates and the appropriateness of discount rates, (2020: £2,851.4m), of which it represents 0.3% (2020: 0.3%). impairment test on the Iberchem with reference to internally and externally derived sources. In line with our audit methodology, our procedures on individual Normalised PBT Fragrances and Iberchem Flavours Cash Historical comparisons: we assessed the Group’s historical account balances and disclosures were performed to a lower threshold, Group materiality ### £0.8m Generating Units is relatively small, and forecasting accuracy by comparing forecasts from prior years performance materiality, so as to reduce to an acceptable level the risk Misstatements reported to the Audit Committee small changes in the assumptions applied with actual results in those years. that individually immaterial misstatements in individual account (2020: £0.75m) in the value in use calculations could Sensitivity analysis: we performed breakeven analysis on the balances add up to a material amount across the financial statements impact management’s conclusions about key assumptions including the discount rate and growth rates. as a whole. the carrying value of goodwill and how Assessing transparency: we considered the adequacy of the Performance materiality was set at 75% (2020: 75%) of materiality this compares to the recoverable amount. Group’s disclosures in respect of impairment testing and for the financial statements as a whole, which equates to £12.0m The effect of this matter is that, as part of whether disclosures about the sensitivity of the outcome of the (2020: £11.3m) for the Group and £6.5m (2020: £6.5m) for the Parent | | our risk assessment, we determined that | impairment assessment to changes in key assumptions properly | | | | --- | --- | --- | --- | --- | | | | | company. We applied this percentage in our determination of | that made up Group profit | | 82 (Audit | impairment assessments in respect of the | | | | reflect the risks inherent in the valuations of goodwill. | | | | performance materiality because we did not identify any factors | before tax | | --- | --- | --- | --- | --- | | 127 | Iberchem Fragrances and Iberchem | | | | | | | formed the tests above rather than seeking to rely on any of | indicating an elevated level of risk. | | Flavours Cash Generating Units have a high on pages 143 to 145 We agreed to report to the Audit Committee any corrected degree of estimation uncertainty, with a or uncorrected identified misstatements exceeding £0.8m potential range of reasonable outcomes (2020: £0.75m), in addition to other identified misstatements that greater than our materiality for the financial 9% results warranted reporting on quantitative grounds. 7% statements as a whole. The financial We found the Group’s conclusion that there is no impairment of 62%66% | statements (note 12) disclose the | | Of the Group’s 87 (2020: 85) reporting components, we subjected | | | | | --- | --- | --- | --- | --- | --- | | | | | | 78% | 85% | | sensitivities estimated by the Group. | goodwill in the Iberchem Fragrances and Iberchem Flavours | | 12%16% | | | 10 (2020: 12) to full scope audits for Group purposes and 6 (2020: 7) (2020: 78%) (2020: 84%) Cash Generating Units to be acceptable (2020 result Sipo and to specified risk-focused audit procedures. One component (2020: 1) 77% Biosector Cash Generating Units: acceptable). for which we performed specific risk-focused procedures was not 76% individually financially significant enough to require a full scope audit for Group purposes but did present specific individual risks that needed to be addressed. The other 5 (2020: 6) components for which we luded: performed work other than full scope audits for Group reporting Goodwill impairment Company’s Forecast based assessment: The carrying amount of the parent Our procedures included: Tests of detail: we assessed 100% of intercompany debtors to purposes were not individually significant but were included in the Goodwill: • Company’s intercompany debtors, held • identify, with reference to the relevant debtors’ draft balance sheet, scope of our Group reporting work in order to provide further coverage £866.7m) intercompany debtors at cost less impairment, represents 48% whether they have a positive net asset value and therefore coverage over the Group’s results. specific (2020: 51%) and the carrying value of of the debt owed, as well as assessing whether those debtor The components within the scope of our work accounted for the with the investments in subsidiaries represents • companies have historically been profit-making. percentages illustrated opposite. (£ £1,325.2m (2020: 50% of the parent Company’s total Test of detail: we compared the carrying amount of 100% of 2% 2% Recoverability of Low risk, high value: Our procedures inc The remaining 22% (2020: 22%) of total Group revenue, 15% (2020: Flavours assets. investments with the relevant subsidiaries’ draft balance sheet to parent 16%) of total of the profits and losses that made up the Group profit | Generating Units. | • | do not consider the recoverable amount | | • • identify whether their net assets, being an approximation of their | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | investments in subsidiaries | | | | | | before tax and 12% (2020: 10%) of total Group assets is represented | | | | | | | amounts to be at a high risk of | minimum recoverable amount, were in excess of their carrying | | | | | | In | | | | | Group total assets | | | 86%88% | | and | | | | | | by 71 (2020: 66) reporting components, none of which individually | 88% | | amount and assessing whether those subsidiaries have Sipo and Biosector Cash represented more than 2% (2020: 2%) of any of total Group revenue, Investments in subsidiaries • significant level of judgement. However, historically been profit-making. (2020: 90%) Generating Units. However, Normalised Group profit Group materiality Group profit before tax or total Group assets. For these components, £1,385.6m and intercompany Assessing subsidiary audits: we assessed the work performed by these CGUs are no longer we performed analysis at an aggregated Group level to re-examine our debtors • • the subsidiary audit team, and considering the results of that work, considered as part of the key assessment that there were no significant risks of material £1,452.2m) on those net assets, including assessing the ability of the subsidiary audit matter in the year as the the investments in misstatement within these. | The parent company funds estimated recoverable amount | We | to obtain liquid funds and therefore the ability of the subsidiary to | | | --- | --- | --- | --- | | subsidiaries through a | of these | • fund the repayment of the receivable. | | | prepared by the Directors for | | | Full scope for Group audit purposes 2021 | | combination of equity and these CGUs indicate | significant misstatement, or to be subject to | | | Specific risk-focused audit procedures 2021 | | | | | | | | | Group revenue Total of the profit and losses | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | intercompany loans and significantly improved | | | | a | • | | | | | | | | 82 (Audit | | | | parent Company’s controls because the nature of the balance | | | Full scope for Group audit purposes 2020 | | following additions associated headroom. | | | | due to their materiality in the context of the | • | | | | | | | | | 130 | | | | ailed testing is inherently the most effective means of | | Specific risk-focused audit procedures 2020 | | with the acquisition of | | | | • parent Company financial statements as a | | | | | | | | (accounting policy) | | | | | | | | Residual components | | Iberchem | | | | whole, this is considered to be the area | | | | | | notes F and G on pages Refer to page which had the greatest effect on our overall subsidiaries balance is now 5 and 166 (financial Committee Report), page parent Company audit. Group’s assessment of the recoverability of also considered as part of the We per (accounting policy) and note key audit matter in the year. We performed the tests above rather than seeking to rely on any of the Group’s controls because the nature of the balance is such that 12 acceptable (2020 result: acceptable). Refer to page the we would expect to obtain audit evidence primarily through the (financial disclosures). Committee Report), page The identification and valuation of intangible assets acquired in respect of the Avanti and Iberchem business combinations was a key audit matter in meant that det detailed procedures described. and 164 the prior year. We continue to perform procedures over identification and valuation of intangible assets acquired in business combinations, however, obtaining audit evidence. Our and the degree of subjectivity in assessing the assumptions applied by the Group has reduced given the smaller size of the two business combinations in Our results • | 16 2021, and as such we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately | | | | Croda International Plc | | | --- | --- | --- | --- | --- | --- | | | We found the | The 2020 charts have been updated to include | | | | | | | | Annual Report and Accounts 2021 | | 115 | | disclosures). identified in our report this year. | | components scoped for specified risk-focused | | | | investment in subsidiaries and the intercompany debtors balance to audit procedures | Group Parent Company | | The risk The risk | Our response Our response be | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Croda International Plc | | | Full scope for Group audit purposes 2021 Full scope for Group audit purposes 2021 | Croda International Plc | | | | 114 | Annual report and Accounts | 2021 | | 115 Specific risk-focused audit procedures 2021 Specific risk-focused audit procedures 2021 | | Annual report and Accounts | 2021 | | | | | | Full scope for Group audit purposes 2020 Full scope for Group audit purposes 2020 | | | | | | | | | Specific risk-focused audit procedures 2020 Specific risk-focused audit procedures 2020 | | | | | | | | | Residual components Residual components | | | | Financial statements (continued) Independent Auditor's Report to the Members of Croda International Plc (continued) ### 3. Our application of materiality and an overview of the scope of our audit continued The Group team adopted a centralised approach to testing revenue, purchases and journal entries. Data and analytics routines were performed for 13 components, and the Group team assessed the outputs of these routines before sending outputs to component auditors and instructing them to test transactions meeting certain criteria. The instructions to component auditors also included significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the component materialities, which ranged from £0.9m to £9.0m (2020: £0.5m to £8.7m), having regard to the mix of size and risk profile of the Group across the components. The work on 12 of the 16 components (2020: 11 of the 19 components) was performed by component auditors and the rest, including the audit of the parent Company, was performed by the Group team. The Group team performed procedures on the items excluded from normalised Group profit before tax. The scope of the audit work performed was predominately substantive as we placed limited reliance upon the Group's internal control over financial reporting. On account of travel restrictions in place during the performance of the audit the Group team did not visit the component auditors and instead senior members of the Group audit team held regular video conference meetings with all in scope components. These meetings involved explanation of Group audit instructions, involvement in planning audit procedures, discussing progress updates and emerging findings, reviewing outcomes of testing performed and involvement in discussing audit findings with component management. The Group audit team reviewed the audit documentation of component audits through various stages of their audits. The Group team also attended the component virtual clearance meetings. At these meetings, the findings reported to the Group team were discussed in more detail, and any further work required by the Group team was then performed by the component auditor. ### 4. The impact of climate change on our audit In planning our audit, we have considered the potential impact of climate change on the Group's business and its financial statements. The Group has set out its Climate Positive targets and Science Based targets in line with limiting global warming to 1.5°C by 2030, and to be climate net zero by 2050. The majority of the Group's carbon emissions are in the supply chain, and the Group continues to develop its assessment of climate change. Climate change initiatives impact the Group in a variety of ways including opportunities and risks relating to bio-based raw material supply, operational and supply chain decarbonisation and emerging regulatory requirements such as carbon taxes. Further information is provided on pages 40 to 43. While the Group has set out its Climate Positive targets and Science Based targets, the Group continues to assess and develop the consequences of this in terms of capital expenditure, the cost base and impacts on cash flows. The Group considered the impact of climate change and the Group's targets in the preparation of the financial statements, including an evaluation of critical accounting estimates and judgements. The Group concluded that this did not have a material effect on the consolidated financial statements, as described on page 125 and 126. As part of our audit, we have made enquiries of management to understand the extent of the potential impact of climate change risks on the Group's financial statements, including their assessment of critical accounting estimates and judgements, and the effect on our audit. We have performed a risk assessment to evaluate the potential impact, including the goodwill impairment assessment, the estimates made regarding useful economic lives of property, plant and equipment, and the valuation of certain unquoted pension assets. We held discussions with our own climate change professionals to challenge our risk assessment. Taking into account the extent of headroom on goodwill, the nature of the Iberchem business, the expected remaining useful lives of property, plant and equipment, and the nature of unquoted pension assets, we assessed that there is not a significant impact on our audit for this financial year. There was no significant impact of climate on our key audit matters. We have read the Group's disclosure of climate related information in the front half of the annual report as set out on pages 40 to 43 and considered consistency with the financial statements and our audit knowledge. ### 5. Going concern The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the parent Company or to cease their operations, and as they have concluded that the Group's and the parent Company's financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements ("the going concern period"). We used our knowledge of the Group, its industry, and the general economic environment to identify the inherent risks to its business model and analysed how those risks might affect the Group's and parent Company's financial resources or ability to continue operations over the going concern period. The risks that we considered most likely to adversely affect the Group's and parent Company's available financial resources and metrics relevant to debt covenants over this period were: - The potential impact on Group revenue of economic uncertainty and reduced customer confidence with a reduction in the outlook for global demand coupled with slower economic recovery; and - The impact of a product quality issue leading to a product recall or loss of revenue for a period of time. We also considered less predictable but realistic second order impacts, such as product quality failures, regulatory incidents and site incidents, which could result in a rapid reduction of available financial resources. We considered whether these risks could plausibly affect the liquidity or covenant compliance in the going concern period by assessing the degree of downside assumption that, individually and collectively, could result in a liquidity issue, taking into account the Group's current and projected cash and facilities (a reverse stress test). We also assessed the completeness of the going concern disclosure on page 125. Our conclusions based on this work: - we consider that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate; - we have not identified, and concur with the Directors' assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Group's or Company's ability to continue as a going concern for the going concern period; - we have nothing material to add or draw attention to in relation to the Directors' statement on page 125 on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and parent Company's use of that basis for the going concern period, and we found the going concern disclosure on page 125 to be acceptable; and - the same statement is materially consistent with the financial statements and our audit knowledge. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group or the Company will continue in operation. 116 Croda International Plc Annual Report and Accounts 2021 Financial statements ## 6. Fraud and breaches of laws and regulations – ability to detect ### Identifying and responding to risks of material misstatement due to fraud To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included: - Enquiring of Directors, the Audit Committee, internal audit and inspection of policy documentation as to the Group’s high-level policies and procedures to prevent and detect fraud, including the internal audit function, as well as whether they have knowledge of any actual, suspected or alleged fraud. - Reading Board and Audit Committee minutes. - Considering remuneration incentive schemes (performance related annual Bonus Plan and Performance Share Plan) and performance targets for management, including the EPS growth target. We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. This included communication from the Group audit team to full scope and specified risk-focused component audit teams of relevant fraud risks identified at the Group level and requesting these component audit teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement at the Group level. As required by auditing standards, we perform procedures to address the risk of management override of controls, in particular the risk that management may be in a position to make inappropriate accounting entries. On this audit, we do not believe there is a fraud risk related to revenue recognition because revenue transactions have low individual value with high volume, are routine and process driven and do not involve judgement or estimation. This reduces the opportunities for fraudulent activity. We did not identify any additional fraud risks. We performed procedures including: - Identifying journal entries to test for all full scope and specified risk focused components based on risk criteria by the Group audit team. Component audit teams were instructed to test the identified entries to supporting documentation. These included those posted by senior finance management or other high-risk users and those posted to unusual account combinations. - Assessing whether the judgements made in making accounting estimates are indicative of a potential bias. ### Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, through discussion with the Directors and other management (as required by auditing standards), and from inspection of the Group’s regulatory and legal correspondence and discussed with the Directors and other management the policies and procedures regarding compliance with laws and regulations. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from the Group audit team to all full scope and specified risk-focused component audit teams of relevant laws and regulations identified at the Group level, and a request for these component auditors to report to the Group team any instances of non-compliance with laws and regulations that could give rise to a material misstatement at the Group level. The potential effect of these laws and regulations on the financial statements varies considerably. Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation, pensions legislation, and taxation legislation, and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items. Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or the loss of the Group’s licence to operate. We identified the following areas as those most likely to have such an effect: GDPR compliance, health and safety and product liability, competition, anti-bribery and corruption, intellectual property, employment law, tax, trade compliance laws and environmental legislation, recognising the nature of the Group’s activities. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the Directors and other management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach. We discussed with the Audit Committee environmental matters related to actual or suspected breaches of laws or regulations, for which disclosure is not necessary, and considered any implications for our audit. ### Context of the ability of the audit to detect fraud or breaches of law or regulation Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations. Croda International Plc Annual Report and Accounts 2021 117 ### Financial statements (continued) ### Independent Auditor’s Report to the Members of Croda International Plc (continued) ### 7. We have nothing to report on the other We are also required to review the long-term viability statement, set out on pages 56 and 57 under the Listing Rules. Based on the ### information in the Annual Report above procedures, we have concluded that the above disclosures The Directors are responsible for the other information presented in the are materially consistent with the financial statements and our Annual Report together with the financial statements. Our opinion on audit knowledge. the financial statements does not cover the other information Our work is limited to assessing these matters in the context of only the and, accordingly, we do not express an audit opinion or, except as knowledge acquired during our financial statements audit. As we explicitly stated below, any form of assurance conclusion thereon. cannot predict all future events or conditions and as subsequent events Our responsibility is to read the other information and, in doing so, may result in outcomes that are inconsistent with judgements that were consider whether, based on our financial statements audit work, reasonable at the time they were made, the absence of anything to the information therein is materially misstated or inconsistent with report on these statements is not a guarantee as to the Group’s and the financial statements or our audit knowledge. Based solely on parent Company’s longer-term viability. that work we have not identified material misstatements in the Corporate governance disclosures other information. We are required to perform procedures to identify whether there is a Strategic Report and Directors’ Report material inconsistency between the Directors’ corporate governance Based solely on our work on the other information: disclosures and the financial statements and our audit knowledge. • we have not identified material misstatements in the Strategic Report Based on those procedures, we have concluded that each of the and the Directors’ Report; following is materially consistent with the financial statements and our • in our opinion the information given in those reports for the financial audit knowledge: year is consistent with the financial statements; and • the Directors’ statement that they consider that the Annual Report • in our opinion those reports have been prepared in accordance with and financial statements taken as a whole is fair, balanced and the Companies Act 2006. understandable, and provides the information necessary for Directors’ Remuneration Report shareholders to assess the Group’s position and performance, In our opinion the part of the Directors’ Remuneration Report to business model and strategy; be audited has been properly prepared in accordance with the • the section of the annual report describing the work of the Audit Companies Act 2006. Committee, including the significant issues that the Audit Committee Disclosures of emerging and principal risks and longer-term considered in relation to the financial statements, and how these viability issues were addressed; and • the section of the annual report that describes the review of the We are required to perform procedures to identify whether there is a effectiveness of the Group’s risk management and internal material inconsistency between the Directors’ disclosures in respect of control systems. emerging and principal risks and the viability statement, and the financial statements and our audit knowledge. We are required to review the part of Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Based on those procedures, we have nothing material to add or draw Corporate Governance Code specified by the Listing Rules for our attention to in relation to: review. We have nothing to report in this respect. • the Directors’ confirmation within the long-term viability statement on pages 56 and 57 that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity; • the Principal Risks disclosures describing these risks and how emerging risks are identified, and explaining how they are being managed and mitigated; and the Directors’ explanation in the long-term viability statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Croda International Plc ## 118 Annual Report and Accounts 2021 Croda International Plc ## 118 Annual report and Accounts 2021 ### Financial statements (continued) ### Financial statements ### 8. We have nothing to report on the other matters 10. The purpose of our audit work and to whom we Independent Auditor’s Report to the Members of Croda International Plc (continued) on which we are required to report by exception owe our responsibilities Under the Companies Act 2006, we are required to report to you if, in This report is made solely to the Company’s members, as a body, in our opinion: accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our 7. We have nothing to report on the other We are also required to review the long-term viability statement, audit work has been undertaken so that we might state to the • adequate accounting records have not been kept by the parent set out on pages 56 and 57 under the Listing Rules. Based on the Company’s members those matters we are required to state to them in ### information in the Annual Report Company, or returns adequate for our audit have not been received above procedures, we have concluded that the above disclosures an auditor’s report and for no other purpose. To the fullest extent from branches not visited by us; or The Directors are responsible for the other information presented in the are materially consistent with the financial statements and our permitted by law, we do not accept or assume responsibility to anyone • the parent Company financial statements and the part of Annual Report together with the financial statements. Our opinion on audit knowledge. other than the Company and the Company’s members, as the Directors’ Remuneration Report to be audited are not the financial statements does not cover the other information Our work is limited to assessing these matters in the context of only the a body, for our audit work, for this report, or for the opinions we in agreement with the accounting records and returns; or and, accordingly, we do not express an audit opinion or, except as knowledge acquired during our financial statements audit. As we have formed. • certain disclosures of Directors’ remuneration specified by law are explicitly stated below, any form of assurance conclusion thereon. cannot predict all future events or conditions and as subsequent events not made; or Our responsibility is to read the other information and, in doing so, may result in outcomes that are inconsistent with judgements that were • we have not received all the information and explanations consider whether, based on our financial statements audit work, reasonable at the time they were made, the absence of anything to we require for our audit. the information therein is materially misstated or inconsistent with report on these statements is not a guarantee as to the Group’s and the financial statements or our audit knowledge. Based solely on We have nothing to report in these respects. parent Company’s longer-term viability. that work we have not identified material misstatements in the | | Corporate governance disclosures | 9. Respective responsibilities | | | --- | --- | --- | --- | | other information. | | | Ian Griffiths (Senior Statutory Auditor) | | | We are required to perform procedures to identify whether there is a | Directors’ responsibilities | for and on behalf of KPMG LLP, Statutory Auditor | Strategic Report and Directors’ Report material inconsistency between the Directors’ corporate governance As explained more fully in their statement set out on page 111, Chartered Accountants Based solely on our work on the other information: disclosures and the financial statements and our audit knowledge. the Directors are responsible for: the preparation of the financial 15 Canada Square • we have not identified material misstatements in the Strategic Report London Based on those procedures, we have concluded that each of the statements including being satisfied that they give a true and fair view; and the Directors’ Report; E14 5GL following is materially consistent with the financial statements and our such internal control as they determine is necessary to enable the • in our opinion the information given in those reports for the financial 28 February 2022 audit knowledge: preparation of financial statements that are free from material year is consistent with the financial statements; and misstatement, whether due to fraud or error; assessing the Group and • the Directors’ statement that they consider that the Annual Report • in our opinion those reports have been prepared in accordance with parent Company’s ability to continue as a going concern, disclosing, as and financial statements taken as a whole is fair, balanced and the Companies Act 2006. applicable, matters related to going concern; and using the going understandable, and provides the information necessary for Directors’ Remuneration Report concern basis of accounting unless they either intend to liquidate the shareholders to assess the Group’s position and performance, Group or the parent Company or to cease operations, or have no In our opinion the part of the Directors’ Remuneration Report to business model and strategy; realistic alternative but to do so. be audited has been properly prepared in accordance with the • the section of the annual report describing the work of the Audit Companies Act 2006. Committee, including the significant issues that the Audit Committee Auditor’s responsibilities Disclosures of emerging and principal risks and longer-term considered in relation to the financial statements, and how these Our objectives are to obtain reasonable assurance about whether the viability issues were addressed; and financial statements as a whole are free from material misstatement, • the section of the annual report that describes the review of the whether due to fraud or error, and to issue our opinion in an auditor’s We are required to perform procedures to identify whether there is a effectiveness of the Group’s risk management and internal report. Reasonable assurance is a high level of assurance, but does not material inconsistency between the Directors’ disclosures in respect of control systems. guarantee that an audit conducted in accordance with ISAs (UK) will emerging and principal risks and the viability statement, and the always detect a material misstatement when it exists. Misstatements financial statements and our audit knowledge. We are required to review the part of Corporate Governance Statement can arise from fraud or error and are considered material if, individually relating to the Group’s compliance with the provisions of the UK Based on those procedures, we have nothing material to add or draw or in aggregate, they could reasonably be expected to influence the Corporate Governance Code specified by the Listing Rules for our attention to in relation to: economic decisions of users taken on the basis of the financial review. We have nothing to report in this respect. • the Directors’ confirmation within the long-term viability statement on statements. pages 56 and 57 that they have carried out a robust assessment of A fuller description of our responsibilities is provided on the FRC’s the emerging and principal risks facing the Group, including those website at www.frc.org.uk/auditorsresponsibilities. that would threaten its business model, future performance, solvency and liquidity; • the Principal Risks disclosures describing these risks and how emerging risks are identified, and explaining how they are being managed and mitigated; and the Directors’ explanation in the long-term viability statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Croda International Plc ## Annual Report and Accounts 2021 119 Croda International Plc Croda International Plc ## 118 Annual report and Accounts 2021 119 Annual report and Accounts 2021 ### Financial statements (continued) ### Group Consolidated Statements ### Group Income Statement for the year ended 31 December 2021 Reported Reported Adjusted Adjustments Total Adjusted Adjustments Total Note £m £m £m £m £m £m 3 468.6 (30.4) 438.2 319.6 (29.6) 290.0 4 (24.9) (3.3) (28.2) (19.5) (1.5) (21.0) 4 1.5 – 1.5 0.5 – 0.5 445.2 (33.7) 411.5 300.6 (31.1) 269.5 5 (94.4) 5.7 (88.7) (72.4) 4.5 (67.9) -controlling interests 2.0 – 2.0 – – – 348.8 (28.0) 320.8 228.2 (26.6) 201.6 350.8 (28.0) 322.8 228.2 (26.6) 201.6 Adjustments relate to exceptional items, amortisation of intangible assets arising on acquisition and the tax thereon. Details are disclosed in note 3. 7 250.0 230.0 175.5 155.1 7 249.5 229.5 175.3 154.8 ### Group Statement of Comprehensive Income for the year ended 31 December 2021 Note £m £m 322.8 201.6 income/(expense): -retirement 11 40.6 51.3 5 (8.3) (9.7) (63.0) (15.0) 292.1 228.2 292.1 228.2 Croda International Plc | | | 2021 2021 2021 2020 2020 2020 | | | | --- | --- | --- | --- | --- | | | | | 120 | Annual Report and Accounts 2021 | | Items that will not be reclassified Remeasurements of post Items that may be reclassified | | | | | | | | 2021 2020 | | | | Financial income Attributable to: Cost of sales Basic Cash flow hedging Other comprehensive (expense)/income for the year Owners of the parent Arising from: Gross profit Operating costs Profit after tax for the year Non Owners of the parent Profit after tax for the year subsequently to profit or loss: Total comprehensive income for the year Attributable to: Non-controlling interests Revenue Operating profit Financial costs Profit before tax Tax Diluted Other comprehensive benefit obligations Tax on items that will not be reclassified subsequently to profit or loss: Currency translation Cost of hedging reserve Tax on items that may be reclassified Continuing operations Earnings per 10.61p ordinary share | 1,889.6 1,889.6 1,390.3 1,390.3 (950.7) (950.7) (470.3) (500.7) (758.2) (758.2) (312.5) (342.1) Pence Pence | 290.0 228.1 292.1 228.2 938.9 938.9 632.1 632.1 350.8 322.8 228.2 201.6 292.1 228.2 Pence Pence (30.7) (30.4) (28.0) (61.1) (29.6) (26.6) (15.0) 26.6 32.3 41.6 (6.0) 3.7 2.1 0.1 0.4 | 20 20 – – – – – 2 1 – – – 5 – | | Croda International Plc ## 120 Annual report and Accounts 2021 ### Financial statements (continued) ### Financial statements ### Group Balance Sheet ### Group Consolidated Statements at 31 December 2021 Note £m £m ### Group Income Statement -current assets for the year ended 31 December 2021 12 1,271.6 1,311.7 Reported Reported 13 988.1 900.8 Adjusted Adjustments Total Adjusted Adjustments Total 14 87.9 80.1 Note £m £m £m £m £m £m 16 3.3 5.2 6 13.5 14.5 11 35.3 17.6 | | 3 468.6 (30.4) | | 438.2 319.6 (29.6) | | | 290.0 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 4 (24.9) | | (3.3) | (28.2) | (19.5) | (1.5) | (21.0) | | | | | | | | | | | 18 | 289.9 | 4 1.5 – 1.5 0.5 – 0.5 20 106.5 445.2 (33.7) 411.5 300.6 (31.1) 269.5 893.7 699.0 5 (94.4) 5.7 (88.7) (72.4) 4.5 (67.9) 19 (358.0) (240.5) -controlling interests 2.0 – 2.0 – – – | | | | | | | 20 (50.9) | (49.1) | | --- | --- | --- | --- | --- | --- | --- | --- | | 348.8 (28.0) | | 320.8 228.2 (26.6) | 201.6 | | | | | | | | | | | 14 (12.2) | | (10.7) | | | 350.8 (28.0) | 322.8 228.2 (26.6) | 201.6 | | | | | | | | | | 21 (5.5) | | | (6.7) | Adjustments relate to exceptional items, amortisation of intangible assets arising on acquisition and the tax thereon. Details are disclosed in note 3. (33.3) (38.4) 353.6 -current liabilities 7 250.0 230.0 175.5 155.1 20 (794.6) (776.2) 14 (78.3) (71.0) 7 249.5 229.5 175.3 154.8 | | 19 (12.3) | | (27.1) | | --- | --- | --- | --- | | | | 11 (27.4) | (49.9) | | 21 (3.6) | | | (3.9) | ### Group Statement of Comprehensive Income liabilities 6 (151.4) (160.3) for the year ended 31 December 2021 (1,067.6) (1,088.4) Note £m £m 322.8 201.6 22 15.1 15.1 income/(expense): 24 1.1 1.1 16.2 16.2 | | -retirement | | | | | 707.7 707.7 | | --- | --- | --- | --- | --- | --- | --- | | 11 40.6 | | | | 51.3 | 1,029.2 861.9 | | | | | 5 (8.3) | (9.7) | | | | 1,595.1 The financial statements on pages 120 to 161 were signed on behalf of the Board who approved the accounts on 28 February 2022. (63.0) (15.0) 292.1 228.2 292.1 228.2 Croda International Plc | | | | | 2021 | 2021 | | | 2021 | | 2020 | 2020 | | | 2020 | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | | | | | | | | | | | Annual Report and Accounts 2021 | 121 | | | | | | | | | | | | | | | | | | Anita Frew Jez Maiden | | | | | | | | Items that will not be reclassified Remeasurements of post Items that may be reclassified | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2021 | | | | | | 2020 | | | | 2021 2020 | | | | | | | | | | | | | | | | | | | | | | Chair Group Finance Director | | | | | | | | Cost of sales Financial income Attributable to: Basic Cash flow hedging Other comprehensive (expense)/income for the year Owners of the parent Arising from: Revenue Gross profit Operating costs Operating profit Financial costs Profit before tax Tax Profit after tax for the year Non Owners of the parent Diluted Profit after tax for the year Other comprehensive subsequently to profit or loss: benefit obligations Tax on items that will not be reclassified subsequently to profit or loss: Currency translation Cost of hedging reserve Tax on items that may be reclassified Total comprehensive income for the year Attributable to: Non-controlling interests Continuing operations Earnings per 10.61p ordinary share | | 1 2 | 1,889.6 (950.7) (470.3) | Pence 938.9 350.8 | (30.4) (28.0) | 20 20 – – – 5 | 1,889.6 (950.7) (500.7) | Pence 290.0 292.1 938.9 322.8 292.1 (30.7) (61.1) 32.3 (6.0) 3.7 0.4 2.1 | 1,390.3 (758.2) (312.5) | 632.1 228.2 Pence | (29.6) (26.6) | – – – | 1,390.3 (758.2) (342.1) | 228.1 228.2 632.1 201.6 228.2 Pence (15.0) 26.6 41.6 0.1 | – – – | Investments Lease liabilities Lease liabilities Non-controlling interests in equity Intangible assets Provisions Preference share capital Reserves Inventories Current liabilities Deferred tax assets Retirement benefit assets Current assets Provisions Current tax liabilities Net current assets Other payables Retirement benefit liabilities Share capital Share premium account Assets Non Property, plant and equipment Right of use assets Trade and other receivables Cash and cash equivalents Liabilities Trade and other payables Borrowings and other financial liabilities Non Borrowings and other financial liabilities Deferred tax Net assets Equity Ordinary share capital Equity attributable to owners of the parent Total equity | 2,399.7 2,329.9 1,765.9 1,595.1 1,753.1 1,585.8 1,765.9 (459.9) (345.4) | 443.0 302.6 433.8 337.9 112.8 12.8 9.3 26 17 | | | | | | | Croda International Plc | | | | | | | | | | | | | | | | | | | Croda International Plc | | | | 120 | Annual report and Accounts 2021 | | | | | | | | | | | | | | | 121 | | | Annual report and Accounts 2021 | | | | ### Financial statements (continued) ### Group Consolidated Statements (continued) ### Group Statement of Cash Flows for the year ended 31 December 2021 Note £m £m generated from operating activities by operations ii 479.0 375.2 (19.8) (17.5) (111.5) (70.7) and other investments 16 (1.5) 13 (115.0) 0.2 -operating provisions 21 (1.7) (216.2) (991.9) 320.2 438.7 (282.6) (201.4) 14 (14.4) (7.6) – 615.5 | -controlling interests (0.7) | | | | | – | | --- | --- | --- | --- | --- | --- | | | | (2.4) | | | (6.9) | | | | | 8 (132.5) | (115.9) | | | | -controlling interests (0.2) | | | | – | i,iii 17.5 equivalents brought forward 63.1 94.3 77.8 77.8 Croda International Plc | | | 122 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | | | 2021 2020 | | | | Acquisition of subsidiaries, net of cash acquired Repayment of borrowings Exchange differences Interest paid Net cash generated from operating activities Acquisition of non Dividends paid to non Cash at bank and in hand Purchase of other intangible assets Interest received Acquisition of associates Purchase of property, plant and equipment Net cash used in investing activities Payment of lease liabilities Issue of ordinary shares Net cash used in financing activities Cash Cash generated Tax paid Cash flows from investing activities Proceeds from sale of property, plant and equipment Cash paid against non Cash flows from financing activities New borrowings Net transactions in own shares Dividends paid to equity shareholders Net movement in cash and cash equivalents Cash and cash Cash and cash equivalents carried forward Cash and cash equivalents carried forward comprise: Bank overdrafts | (153.0) (112.6) (868.2) 347.7 287.0 112.8 106.5 722.4 (58.1) (18.5) (28.7) 94.3 18.9 77.8 (2.4) (5.7) (1.1) (2.8) (6.2) 1.5 0.5 0.2 | 28 12 iii – | | Croda International Plc ## 122 Annual report and Accounts 2021 ### Financial statements (continued) ### Financial statements ### Group Cash Flow Notes ### Group Consolidated Statements (continued) for the year ended 31 December 2021 (i) Reconciliation to net debt ### Group Statement of Cash Flows Note £m £m ovement in cash and cash equivalents iii 18.9 17.5 for the year ended 31 December 2021 ovement in borrowings and other financial liabilities iii (23.2) (229.7) Note £m £m generated from operating activities by operations ii 479.0 375.2 | | (19.8) | (17.5) | | | | --- | --- | --- | --- | --- | | (111.5) | | (70.7) | | (252.8) | | | | | iii (823.2) | (800.5) | (ii) Cash generated by operations and other investments 16 (1.5) 2021 2020 468.6 319.6 iv 3.9 (16.0) 0.2 arising on acquisition (34.3) (13.6) 438.2 290.0 | (216.2) | (991.9) | | | | | --- | --- | --- | --- | --- | | | | Depreciation and amortisation | 113.3 81.8 | | | | | Fair value movement on contingent consideration | (6.2) | – | | | | Impairments | 1.1 1.4 | | 320.2 438.7 | | | Loss on disposal and write-offs of intangible assets and property, plant and equipment | 5.8 – | | --- | --- | --- | --- | | (282.6) | (201.4) | | | | | | Net provisions charged 21 | 1.6 4.2 | | 14 (14.4) | (7.6) | | | | | | Share-based payments | 29.1 4.1 | – 615.5 | | | | | | | Non-cash pension expense | | | – 7.7 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | -controlling interests (0.7) | | | | | – | | | | | | | | | | | | | Share of loss of associate | | | 0.7 1.1 | | | | | (2.4) | | (6.9) | | | | | | | | | | | | | | | | 21 (2.1) | | (7.8) | | | | | 8 (132.5) | (115.9) | | | | | | | | | | | | | | | (140.9) | | | (7.0) | | | -controlling interests (0.2) | | | | – | | | | | | | | | | | | | | (53.2) | | | (15.6) | 91.6 15.3 i,iii 17.5 (iii) Analysis of net debt 94.3 77.8 2021 flow movements non-cash 2020 £m £m £m £m £m | | | 18.9 (2.4) | | | – | | | --- | --- | --- | --- | --- | --- | --- | | | (32.4) | 3.1 (0.5) | | (14.6) | | (20.4) | | | one year (794.6) | (40.7) | 13.4 8.9 (776.2) | | | | | (90.5) | | 14.4 0.9 (24.1) | | | | (81.7) | | | | (23.2) | 13.8 (29.8) | | | | Included within other non-cash movements are £17.7m of lease liabilities recognised in the year. (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 £16.0m (2020: £16.7m). Details of exceptional items can be found in note 3 on page 133. Croda International Plc | | | | | | | | | | | | | Annual Report and Accounts 2021 | 123 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | Exchange | Other Cash | | | | | | | | | | 2021 | | 2020 | | | 2021 2020 | | | | | | | Interest paid Net cash generated from operating activities Acquisition of subsidiaries, net of cash acquired Repayment of borrowings Acquisition of non Dividends paid to non Exchange differences Cash at bank and in hand Purchase of other intangible assets Interest received Cash Cash generated Tax paid Cash flows from investing activities Acquisition of associates Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Cash paid against non-operating provisions Net cash used in investing activities Cash flows from financing activities New borrowings Payment of lease liabilities Issue of ordinary shares Net transactions in own shares Dividends paid to equity shareholders Net cash used in financing activities Net movement in cash and cash equivalents Cash and cash equivalents brought forward Cash and cash equivalents carried forward Cash and cash equivalents carried forward comprise: Bank overdrafts | | 28 12 13 21 iii | (153.0) (112.6) 347.7 112.8 (58.1) (18.5) 18.9 77.8 94.3 (2.4) (5.7) (1.1) 1.5 0.2 | – | (868.2) (115.0) 287.0 106.5 722.4 (28.7) 63.1 77.8 (2.8) (6.2) (1.7) 0.5 | Non-cash movement in lease liabilities Cash and cash equivalents Net debt brought forward Exceptional items Adjustments for: Cash paid against operating provisions Movement in payables Lease liabilities Total net debt Net m Net m Exchange differences Net debt carried forward Operating profit Cash generated by operations Bank overdrafts Borrowings repayable within one year Borrowings repayable after more than Change in net debt from cash flows Loans in acquired businesses Adjusted operating profit Amortisation of intangible assets Movement in inventories Movement in receivables Movement in cash and cash equivalents Movement in borrowings and other financial liabilities | | (800.5) (823.2) (547.7) (800.5) (212.2) 112.8 106.5 479.0 375.2 (24.1) (47.8) (29.8) (18.5) (28.7) (22.7) 11.4 11.4 10.2 Note (4.3) (4.3) (5.7) (2.4) 8.7 7.2 | £m £m – – – – | | | | | | | Croda International Plc | | | | | | | | | | Croda International Plc | | | | 122 | Annual report and Accounts 2021 | | | | | 123 | | | | Annual report and Accounts 2021 | | | | ### Financial statements (continued) ### Group Consolidated Statements (continued) ### Group Statement of Changes in Equity for the year ended 31 December 2021 Share premium Other Retained controlling Total capital account reserves earnings interests equity Note £m £m £m £m £m £m 15.1 93.3 34.4 718.8 7.0 868.6 – – – 201.6 – 201.6 (expense)/income – – (15.1) 41.6 0.1 26.6 8 – – – (115.9) – (115.9) 1.1 614.4 – – – 615.5 own shares – – – (6.9) – (6.9) 1.1 614.4 – (119.4) – 496.1 non-controlling interest – – – – 2.2 2.2 16.2 707.7 19.3 842.6 9.3 1,595.1 – – (63.1) 353.1 2.1 292.1 8 – – – (132.5) – (132.5) -based payments – – – 12.7 – 12.7 own shares – – – (2.4) – (2.4) – – – (122.2) – (122.2) – – – (0.5) 1.4 0.9 1 16.2 707.7 (43.8) 1,073.0 12.8 1,765.9 Other reserves include the Capital Redemption Reserve of £0.9m (2020: £0.9m), the Hedging Reserve of £3 .0m (2020: £Nil), the Cost of Hedging Reserve of £(4.9)m (2020: £Nil) and the Translation Reserve of £(42.8)m (2020: £18.4m). Croda International Plc | | Share Non- | | | | | --- | --- | --- | --- | --- | | | | | 124 | Annual Report and Accounts 2021 | | Total changes in ownership interests Total equity at 31 December 2020 At 1 January 2021 Acquisition of a subsidiary with a non-controlling interest Share-based payments At 1 January 2020 Other comprehensive Other comprehensive (expense)/income Share Dividends paid to non-controlling interests Changes in ownership interests: Total comprehensive (expense)/income for the year Issue of ordinary shares Transactions in Profit after tax for the year Total transactions with owners Acquisition of a non-controlling interest Issue of share capital Profit after tax for the year Transactions with owners: Dividends on equity shares Total transactions with owners Acquisition of a subsidiary with a Total comprehensive (expense)/income for the year Transactions with owners: Dividends on equity shares Transactions in Changes in ownership interests: Total changes in ownership interests Total equity at 31 December 202 | 1,595.1 707.7 842.6 243.2 320.8 228.2 322.8 (63.1) (15.1) 16.2 19.3 32.3 (30.7) | (0.2) (0.5) (0.2) 2.2 9.3 1.6 3.4 0.1 0.1 2.0 0.2 (0.2) (0.7) 2.2 1.6 3.4 0.2 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – | | | Croda International Plc ## 124 Annual report and Accounts 2021 ### Group Accounting Policies ### Financial statements (continued) ### Financial statements The principal accounting policies adopted in the preparation of these Climate change ### Group Consolidated Statements (continued) financial statements are set out below. These policies have been The Group has long recognised the scale of the climate emergency and consistently applied to all the years presented, unless otherwise stated. considers this to offer both opportunities and risks in the future. The Group’s current climate change strategy focuses on reducing its carbon ### Basis of preparation footprint and increasing its use of bio-based raw materials, whilst the ### Group Statement of Changes in Equity The consolidated financial statements have been prepared under the benefits in using its ingredients will enable more carbon to be saved than historical cost convention, in accordance with applicable law and UK- for the year ended 31 December 2021 were emitted through operations and supply chain. adopted international accounting standards. A summary of the more important Group accounting policies is set out below. The impact of climate change has been considered in the preparation of Share premium Other Retained controlling Total these financial statements across a number of areas, including our Going concern capital account reserves earnings interests equity evaluation of critical accounting estimates and judgements which are Note £m £m £m £m £m £m The ongoing impact of COVID-19 and the broader consequences on the detailed below, consistent with the risks and opportunities set out on 15.1 93.3 34.4 718.8 7.0 868.6 markets in which the Group operates have been considered in the page 43. None of these risks had a material effect on the consolidated preparation of the financial statements including our evaluation of critical financial statements of the Group. The Group will continue developing its – – – 201.6 – 201.6 accounting estimates and judgements which are detailed below. The assessment of the impact that climate change has on the assets and financial statements on pages 120 to 161 have been prepared on a (expense)/income – – (15.1) 41.6 0.1 26.6 liabilities recognised and presented in its financial statements. going concern basis which the Directors believe to be appropriate for Critical accounting judgements and key sources of estimation the following reasons: uncertainty In 2021, the Group successfully extended the existing 2019 Club facility The Group’s significant accounting policies under UK-adopted by a further year, resetting its five-year term and resulting in a maturity international accounting standards have been set by management with date of October 2026. At 31 December 2021 the Group had £1,226m the approval of the Audit Committee. The application of these policies of committed debt facilities available from its banking group, USPP 1.1 614.4 – – – 615.5 requires estimates and assumptions to be made concerning the future bondholders and lease providers, with principal maturities between and judgements to be made on the applicability of policies to particular 2023 and 2030, of which £334.4m (2020: £378.3m) was undrawn, situations. Estimates and judgements are continually evaluated and 1.1 614.4 – (119.4) – 496.1 together with cash balances of £112.8m (2020: £106.5m). are based on historical experience and other factors, including The Directors have reviewed the liquidity and covenant forecasts for the expectations of future events that are believed to be reasonable under Group’s going concern assessment period covering at least 12 months the circumstances. non-controlling interest – – – – 2.2 2.2 from the date of approval of the financial statements. The Directors have Under UK-adopted international accounting standards an estimate or also considered sensitivities in respect of potential downside scenarios, judgement may be considered critical if it involves matters that are highly and the mitigating actions available, in concluding that the Group is able uncertain or where different estimation methods could reasonably have to continue in operation for a period of at least 12 months from the date 16.2 707.7 19.3 842.6 9.3 1,595.1 been used, or if changes in the estimate that would have a material of approving the financial statements. These sensitivities include a impact on the Group’s results are likely to occur from period to period. severe but plausible downside scenario, alongside an additional The critical accounting judgement required when preparing the Group’s scenario considered to be severe but remote. Relative to a base case accounts is as follows: scenario, the sensitivities assume increasingly pessimistic outlooks for global demand, coupled with slower economic recoveries. In the severe (i) Business disposal – the Group has signed an agreement to sell the downside scenario, demand falls below average 2021 levels throughout majority of its Performance Technologies and Industrial Chemicals – – (63.1) 353.1 2.1 292.1 2022 and 2023. Furthermore, both downside scenarios also assume a businesses. Whilst completion of the sale is considered highly material increase in working capital, due to inventory build and higher probable, the Group’s assessment that the disposal group is not customer receivables, and substantial margin erosion, predicated on a available for sale in its present condition is a key judgement in further deterioration in the economic conditions. determining that the disposal group is not classified as an asset held 8 – – – (132.5) – (132.5) for sale at 31 December 2021. The divested business, comprising -based payments – – – 12.7 – 12.7 Based on 2021 results, reverse stress testing assesses that adjusted five manufacturing facilities, together with associated laboratory own shares – – – (2.4) – (2.4) operating profit would need to fall by 69% to trigger an event of default, facilities and sales operations, currently forms part of Croda’s before consideration of available actions to conserve cash. The – – – (122.2) – (122.2) integrated operating model and work is ongoing to separate the Directors do not consider this a plausible scenario. In considering the disposal group, with completion of the transaction expected in suitability of these scenarios, the Directors have considered, among summer 2022. other factors, the impact of the risk scenario combinations that form part of the viability statement. In the downside scenarios, the Group continues to have significant liquidity headroom and good financial covenant headroom under its debt facilities. Excluded from the above scenario testing, the Directors have – – – (0.5) 1.4 0.9 also considered the impact on the Group from the agreement to sell the majority of the Performance Technologies and Industrial Chemicals 1 16.2 707.7 (43.8) 1,073.0 12.8 1,765.9 businesses for total consideration of €915m. The disposal will have a significant positive impact on Croda’s leverage and liquidity in the short Other reserves include the Capital Redemption Reserve of £0.9m (2020: £0.9m), the Hedging Reserve of £3.0m (2020: £Nil), the Cost of Hedging Reserve of £(4.9)m (2020: £Nil) and the Translation Reserve of £(42.8)m (2020: £18.4m). to medium term. The Directors are therefore satisfied that the Group has sufficient resources to continue in operation for a period of not less than 12 months from the date of approval of the financial statements. Accordingly, the consolidated financial statements have been prepared on a going concern basis. Croda International Plc | | | | | | Share | | | | | | Non- | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | | | | | | Annual Report and Accounts 2021 | 125 | | At 1 January 2020 Other comprehensive Total changes in ownership interests Total equity at 31 December 2020 At 1 January 2021 Other comprehensive (expense)/income Share Acquisition of a subsidiary with a non-controlling interest Dividends paid to non-controlling interests Share-based payments Changes in ownership interests: Profit after tax for the year Total comprehensive (expense)/income for the year Transactions with owners: Dividends on equity shares Issue of ordinary shares Transactions in own shares Total transactions with owners Acquisition of a subsidiary with a Profit after tax for the year Total comprehensive (expense)/income for the year Transactions with owners: Dividends on equity shares Transactions in Total transactions with owners Changes in ownership interests: Acquisition of a non-controlling interest Issue of share capital Total changes in ownership interests Total equity at 31 December 202 | | 8 | 16.2 | – – – – – – – – – – – | 707.7 | – – – – – – – – – – – | (63.1) (15.1) 19.3 | – – – – – – – – – | (115.9) 842.6 243.2 320.8 | 32.3 (6.9) (0.5) 3.4 – – – – | (0.2) (0.2) 2.2 9.3 0.1 1.6 0.1 2.0 0.2 | – – – | 1,595.1 | (115.9) 228.2 322.8 (30.7) (0.2) (6.9) (0.7) 2.2 1.6 3.4 0.2 | | | | | | Croda International Plc | | | | | | | | | | | | | | Croda International Plc | | | | 124 | Annual report and Accounts 2021 | | | | | | | | | | | | | | 125 Annual report and Accounts 2021 | | | ## Financial statements (continued) ### Group Accounting Policies (continued) The critical accounting estimates and assumptions required when preparing the Group's accounts are as follows: - (i) Post-retirement benefits – as disclosed in note 11, the Group's principal retirement benefit schemes are of the defined benefit type. Year end recognition of the liabilities under these schemes and the valuation of assets held to fund these liabilities require a number of significant assumptions to be made, relating to key financial market indicators such as inflation and expectations on future salary growth and asset returns. These assumptions are made by the Group in conjunction with the schemes' actuaries and the Directors are of the view that any estimation should be appropriate and in line with consensus opinion. - (ii) Goodwill impairment – management are required to undertake an annual test for impairment of indefinite fixed assets such as goodwill. Accordingly, the Group tests annually whether goodwill has suffered any impairment and the Group's goodwill value has been supported by the fair value less cost to sell or detailed value in use calculations relating to the recoverable amounts of the underlying Cash Generating Units ('CGUs'). These value in use calculations require the use of estimates to enable the calculation of the net present value of cash flow projections of the relevant CGU. The critical assumptions are as follows: - Terminal value growth in EBITDA (calculated as operating profit before depreciation and amortisation) – estimated at 3% unless the profile of a particular CGU warrants a different treatment. - Selection of appropriate market participant discount rates to reflect the risks specific to the CGU. - Specific cash flow projections including key assumptions on revenue growth and operating margins – generally over a five-year period unless the profile of a particular CGU warrants a longer period. Recoverable amounts currently exceed carrying values including goodwill; however, testing did identify that reasonable possible changes in key assumptions would cause the recoverable amount of the Iberchem CGUs to be less than the carrying value. The assumptions selected and associated sensitivity analysis are disclosed in note 12. Due to the nature of the Iberchem business, including its low carbon footprint, the key assumptions were not materially impacted by the climate change risks and opportunities set out in the annual report on page 43. #### Changes in accounting policy - (i) A number of new amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2021 and have been applied in preparing these consolidated financial statements. None of these had a significant effect on the consolidated financial statements of the Group. - (ii) New standards and interpretations not yet adopted – a number of new standards and amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2022 and have not been applied in preparing these consolidated financial statements. The Group is assessing the impact of these new standards and the Group's financial reporting will be presented in accordance with these standards from 1 January 2022 or 1 January 2023 as applicable. ## Group accounts #### General information Croda International Plc is a public limited company, which is listed on the London Stock Exchange and incorporated and domiciled in the United Kingdom. It is registered in England and Wales and the address of its registered office can be found on page 172. #### Subsidiaries Subsidiaries are all entities over which the Parent Company has control. The Parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. Acquisition costs are expensed as incurred. Identifiable assets acquired, and liabilities and contingent liabilities assumed, in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the Group's share of identifiable net assets acquired is recorded as goodwill. Intra-Group transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. #### Transactions with non-controlling interests The Group treats transactions with non-controlling interests as transactions with the equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded as equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. 126 Croda International Plc Annual Report and Accounts 2021 ## Intangible assets ### Goodwill On acquisition of a business, fair values are attributed to the net assets acquired. Goodwill arises where the fair value of the consideration given for a business exceeds such net assets. Goodwill arising on acquisitions is capitalised and carried at cost less accumulated impairment losses. Goodwill is subject to impairment review, both annually and when there are indications that the carrying value may not be recoverable. For the purpose of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows, known as CGUs. Goodwill is allocated to the CGU that is expected to benefit from the synergies of the acquisition. For goodwill balances where the relevant group of CGUs exceeds the size of the Group's operating segments, impairment testing is performed at the operating segment level. If the recoverable amount of the CGU is less than the carrying value of the goodwill, an impairment loss is recognised immediately against the goodwill value. The recoverable amount of the CGU is the higher of fair value less costs to sell and value in use. Fair value less costs to sell is measured on a market-based approach using prices and other relevant information generated by market transactions. Value in use is estimated with reference to estimated future cash flows discounted to net present value using a market participant discount rate that reflects the time value of money and risks specific to the CGU. Typically, the Group's weighted average cost of capital is used as a starting point and then adjusted to reflect the risk profile of a particular CGU if warranted. The Group uses growth estimates that track below the Group's historical growth rates unless the profile of a particular CGU warrants a different treatment. ### Other intangible assets arising on acquisition On acquisition, intangible assets other than goodwill are recognised if they can be identified through being separable from the acquired entity or arising from specific contractual or legal rights. Once recognised, such intangible assets will be initially valued using an appropriate methodology. For acquisitions in 2021 the following intangible asset types recognised and valuation methodologies applied were: - Technology processes (relief-from-royalty and replacement cost) - Customer relationships (income approach) - Trade names and brands (relief-from-royalty) Following initial recognition, the asset will be written down on a straight-line basis over its useful life, which range from 7 to 15 years for technology processes and from 6 to 20 years for trade names, brands and customer relationships. Useful lives are regularly reviewed to ensure their continuing relevance. ### Research and development Research expenditure, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is charged to the income statement in the year in which it is incurred. Internal development expenditure, whereby research findings are applied to a plan for the production of new or substantially improved products or processes, is charged to the income statement in the year in which it is incurred unless it meets the recognition criteria of IAS 38 'Intangible Assets'. Development uncertainties typically mean that such criteria are not met, most commonly because the Group can only demonstrate the existence of a market at a late stage in the product development cycle, at which point the material element of project spend has already been incurred and charged to the income statement. Where, however, the recognition criteria are met, intangible assets are capitalised and amortised over their useful economic lives from product launch. Intangible assets relating to products in development are subject to impairment testing at each balance sheet date or earlier upon indication of impairment. Any impairment losses are written off to the income statement. ### Computer software Computer software licences covering a period of greater than a year are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives which range from 3 to 7 years. ### Revenue recognition Revenue is measured based on the consideration specified in a contract with a customer and excludes intra-Group sales. The Group recognises revenue on completion of contractual performance obligations, generally when it transfers control over a product or service to a customer. ### Sale of goods The principal activity from which the Group generates revenue is the supply of products to customers from its various manufacturing sites and warehouses, and in some limited instances from consignment inventory held on customer sites. Products are supplied under a variety of standard terms and conditions, and in each case, revenue is recognised when contractual performance obligations between the Group and the customer are satisfied. This will typically be on dispatch or delivery. When sales discount and rebate arrangements result in net variable consideration, appropriate provisions are recognised as a deduction from revenue at the point of sale. The Group typically uses the expected value method for estimating rebates, reflecting that such contracts have similar characteristics and a range of possible outcomes. The Group recognises revenue to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue will not be required. ### Interest and dividend income Interest income is recognised on a time-proportion basis using the effective interest method. Dividend income is recognised when the right to receive payment is established. Financial statements Croda International Plc Annual Report and Accounts 2021 127 ### Financial statements (continued) ### Group Accounting Policies (continued) ### Segmental reporting Share-based payments An operating segment is a group of assets and operations engaged in The Group operates a number of cash and equity settled, share-based providing products and services that are subject to risks or returns that incentive schemes. These are accounted for in accordance with IFRS 2 are different from those of other segments. Operating segments ‘Share-based Payments’, which requires an expense to be recognised presented in the financial statements are consistent with the internal in the income statement over the vesting period of the options. The reporting provided to the Group’s Chief Operating Decision Maker, expense is based on the fair value of each instrument which is which has been identified as the Group Executive Committee. calculated using the Black Scholes or binomial model as appropriate. Any expense is adjusted to reflect expected and actual levels of options ### Employee benefits vesting for non-market-based performance criteria. Pension obligations ### Currency translations The Group accounts for pensions and similar benefits under IAS 19 Functional and presentation currency ‘Employee Benefits’ (revised). In respect of defined benefit plans (pension plans that define an amount of pension benefit that an Items included in the financial statements of each of the Group’s entities employee will receive on retirement, usually dependent on one or more are measured using the currency of the primary economic environment factors such as age, years of service and compensation), obligations are in which the entity operates (‘the functional currency’). The consolidated measured at discounted present value whilst plan assets are recorded financial statements are presented in Sterling, which is the Company’s at fair value. The assets and liabilities recognised in the balance sheet in functional and presentation currency. respect of defined benefit pension plans are the net of plan obligations Transactions and balances and assets. A scheme surplus is only recognised as an asset in the Monetary assets and liabilities are translated at the exchange rates ruling balance sheet when the Group has the unconditional right to future at the end of the financial period. Exchange profits or losses on trading economic benefits in the form of a refund or a reduction in future transactions are included in the Group income statement except contributions. For those schemes where an accounting surplus is when deferred in equity as qualifying cash flow hedges and qualifying currently recognised, the Group expects to recover the value through net investment hedges. reduced future contributions. No allowance is made in the past service Group companies liability in respect of either the future expenses of running the schemes or for non service-related death in service benefits which may arise in The results and financial position of all the Group entities that have a functional currency different from the presentation currency are the future. The operating costs of such plans are charged to operating translated into the presentation currency as follows: profit and the finance costs are recognised as financial income or an expense as appropriate. (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; Service costs are spread systematically over the lives of employees and financing costs are recognised in the periods in which they arise. (ii) income and expenses for each income statement are translated at Remeasurements are recognised in the statement of comprehensive average exchange rates (unless this average is not a reasonable income. Payments to defined contribution schemes (pension plans approximation of the cumulative effect of the rates prevailing on the under which the Group pays fixed contributions into a separate entity) transaction dates, in which case income and expenses are are charged as an expense as they fall due. translated at the dates of the transactions); and Other post-retirement benefits (iii) all resulting exchange differences are recognised as a separate Some Group companies provide post-retirement healthcare benefits to component of equity. their retirees. The entitlement to these benefits is usually conditional on On consolidation, exchange differences arising from the translation of the employee remaining in service up to retirement age and the the net investment in foreign entities, and of borrowings and other completion of a minimum service period. The expected costs of these currency instruments designated as hedges of such investments, are benefits are accrued over the period of employment using an accounting taken to shareholders’ equity. methodology similar to that for defined benefit pension plans. When a foreign operation is sold, such exchange differences are Remeasurements are recognised in the statement of comprehensive recognised in the income statement as part of the gain or loss on sale. income. These obligations are valued annually by independent qualified actuaries. Termination benefits Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either (i) terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or (ii) providing termination benefits as a result of an offer made to encourage voluntary redundancy. Croda International Plc ## 128 Annual Report and Accounts 2021 Croda International Plc ## 128 Annual report and Accounts 2021 ### Financial statements (continued) ### Financial statements ### Taxation Reviews are made annually of the estimated remaining lives and residual ### Group Accounting Policies (continued) values of individual productive assets, taking account of commercial and The charge for taxation is based on the profit for the year and takes into technological obsolescence as well as normal wear and tear, and account taxation deferred because of temporary differences between adjustments are made where appropriate. Under this policy it becomes the treatment of certain items for taxation and for accounting purposes. impractical to calculate average asset lives exactly. However, the total Share-based payments Temporary differences arise on differences between the carrying value ### Segmental reporting lives range from approximately 15 to 40 years for land and buildings, of assets and liabilities in the financial statements and their tax base An operating segment is a group of assets and operations engaged in The Group operates a number of cash and equity settled, share-based and 3 to 25 years for plant and equipment. All individual assets are and primarily relate to the difference between tax allowances on providing products and services that are subject to risks or returns that incentive schemes. These are accounted for in accordance with IFRS 2 reviewed for impairment when there are indications that the carrying tangible fixed assets and the corresponding depreciation charge, and are different from those of other segments. Operating segments ‘Share-based Payments’, which requires an expense to be recognised value may not be recoverable. The Group’s ‘plant and equipment’ asset upon the net pension fund deficit. Full provision is made for the tax presented in the financial statements are consistent with the internal in the income statement over the vesting period of the options. The class predominantly relates to the value of plant and equipment at effects of these differences. No provision is made for unremitted reporting provided to the Group’s Chief Operating Decision Maker, expense is based on the fair value of each instrument which is the Group’s manufacturing facilities. Consequently, the Group does not earnings of foreign subsidiaries where there is no commitment to remit which has been identified as the Group Executive Committee. calculated using the Black Scholes or binomial model as appropriate. seek to analyse out of this class other items such as motor vehicles and such earnings. Any expense is adjusted to reflect expected and actual levels of options office equipment. ### Employee benefits vesting for non-market-based performance criteria. Similarly, no provision is made for temporary differences relating to ### Pension obligations Impairment of non-financial assets investments in subsidiaries since realisation of such differences can be ### Currency translations The Group accounts for pensions and similar benefits under IAS 19 controlled and is not probable in the foreseeable future. Deferred tax The Group assesses at each year end whether an asset may be Functional and presentation currency ‘Employee Benefits’ (revised). In respect of defined benefit plans assets are recognised, using the balance sheet liability method, to the impaired. If any evidence exists of impairment, the estimated (pension plans that define an amount of pension benefit that an Items included in the financial statements of each of the Group’s entities extent that it is probable that future taxable profit will be available against recoverable amount is compared to the carrying value of the asset and employee will receive on retirement, usually dependent on one or more are measured using the currency of the primary economic environment which the temporary differences can be utilised. an impairment loss is recognised where appropriate. The recoverable factors such as age, years of service and compensation), obligations are in which the entity operates (‘the functional currency’). The consolidated amount is the higher of an asset’s value in use and fair value less All taxation is calculated on the basis of the tax rates and laws enacted measured at discounted present value whilst plan assets are recorded financial statements are presented in Sterling, which is the Company’s costs to sell. In addition to this, goodwill is tested for impairment at least or substantively enacted at the balance sheet date. at fair value. The assets and liabilities recognised in the balance sheet in functional and presentation currency. annually. Non-financial assets other than goodwill which have suffered ### Income statement presentation respect of defined benefit pension plans are the net of plan obligations Transactions and balances impairment are reviewed for possible reversal of the impairment at each and assets. A scheme surplus is only recognised as an asset in the The acquisition of Avanti Polar Lipids, LLC and Fragrance Spanish reporting date. Monetary assets and liabilities are translated at the exchange rates ruling balance sheet when the Group has the unconditional right to future Topco, S.L. (Iberchem) in 2020 increased acquisition costs and ### at the end of the financial period. Exchange profits or losses on trading Leases economic benefits in the form of a refund or a reduction in future amortisation of acquired intangible assets. To avoid distorting the transactions are included in the Group income statement except When entering into a new contract, the Group assesses whether it is, or contributions. For those schemes where an accounting surplus is underlying trend in profitability, the Group adopts the definitions when deferred in equity as qualifying cash flow hedges and qualifying contains, a lease. A lease conveys a right to control the use of an currently recognised, the Group expects to recover the value through ‘Adjusted operating profit’, ‘Adjusted profit before tax’ and ‘Adjusted net investment hedges. identified asset for a period of time in exchange for consideration. reduced future contributions. No allowance is made in the past service earnings per share’. In each case amortisation of intangible assets Group companies liability in respect of either the future expenses of running the schemes arising on acquisition and exceptional items, including the respective tax The Group recognises a right of use asset and a lease liability at the or for non service-related death in service benefits which may arise in The results and financial position of all the Group entities that have a effect, are excluded. The Group income statement has been produced lease commencement date. The right of use asset is initially measured at functional currency different from the presentation currency are in a columnar format to further aid this analysis. cost, and subsequently at cost less any accumulated depreciation and the future. The operating costs of such plans are charged to operating translated into the presentation currency as follows: impairment losses, adjusted for certain remeasurements profit and the finance costs are recognised as financial income or an Exceptional items expense as appropriate. (i) assets and liabilities for each balance sheet presented are translated of the lease liability. Exceptional items are those items that in the Directors’ view are required at the closing rate at the date of that balance sheet; The lease liability is initially measured at the present value of the lease Service costs are spread systematically over the lives of employees and to be separately disclosed by virtue of their size or incidence to enable a financing costs are recognised in the periods in which they arise. (ii) income and expenses for each income statement are translated at full understanding of the Group’s financial performance. In the current payments that are not paid at the commencement date and discounted Remeasurements are recognised in the statement of comprehensive average exchange rates (unless this average is not a reasonable year exceptional items relate to discount unwind and fair value using the interest rate implicit in the lease or, more typically, the Group’s income. Payments to defined contribution schemes (pension plans approximation of the cumulative effect of the rates prevailing on the adjustment in respect of contingent consideration, a pension curtailment incremental borrowing rate (when the implicit rate cannot be readily under which the Group pays fixed contributions into a separate entity) transaction dates, in which case income and expenses are gain (arising from transfer of the Dutch scheme to a collective defined determined). are charged as an expense as they fall due. translated at the dates of the transactions); and contribution arrangement) and acquisition costs and fees incurred in The lease liability is subsequently increased by the interest cost on the preparation of the disposal of part of the PTIC business. Exceptional lease liability and decreased by lease payments made. It is remeasured Other post-retirement benefits (iii) all resulting exchange differences are recognised as a separate items in the prior year related to the delivery of cost saving actions when there is a change in future lease payments arising from a change Some Group companies provide post-retirement healthcare benefits to component of equity. announced in the 2019 full year results, discount unwind in contingent in an index or rate, a change in the estimate of the amount expected to their retirees. The entitlement to these benefits is usually conditional on On consolidation, exchange differences arising from the translation of consideration and acquisition costs. Details can be found in note 3 on be payable under a residual value guarantee or changes in the Group’s the employee remaining in service up to retirement age and the the net investment in foreign entities, and of borrowings and other page 133. assessment of whether a purchase, extension or termination option is completion of a minimum service period. The expected costs of these currency instruments designated as hedges of such investments, are reasonably certain to be exercised. benefits are accrued over the period of employment using an accounting taken to shareholders’ equity. Property, plant and equipment methodology similar to that for defined benefit pension plans. The Group adopts recognition exemptions for short-term (less than When a foreign operation is sold, such exchange differences are Property, plant and equipment is stated at historical cost less Remeasurements are recognised in the statement of comprehensive 12 months) and low value leases and elects not to separate lease recognised in the income statement as part of the gain or loss on sale. depreciation, with the exception of assets acquired as part of a business income. These obligations are valued annually by independent components from any associated fixed non-lease components. combination. Cost includes the original purchase price of the asset and qualified actuaries. The Group classifies payments of lease liabilities (principal and interest the costs attributable to bringing the asset to its working condition for its Termination benefits intended use. The Group’s policy is to write off the difference between portions) as part of financing activities. Payments of short-term, low the cost of all property, plant and equipment, except freehold land, and value and variable lease components are classified within operating Termination benefits are payable when employment is terminated by the their residual value on a straight-line basis over their estimated activities. Group before the normal retirement date, or whenever an employee useful lives. accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either (i) terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or (ii) providing termination benefits as a result of an offer made to encourage voluntary redundancy. Croda International Plc ## Annual Report and Accounts 2021 129 Croda International Plc Croda International Plc ## 128 Annual report and Accounts 2021 129 Annual report and Accounts 2020 ### Financial statements (continued) ### Group Accounting Policies (continued) ### Derivative financial instruments Borrowings The Group uses derivative financial instruments where deemed Borrowings are recognised initially at fair value, net of transaction costs appropriate to hedge its exposure to interest rates and short-term incurred. Any difference between the proceeds (net of transaction costs) currency rate fluctuations. The Group’s accounting policy is set out below. and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Derivative financial instruments are recorded initially at cost. Subsequent Borrowings are classified as current liabilities unless the Group has an measurement depends on the designation of the instrument as either: (i) unconditional right to defer settlement of the liability for at least 12 a hedge of the fair value of recognised assets or liabilities or a firm months after the balance sheet date. commitment (fair value hedge); or (ii) a hedge of highly probable forecast ### transactions (cash flow hedge). Borrowing costs (i) Fair value hedge General and specific borrowing costs directly attributable to the Changes in the fair value of derivatives, for example interest rate swaps acquisition, construction or production of qualifying assets, which are and foreign exchange contracts, that are designated and qualify as fair assets that necessarily take a substantial period of time to get ready for value hedges are recorded in the income statement, together with any their intended use or sale, are added to the cost of those assets, until changes in the fair value of the hedged asset or liability that are such time as the assets are substantially ready for their intended use attributable to the hedged risk. or sale. ### (ii) Cash flow hedge Trade and other payables The Group designates the spot element of forward foreign exchange Trade and other payables are recognised initially at fair value. With the contracts to hedge its currency risk and applies a hedge ratio of 1:1. exception of contingent consideration and forward foreign exchange The forward elements of the forward exchange contracts are excluded contracts, trade and other payables are subsequently measured at from the designation of the hedging instrument and are separately amortised cost using the effective interest method. Contingent accounted for as a cost of hedging, which is recognised in equity in a consideration is measured at fair value based on the present value of the cost of hedging reserve. The Group’s policy is for the critical terms of expected future payments, discounted using a risk-adjusted discount the forward exchange contracts to align with the hedged item. rate. Continent consideration is remeasured at fair value at each The Group determines the existence of an economic relationship reporting date and subsequent changes in fair value and associated between the hedging instrument and the hedged item based on the discount unwind are recognised in the income statement. Forward current, amount and timing of the respective cash flows. The Group foreign exchange contracts are initially recognised at cost and assesses whether the derivative designated in each hedging relationship subsequently measured at fair value on a mark-to-market basis. is expected to be and has been effective in offsetting changes in the ### Inventories cash flows of the hedged item using the hypothetical derivative method. Inventories are stated at the lower of cost and net realisable amount on In these hedge relationships, the main sources of ineffectiveness are a first in first out basis. Cost comprises all expenditure, including related changes in the time or amount of the hedged transactions. production overheads, incurred in the normal course of business The effective portion of changes in the fair value of derivatives that are in bringing the inventory to its location and condition at the balance designated and qualify as cash flow hedges are recognised in equity. sheet date. Net realisable amount is the estimated selling price in the The gain or loss relating to the ineffective portion is recognised ordinary course of business less any applicable variable selling costs. immediately in the income statement. Amounts accumulated in equity Provision is made for obsolete, slow moving and defective inventory are recycled in the income statement in the periods when the hedged where appropriate. Profits arising on intra-group sales are eliminated in item will affect profit or loss (for instance when the forecast sale that is so far as the product remains in Group inventory at the year end. hedged takes place). However, when the forecast transaction that is ### Trade and other receivables hedged results in the recognition of a non-financial asset (for example inventory) or a liability, the gains and losses previously deferred in equity Trade and other receivables are recognised initially at fair value and are transferred from equity and included in the initial measurement of the subsequently measured at amortised cost, using the effective interest cost of the asset or liability. method, less impairment losses. A provision for impairment of trade receivables is recognised based on lifetime expected losses, but When a hedging instrument expires or is sold, or when a hedge no principally comprises balances where objective evidence exists that the longer meets the criteria for hedge accounting, any cumulative gain or amount will not be collectible. Such amounts are written down to their loss existing in equity at that time remains in equity and is recognised estimated recoverable amounts, with the charge being made to when the forecast transaction is ultimately recognised in the income operating expenses. statement. ### When a forecast transaction is no longer expected to occur, the Cash and cash equivalents cumulative gain or loss that was reported in equity is immediately Cash and cash equivalents comprise cash balances and short-term transferred to the income statement. deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a Certain derivative instruments do not qualify for hedge accounting. component of cash and cash equivalents for the purpose of the Changes in the fair value of any derivative instruments that do not qualify statement of cash flows. Cash and bank overdrafts are offset and the for hedge accounting are recognised immediately in the income net amount reported in the balance sheet when there is a legally statement. enforceable right to offset the recognised amounts, there is an intention to settle on a net basis and interest is charged on a net basis. Croda International Plc ## 130 Annual Report and Accounts 2021 Croda International Plc ## 130 Annual report and Accounts 2021 ### Financial statements (continued) ### Financial statements ### Environmental, restructuring and other provisions ### Group Accounting Policies (continued) The Group is exposed to environmental liabilities relating to its operations and liabilities following the acquisition of Uniqema. Provisions are made immediately where a legal obligation is identified, can be quantified and it is regarded as more likely than not that an outflow of ### Derivative financial instruments Borrowings resources will be required to settle the obligation. The Group does The Group uses derivative financial instruments where deemed Borrowings are recognised initially at fair value, net of transaction costs consider the impact of discounting when establishing provisions and appropriate to hedge its exposure to interest rates and short-term incurred. Any difference between the proceeds (net of transaction costs) provisions are discounted when the impact is material and the timing of currency rate fluctuations. The Group’s accounting policy is set out below. and the redemption value is recognised in the income statement over cash flows can be estimated with reasonable certainty. the period of the borrowings using the effective interest method. Derivative financial instruments are recorded initially at cost. Subsequent ### Borrowings are classified as current liabilities unless the Group has an Share capital measurement depends on the designation of the instrument as either: (i) unconditional right to defer settlement of the liability for at least 12 Investment in own shares a hedge of the fair value of recognised assets or liabilities or a firm months after the balance sheet date. commitment (fair value hedge); or (ii) a hedge of highly probable forecast (i) Employee share ownership trusts – shares acquired by the trustees ### transactions (cash flow hedge). Borrowing costs of the employee share ownership trust (the Trustees), funded by the (i) Fair value hedge Company and held for the continuing benefit of the Company are General and specific borrowing costs directly attributable to the shown as a reduction in equity attributable to owners of the parent. Changes in the fair value of derivatives, for example interest rate swaps acquisition, construction or production of qualifying assets, which are Movements in the year arising from additional purchases by the and foreign exchange contracts, that are designated and qualify as fair assets that necessarily take a substantial period of time to get ready for Trustees of shares or the receipt of funds due to the exercise of value hedges are recorded in the income statement, together with any their intended use or sale, are added to the cost of those assets, until options by employees are accounted for within reserves and shown changes in the fair value of the hedged asset or liability that are such time as the assets are substantially ready for their intended use as a movement in equity attributable to owners of the parent in the attributable to the hedged risk. or sale. year. Administration expenses of the trusts are charged ### (ii) Cash flow hedge Trade and other payables to the Company’s income statement as incurred. The Group designates the spot element of forward foreign exchange Trade and other payables are recognised initially at fair value. With the (ii) Treasury shares – where any Group company purchases the contracts to hedge its currency risk and applies a hedge ratio of 1:1. exception of contingent consideration and forward foreign exchange Company’s equity share capital as treasury shares, the The forward elements of the forward exchange contracts are excluded contracts, trade and other payables are subsequently measured at consideration paid, including any directly attributable incremental from the designation of the hedging instrument and are separately amortised cost using the effective interest method. Contingent costs (net of income taxes), is deducted from equity attributable to accounted for as a cost of hedging, which is recognised in equity in a consideration is measured at fair value based on the present value of the the Company’s equity holders until the shares are cancelled, cost of hedging reserve. The Group’s policy is for the critical terms of expected future payments, discounted using a risk-adjusted discount reissued or disposed of. Where such shares are subsequently the forward exchange contracts to align with the hedged item. rate. Continent consideration is remeasured at fair value at each sold or reissued, any consideration received, net of any directly The Group determines the existence of an economic relationship reporting date and subsequent changes in fair value and associated attributable incremental transaction costs and the related income between the hedging instrument and the hedged item based on the discount unwind are recognised in the income statement. Forward tax effects, is included in equity attributable to the Company’s current, amount and timing of the respective cash flows. The Group foreign exchange contracts are initially recognised at cost and equity holders. assesses whether the derivative designated in each hedging relationship subsequently measured at fair value on a mark-to-market basis. Dividends is expected to be and has been effective in offsetting changes in the ### Inventories Dividends on ordinary share capital are recognised as a liability when the cash flows of the hedged item using the hypothetical derivative method. Inventories are stated at the lower of cost and net realisable amount on liability is irrevocable. Accordingly, final dividends are recognised when In these hedge relationships, the main sources of ineffectiveness are a first in first out basis. Cost comprises all expenditure, including related approved by shareholders and interim dividends changes in the time or amount of the hedged transactions. production overheads, incurred in the normal course of business are recognised when paid. The effective portion of changes in the fair value of derivatives that are in bringing the inventory to its location and condition at the balance ### Investments designated and qualify as cash flow hedges are recognised in equity. sheet date. Net realisable amount is the estimated selling price in the The gain or loss relating to the ineffective portion is recognised Investments in equity securities are measured at fair value, with ordinary course of business less any applicable variable selling costs. immediately in the income statement. Amounts accumulated in equity movements in the fair value being recognised in the income statement or Provision is made for obsolete, slow moving and defective inventory are recycled in the income statement in the periods when the hedged equity on an instrument by instrument basis. Investments in associates are where appropriate. Profits arising on intra-group sales are eliminated in item will affect profit or loss (for instance when the forecast sale that is initially recorded at cost and subsequently adjusted for the Group’s share so far as the product remains in Group inventory at the year end. hedged takes place). However, when the forecast transaction that is of results. Investments are subject to impairment testing at each balance ### Trade and other receivables hedged results in the recognition of a non-financial asset (for example sheet date or earlier upon indication of impairment. inventory) or a liability, the gains and losses previously deferred in equity Trade and other receivables are recognised initially at fair value and are transferred from equity and included in the initial measurement of the subsequently measured at amortised cost, using the effective interest cost of the asset or liability. method, less impairment losses. A provision for impairment of trade receivables is recognised based on lifetime expected losses, but When a hedging instrument expires or is sold, or when a hedge no principally comprises balances where objective evidence exists that the longer meets the criteria for hedge accounting, any cumulative gain or amount will not be collectible. Such amounts are written down to their loss existing in equity at that time remains in equity and is recognised estimated recoverable amounts, with the charge being made to when the forecast transaction is ultimately recognised in the income operating expenses. statement. ### When a forecast transaction is no longer expected to occur, the Cash and cash equivalents cumulative gain or loss that was reported in equity is immediately Cash and cash equivalents comprise cash balances and short-term transferred to the income statement. deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a Certain derivative instruments do not qualify for hedge accounting. component of cash and cash equivalents for the purpose of the Changes in the fair value of any derivative instruments that do not qualify statement of cash flows. Cash and bank overdrafts are offset and the for hedge accounting are recognised immediately in the income net amount reported in the balance sheet when there is a legally statement. enforceable right to offset the recognised amounts, there is an intention to settle on a net basis and interest is charged on a net basis. Croda International Plc ## Annual Report and Accounts 2021 131 Croda International Plc Croda International Plc ## 130 Annual report and Accounts 2021 131 Annual report and Accounts 2020 ### Financial statements (continued) ### Notes to the Group Accounts ### 1. Segmental analysis The Group’s sales, marketing and research activities are organised into four global market sectors, being Consumer Care, Life Sciences, Performance Technologies and Industrial Chemicals. These are the segments for which summary management information is presented to the Group’s Executive Committee, which is deemed to be the Group’s Chief Operating Decision Maker. A review of each sector can be found within the Strategic Report on pages 24 to 29. There is no material trade between segments. Segmental results include items directly attributable to a specific segment as well as those that can be allocated on a reasonable basis. 2021 2020 572.3 392.5 114.8 96.4 1,889.6 1,390.3 operating profit 208.5 124.5 7.1 (0.3) arising on acquisition) 468.6 319.6 1 438.2 290.0 1 Relates to Consumer Care £20.5m (2020: £13.5m), Life Sciences £7.5m (2020: £12.2m), Performance Technologies £1.8m (2020: £3.6m) and Industrial Chemicals £0.6m (2020: £0.3m) As announced in the 2020 Annual Report the Group has revised the composition of its operating segments. Accordingly, the Group has restated the previously reported segment information for the year ended 31 December 2020 and aligned this with the information that is regularly presented to the Group’s Executive Committee. In the following table, revenue has been disaggregated by sector and destination. This is the primary management information that is presented to the Group’s Executive Committee. East & Africa America America £m Care 300.3 210.9 68.6 183.2 763.0 209.8 102.1 22.4 105.2 439.5 825.3 493.2 154.3 416.8 1,889.6 Care 178.1 172.0 55.0 122.7 527.8 177.0 90.1 20.1 86.4 373.6 2021 2020 Care 31.7 24.7 19.4 18.8 79.0 68.2 Croda International Plc | | | | 132 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | --- | | Europe, Middle | Restated Restated | Total North Latin Asia | | | | Consumer Performance Technologies Depreciation and amortisation (before amortisation of intangible assets arising on acquisition) Consumer Care Revenue 2020 (restated) Total Group Industrial Chemicals Total Group revenue Consumer Revenue Life Sciences Exceptional items and amortisation of intangible assets arising on acquisition Performance Technologies Consumer Total Group operating profit Consumer Care Total Group revenue Industrial Chemicals Life Sciences Performance Technologies Revenue 2021 Life Sciences Total Group revenue Performance Technologies Life Sciences Industrial Chemicals Adjusted Industrial Chemicals Performance Technologies Total Group operating profit (before exceptional items and amortisation of intangible assets Income statement Life Sciences Industrial Chemicals | 1,390.3 | 188.5 146.5 387.0 131.6 309.3 763.0 527.8 114.8 113.2 392.5 439.5 373.6 167.2 572.3 562.4 164.7 266.3 (30.4) (29.6) 13.0 50.5 22.1 19.9 64.5 48.9 54.5 60.1 60.9 77.9 11.7 40.1 96.4 48.9 42.6 2.4 5.8 4.8 2.0 £m £m £m £m £m £m £m | £m | | Croda International Plc ## 132 Annual report and Accounts 2021 ### Financial statements The Group manages its business segments on a global basis. The operations are based in the following geographical areas: Europe, with manufacturing sites in the UK, France, the Netherlands, Italy, Spain, Finland and Denmark; North America, with manufacturing sites in the US; Latin America, with manufacturing sites in Brazil, Argentina, Colombia and Mexico; Asia, with manufacturing sites in Singapore, Japan, India, China, Indonesia, Malaysia and Australia; and South Africa and Tunisia. The Group’s revenue from external customers in the UK is £52.3m (2020: £46.2m), in Germany is £196.0m (2020: £104.7m), in China is £161.4m (2020: £105.2m), in the US is £455.3m (2020: £355.4m) and the total revenue from external customers from other countries is £1,024.6m (2020: £778.8m). No single external customer represents more than 4% of the total revenue of the Group. The total of non-current assets other than financial instruments, retirement benefit assets and deferred tax assets located in the UK is £208.2m (2020: £178.9m) and in other countries is £1,290.7m (2020: £1,252.2m). Goodwill has not been split by geography as this asset is not attributable to a geographical area. ### 2. Operating costs £m 407.7 270.4 500.7 342.1 Additional information on the nature of operating expenses, including depreciation and employee costs, is provided in note 3. ### 3. Profit for the year amortisation (notes 12, 13 & 14) 113.3 81.8 -exceptional) 1.1 – on-exceptional) 0.8 0.2 – cost recognised as expense in cost of sales 950.7 758.2 58.7 38.2 charge (note 18) 0.4 0.5 – operating profit Redundancy, restructuring and impairments – (4.3) Fair value movement on contingent consideration 6.2 – Unwind of discount on contingent consideration (3.3) (1.5) 0.6 (17.5) (33.7) (31.1) The exceptional items in the current year reflects discount unwind and fair value adjustment both in respect of contingent consideration, a pension curtailment gain (arising from transfer of the Dutch scheme to a collective defined contribution arrangement) and acquisition costs and fees incurred in preparation of the disposal of part of the PTIC business. Movements in contingent consideration have been presented as exceptional as they are not directly representative of the underlying business performance in the period, and therefore this presentation provides a meaningful basis to make comparisons between reporting periods. The pension curtailment gain and business acquisition and disposal costs have been presented as exceptional due to their size and one-off nature. The exceptional items in the prior year related to the delivery of cost saving actions announced in the 2019 full year results, discount unwind in contingent consideration and acquisition costs. Croda International Plc | | | | Annual Report and Accounts 2021 | 133 | | --- | --- | --- | --- | --- | | | 2021 2020 2021 2020 2021 2020 | | | | | Distribution costs The Group profit for the year is stated after charging: Impairments (non Redundancy costs (exceptional) Research and development Exceptional items Amortisation of intangible assets arising on acquisition Analysis of net operating expenses by function: Administrative expenses Depreciation and Impairments (exceptional) Staff costs (note 9) Redundancy costs (n Inventories Inventories – provision movement in the year Net foreign exchange Bad debt Adjustments: Exceptional items – financial costs Exceptional items Total adjustments Pension curtailment gain Business acquisitions and disposal costs | 411.9 295.5 (34.3) (13.6) (13.5) (11.7) 93.0 71.7 11.2 1.8 1.4 6.7 3.8 0.8 2.1 £m £m £m £m £m | – – – | | | Croda International Plc ## 133 Annual report and Accounts 2021 ### Financial statements (continued) ### Notes to the Group Accounts (continued) ### 3. Profit for the year continued Fees payable to the Group auditors and its associates for the audit of the Company’s subsidiaries 1.4 1.4 Other audit-related assurance services including fees payable in relation to the Group’s interim review 0.1 0.1 1.7 1.6 ### 4. Net financial costs note – 0.4 6 7.0 4.5 note 0.3 0.3 note 0.8 0.8 0.5 0.5 1.6 1.7 -operating loan 2.5 – 2.2 1.2 28.2 21.0 26.7 20.5 Croda International Plc | | | 134 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | | | 2021 2020 2021 2020 | | | | Audit services Other audit services US$100m 5.94% fixed rate 10 year US$200m 3 year term loan due 2023 £30m 2.54% fixed rate 7 year £65m 2.46% fixed rate 8 year note Provision against non Unwind of discount on contingent consideration Services provided by the Group’s auditors Financial costs US$100m 3.75% fixed rate 10 year note 2019 Club facility due 202 €30m 1.08% fixed rate 7 year €70m 1.43% fixed rate 10 year note £70m 2.80% fixed rate 10 year note €50m 1.18% fixed rate 8 year note US$60m 3.70% fixed rate 10 year note Net interest on retirement benefit liabilities Interest on lease liabilities Other bank loans and overdrafts Financial income Bank interest receivable and similar income Net financial costs Fees payable to the Group auditors for the audit of Parent Company and consolidated financial statements | (1.5) (0.5) 0.3 0.2 1.6 1.6 3.3 1.5 0.2 0.1 2.7 2.7 0.9 0.9 2.0 2.0 0.3 1.2 2.2 1.5 £m £m £m £m | | | Croda International Plc ## 134 Annual report an d Accounts 2021 ### Financial statements (continued) ### Financial statements ### 5. Tax ### Notes to the Group Accounts (continued) current corporate tax 11.5 13.2 ### 3. Profit for the year continued 6) (17.8) 2.6 charged/(credited) to other comprehensive income or equity Fees payable to the Group auditors and its associates for the audit of the Company’s subsidiaries 1.4 1.4 -based payments (equity) (2.4) (0.9) Other audit-related assurance services including fees payable in relation to the Group’s interim review 0.1 0.1 1.7 1.6 ### 4. Net financial costs 19.0% (2020: 19.0%) 78.2 51.2 note – 0.4 7.1 (1.5) 6 7.0 4.5 2.2 1.5 note 0.3 0.3 – (1.4) note 0.8 0.8 0.5 0.5 The adjusted effective corporate tax rate before exceptional items of 21.2% (2020: 24.1%) is higher than the UK's standard tax rate of 19.0%. The 1.6 1.7 reported effective corporate tax rate after exceptional items is 21.6% (2020: 25.2%). This year's tax charge benefitted from a one-off settlement of a previous uncertain tax position. -operating loan 2.5 – Croda operates in many tax jurisdictions other than the UK, both as a manufacturer and distributor, with the majority of those jurisdictions having rates higher than the UK; considerably so in some cases. It is the exposure to these different tax rates that increases the effective tax rate above the 2.2 1.2 UK standard rate and also makes it difficult to forecast the Group’s future tax rate with any certainty given the unpredictable nature of exchange rates, individual economies and tax legislators. Other than the exposure to higher overseas tax rates, there are no significant adjustments between the Group’s expected and reported tax charge based on its accounting profit. Given the global nature of the Group, and the number of associated 28.2 21.0 cross-border transactions between connected parties, we are exposed to potential adjustments to the price charged for those transactions by tax authorities. However, the Group carries appropriate provisions relating to the level of risk. 26.7 20.5 Legislation to increase the UK standard rate of corporation tax from 19% to 25% was substantively enacted on 24 May 2021, effective from 1 April 2023. The calculation of deferred tax balances in the UK have been revised accordingly. Overseas tax is calculated at the rates prevailing in the respective jurisdictions. Croda International Plc | | | | | | | | | | Annual Report and Accounts 2021 | 135 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 2021 2021 | 2020 2020 | | 2021 2020 | | | | | | Services provided by the Group’s auditors Audit services Other audit services Financial costs US$100m 5.94% fixed rate 10 year US$100m 3.75% fixed rate 10 year note 2019 Club facility due 202 US$200m 3 year term loan due 2023 €30m 1.08% fixed rate 7 year €70m 1.43% fixed rate 10 year note £30m 2.54% fixed rate 7 year £70m 2.80% fixed rate 10 year note €50m 1.18% fixed rate 8 year note £65m 2.46% fixed rate 8 year note US$60m 3.70% fixed rate 10 year note Net interest on retirement benefit liabilities Provision against non Interest on lease liabilities Other bank loans and overdrafts Unwind of discount on contingent consideration Financial income Bank interest receivable and similar income Net financial costs Fees payable to the Group auditors for the audit of Parent Company and consolidated financial statements | | | (1.5) 2.7 0.3 0.9 2.0 1.6 0.3 2.2 3.3 0.2 £m £m | (0.5) 0.1 2.7 0.2 0.9 2.0 1.6 1.2 1.5 1.5 £m £m | UK Current tax Deferred tax on remeasurement of post-retirement benefits (OCI) Profit before tax Effect of: Tax cost of remitting overseas income to the UK Net effect of higher overseas tax rates (a) Analysis of tax charge for the year Overseas current corporate taxes Deferred tax (note (b) Tax on items Deferred tax on share Deferred tax on provisions (OCI) (c) Factors affecting the tax charge for the year Tax at the standard rate of corporation tax in the UK, Tax rate changes Prior year over-provisions Expenses and write-offs not deductible for tax purposes Utilisation of unrecognised tax losses | 106.5 411.5 269.5 (16.3) 65.3 88.7 67.9 10.2 19.5 95.0 52.1 88.7 67.9 (0.2) (3.2) 8.3 9.7 0.3 5.7 9.1 7.3 1.8 £m £m | | | | | | | Croda International Plc | | | | | | | Croda International Plc | | | | 134 | Annual report an | d Accounts 2021 | | | 135 | | Annual report and Accounts 2021 | | | | ### Financial statements (continued) ### Notes to the Group Accounts (continued) ### 6. Deferred tax 42.1 25.5 48.2 36.6 97.1 93.1 77.9 82.3 1.0 1.0 (34.7) (22.1) 151.4 160.3 credited/(charged) through the income statement Adjustments and exceptional items 3.9 1.0 (8.9) (64.8) (145.8) (70.6) (charged)/credited through the income statement relates to the following: (2.1) (10.3) 6.7 2.1 17.8 (2.6) Deferred tax is calculated in full on temporary differences under the balance sheet liability method at rates appropriate to each subsidiary. Deferred tax expected to reverse in the year to 31 December 2022 and beyond has been measured using the rate due to prevail in the year of reversal. Deferred tax assets have been recognised in all material cases where such assets arise, as it is probable the assets will be recovered. At 31 December 2021, no deferred tax asset has been recognised in respect of £32.6m of losses across the Group as it is not considered probable that there will be future taxable profits against which these losses can be offset. Deferred tax is only recognised on the unremitted earnings of overseas subsidiaries to the extent that remittance is expected in the foreseeable future. If all earnings were remitted, an additional £9.3m (2020: £6.6m) of tax would be payable. All movements on deferred tax balances have been recognised in the income statement with the exception of the items shown in note 5(b). Of the gross deferred tax assets, £10.4m are expected to reverse within 12 months of the balance sheet date. No material reversal of any of the deferred tax liability is expected within 12 months of the balance sheet date based on the Group’s current capital expenditure programme. Croda International Plc | | | 136 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | | | 2021 2020 | | | | Deferred tax assets Deferred tax liabilities Acquired intangibles Acquisitions Net balance carried forward Accelerated capital allowances The deferred tax balances included in these accounts are attributable to the following: Retirement benefit liabilities Provisions Gross deferred tax asset Offset with deferred tax liabilities Net deferred tax asset Accelerated capital allowances Revaluation gains Retirement benefit assets Other Gross deferred tax liability Offset with deferred tax assets Net deferred tax liability The movement on deferred tax balances during the year is summarised as follows: Deferred tax Deferred tax charged directly to other comprehensive income or equity (note 5(b)) Exchange differences Net balance brought forward Deferred tax Retirement benefit obligations Provisions Other Continuing operations before adjustments | (137.9) (145.8) 186.1 182.4 (75.2) (34.7) (22.1) 13.9 11.1 13.5 14.5 13.9 (5.7) (0.7) (3.6) (9.1) 7.9 6.1 1.9 1.9 8.2 4.1 4.7 1.3 1.5 4.1 £m £m | | | Croda International Plc ## 136 Annual report an d Accounts 2021 ### Financial statements (continued) ### Financial statements ### 7. Earnings per share ### Notes to the Group Accounts (continued) (33.7) (31.1) ### 6. Deferred tax m m 61p (2020: 10.61p) ordinary shares in issue for basic calculation 139.5 130.0 42.1 25.5 48.2 36.6 10.61p (2020: 10.61p) ordinary shares for diluted calculation 139.8 130.2 97.1 93.1 250.0 175.5 77.9 82.3 229.5 154.8 1.0 1.0 Basic earnings per share is calculated by dividing the profit after tax attributable to owners of the parent by the weighted average number of ordinary (34.7) (22.1) shares in issue during the year, excluding those shares held in treasury or employee share trusts (note 25). Shares held in employee share trusts are 151.4 160.3 treated as cancelled because, except for a nominal amount, dividends have been waived. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. credited/(charged) through the income statement Additional earnings per share calculations are included above to give a better indication of the Group’s underlying performance. Adjustments and exceptional items 3.9 1.0 ### 8. Dividends (8.9) (64.8) share £m share £m (145.8) (70.6) 2020 interim, paid October 2020 – – 39.5 50.8 (charged)/credited through the income statement relates to the following: 2020 final, paid June 2021 51.5 71.8 – – (2.1) (10.3) 6.7 2.1 17.8 (2.6) The Directors are recommending a final dividend of 56.5p per share, amounting to a total of £78.8m, in respect of the financial year ended Deferred tax is calculated in full on temporary differences under the balance sheet liability method at rates appropriate to each subsidiary. Deferred 31 December 2021. tax expected to reverse in the year to 31 December 2022 and beyond has been measured using the rate due to prevail in the year of reversal. Subject to shareholder approval, the dividend will be paid on 6 June 2022 to shareholders registered on 6 May 2022 and has not been accrued in Deferred tax assets have been recognised in all material cases where such assets arise, as it is probable the assets will be recovered. At these financial statements. The total dividend for the year ended 31 December 2021 will be 100.0p per share amounting to a total of £139.4m. 31 December 2021, no deferred tax asset has been recognised in respect of £32.6m of losses across the Group as it is not considered probable that there will be future taxable profits against which these losses can be offset. Deferred tax is only recognised on the unremitted earnings of overseas subsidiaries to the extent that remittance is expected in the foreseeable future. If all earnings were remitted, an additional £9.3m (2020: £6.6m) of tax would be payable. All movements on deferred tax balances have been recognised in the income statement with the exception of the items shown in note 5(b). Of the gross deferred tax assets, £10.4m are expected to reverse within 12 months of the balance sheet date. No material reversal of any of the deferred tax liability is expected within 12 months of the balance sheet date based on the Group’s current capital expenditure programme. Croda International Plc | | | | | | | | | | | | Annual Report and Accounts 2021 | 137 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 2021 | 2020 | | Pence per Pence per | Number Number | 2021 2020 2021 2020 | | | | | | The deferred tax balances included in these accounts are attributable to the following: Deferred tax assets Retirement benefit liabilities Provisions Gross deferred tax asset Offset with deferred tax liabilities Net deferred tax asset Deferred tax liabilities Accelerated capital allowances Revaluation gains Acquired intangibles Retirement benefit assets Other Gross deferred tax liability Offset with deferred tax assets Net deferred tax liability The movement on deferred tax balances during the year is summarised as follows: Deferred tax Deferred tax charged directly to other comprehensive income or equity (note 5(b)) Acquisitions Exchange differences Net balance brought forward Net balance carried forward Deferred tax Retirement benefit obligations Accelerated capital allowances Provisions Other Continuing operations before adjustments | | | (137.9) 186.1 (34.7) 13.5 13.9 13.9 (5.7) (0.7) 6.1 1.9 8.2 4.7 7.9 £m | (145.8) 182.4 (22.1) (75.2) 11.1 14.5 (3.6) (9.1) 1.9 4.1 1.3 1.5 4.1 £m | Exceptional items and amortisation of intangible assets Profit after tax for the year attributable to owners of the parent Weighted average number of 10. Average number of Ordinary Adjusted profit after tax for the year attributable to owners of the parent Tax impact of exceptional items and amortisation of intangible assets Deemed issue of potentially dilutive shares Basic earnings per share Adjusted basic earnings per share Diluted earnings per share Adjusted diluted earnings per share Interim Final Preference (paid June and December) | 2021 interim, paid October 2021 2019 final, paid May 2020 | 320.8 201.6 348.8 228.2 230.0 155.1 249.5 175.3 132.4 115.8 132.5 115.9 Pence Pence | 43.5 60.6 50.5 65.0 95.0 90.0 5.7 4.5 0.3 0.2 0.1 0.1 £m £m – – – – | | | | | | | Croda International Plc | | | | | | | | | Croda International Plc | | | | 136 | Annual report an | d Accounts 2021 | | | 137 | | | | Annual report and Accounts 2021 | | | | ### Financial statements (continued) ### Notes to the Group Accounts (continued) ### 9. Employees 288.0 215.7 49.7 36.6 0.8 2.0 412.7 297.5 3,766 3,044 929 689 6,037 4,922 As required by the Companies Act 2006, the figures disclosed above are the weighted averages based on the number of employees including Executive Directors. At 31 December 2021, the Group had 6,135 (2020: 5,684) employees in total. ### 10. Directors’ and key management compensation Detailed information concerning Directors’ remuneration, interests and options is shown in section D of the Directors’ Remuneration Report, which is subject to audit, on pages 97 to 105 forming part of the Annual Report and Accounts. Aggregate compensation for key management, being the Directors and members of the Group Executive Committee, was as follows: -retirement benefit costs 0.1 0.1 Croda International Plc | | | | 138 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | --- | | | | 2021 2020 2021 2020 2021 2020 | | | | Wages and salaries Post-retirement benefit costs Average employee numbers by function Administration Post Group employment costs including Directors Share-based payment charges (note 23) Social security costs Redundancy costs Production Selling and distribution Key management compensation including Directors Short-term employee benefits Share-based payment charge | Number Number | 1,342 1,189 32.9 29.6 14.8 41.3 13.6 6.1 8.1 4.8 6.6 1.2 £m £m £m £m | | | Croda International Plc ## 138 Annual report an d Accounts 2021 ### Financial statements (continued) ### Financial statements ### 11. Post-retirement benefits ### Notes to the Group Accounts (continued) The table below summarises the Group’s net year end post-retirement benefits balance sheet positions and activity for the year. ### 9. Employees 35.3 17.6 asset/(liability) in Group balance sheet 7.9 (32.3) 288.0 215.7 49.7 36.6 21.4 (17.2) 0.8 2.0 412.7 297.5 -employment medical benefits 0.7 0.8 3,766 3,044 other comprehensive income for: 929 689 6,037 4,922 -employment medical benefits (2.1) 1.2 (40.6) (51.3) As required by the Companies Act 2006, the figures disclosed above are the weighted averages based on the number of employees including Executive Directors. At 31 December 2021, the Group had 6,135 (2020: 5,684) employees in total. Defined benefit pension schemes The Group operates defined benefit pension schemes in the UK, US, Netherlands and several other territories under broadly similar regulatory ### 10. Directors’ and key management compensation frameworks. All of the Group’s final salary type pension schemes (which provide benefits to members in the form of a guaranteed level of pension Detailed information concerning Directors’ remuneration, interests and options is shown in section D of the Directors’ Remuneration Report, payable for life based on salary in the final years leading up to retirement) are closed to future service accrual with the exception of a small number of which is subject to audit, on pages 97 to 105 forming part of the Annual Report and Accounts. ‘grandfathered’ employees in the US scheme. Aggregate compensation for key management, being the Directors and members of the Group Executive Committee, was as follows: The UK scheme operated on a final salary basis until 5 April 2016, following which the scheme changed to a Career Average Revalued Earnings (CARE) defined benefit scheme, with annual pensionable earnings capped and pensions in payment indexed based on CPI (previously RPI) for service accrued from 6 April 2016. This change is expected to reduce the future comparable cost and risk attached to the UK scheme. The US scheme operates a cash balance pension scheme that provides a guaranteed rate of return on pension contributions until retirement (other than for ‘grandfathered’ employees). From 1 October 2017 the US scheme was closed to new joiners, who will receive defined contribution benefits. The US -retirement benefit costs 0.1 0.1 plans also do not generally receive inflationary increases once in payment. With the exception of this difference in inflationary risk, the Group’s main defined benefit pension schemes continue to face materially similar risks, as described on pages 142 and 143. The majority of benefit payments are from trustee administered funds; however, there are also a number of unfunded plans where the relevant Group company meets the benefit payment obligation as it falls due. Plan assets held in trusts are governed by local regulations and practice in each country, as is the nature of the relationship between the Group and the trustees (or equivalent) and their composition. Responsibility for governance of the schemes, including investment decisions and contribution schedules, predominantly lies with the particular scheme’s board of trustees with appropriate input from the relevant Group company. The board of trustees must be composed of representatives in accordance with each scheme’s regulations and any relevant legislation. During the period the Group's primary Netherlands scheme was converted into a collective defined contribution scheme for both past and future service, as allowed under local regulations and as agreed with the representative trade unions. This change resulted in the settlement of the defined benefit scheme's assets and liabilities and a corresponding curtailment gain of £11.2m on cessation of defined benefit accrual, which has been recognised in the Group income statement. All parties had formally agreed to the settlement by 30 November 2021, therefore the settlement accounting is based on the valuation of the scheme assets and liabilities at this date. Under the new scheme, employer contributions have been fixed for the next two years initially, and the level thereafter will be subject to agreement with employees and the trade unions. The employer is not exposed to demographic and financial risks, as the benefits provided will be those that can be afforded by the scheme only, without recourse to the employer, therefore this scheme is accounted for as a defined contribution scheme. Croda International Plc | | | | | | | | | | | Annual Report and Accounts 2021 | 139 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 2021 2021 2021 | 2020 2020 2020 | | 2021 2020 | | | | | | Group employment costs including Directors Wages and salaries Share-based payment charges (note 23) Social security costs Post-retirement benefit costs Redundancy costs Average employee numbers by function Production Selling and distribution Administration Key management compensation including Directors Short-term employee benefits Post Share-based payment charge | | | Number | 1,342 41.3 32.9 14.8 8.1 6.6 £m £m | Number 1,189 13.6 29.6 4.8 1.2 6.1 £m £m | Balance sheet: Net balance sheet assets/(liabilities) for: Defined pension benefits Defined pension benefits Retirement benefit assets Retirement benefit liabilities Net Defined pension benefits Post-employment medical benefits Income statement charge included in profit before tax for: Post Remeasurements included in Post | (38.5) (52.5) (27.4) (49.9) (13.5) (15.1) (32.3) 13.5 23.9 14.2 24.7 7.9 £m £m | | | | | | | Croda International Plc | | | | | | | | Croda International Plc | | | | 138 | Annual report an | d Accounts 2021 | | | | 139 | | Annual report and Accounts 2021 | | | | ### Financial statements (continued) ### Notes to the Group Accounts (continued) ### 11. Post-retirement benefits continued The amounts recognised in the balance sheet in respect of these schemes are as follows: (1,162.6) (1,178.5) – (212.3) 145.4 150.4 world 16.4 17.0 1,340.1 1,536.8 (9.7) (9.6) asset/(liability) in Group balance sheet (excluding post-employment medical benefits) 21.4 (17.2) 1,554.0 1,451.7 service cost – curtailments (11.2) – 0.9 – Change in financial assumptions (46.7) 149.3 (46.8) (46.2) 1,318.7 1,554.0 20.1 26.5 Return on scheme assets, excluding amounts included in financial expenses 26.9 143.5 Employee 3.0 2.9 (207.1) – differences on overseas schemes (6.4) 3.9 1,340.1 1,536.8 As at the balance sheet date, the present value of retirement benefit obligations comprised approximately £351m in respect of active employees, £367m in respect of deferred members and £601m in relation to members in retirement. Total employer contributions to the schemes in 2022 are expected to be £10.7m. Croda International Plc | | | | 140 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | --- | | | | 2021 2020 2021 2020 | | | | US pension scheme Fair value of schemes’ assets Netherlands pension scheme Present value of unfunded obligations Opening balance Settlements Remeasurements Benefits paid Interest income Contributions paid in Settlements Present value of funded obligations UK pension scheme Netherlands pension scheme Rest of world UK pension scheme US pension scheme Rest of Net asset/(liability) in respect of funded schemes Net Movement in present value of retirement benefit obligations in the year: Current service cost Past Acquisitions Interest cost Contributions paid in Exchange differences on overseas schemes Movement in fair value of schemes’ assets in the year: Opening balance Remeasurements Benefits paid out Exchange | Experience losses/(gains) Change in demographic assumptions Employee Employer (1,309.0) (1,544.4) 1,178.3 1,163.7 1,536.8 1,390.8 (126.8) (207.1) | (133.9) 205.7 (19.6) (46.8) (19.7) (56.4) (46.2) 26.9 31.1 24.7 23.1 20.1 27.3 13.6 15.4 (7.3) (1.9) (7.6) 8.2 3.0 2.9 4.2 £m £m £m £m | – – | | Croda International Plc ## 140 Annual report an d Accounts 2021 ### Financial statements (continued) ### Financial statements The actuarial assumptions were as follows: ### Notes to the Group Accounts (continued) – RPI 3.2% 2.5% 2.0% 2.8% 2.5% 1.8% ### 11. Post-retirement benefits continued The amounts recognised in the balance sheet in respect of these schemes are as follows: 4.8% 3.5% 2.4% 4.4% 3.5% 2.4% i.e. life expectancy) (years) 18.9 11.0 n/a 19.6 11.2 22.3 (1,162.6) (1,178.5) * Actuarial assumptions as at the settlement date – (212.3) Mortality assumptions are based on country-specific mortality tables and where appropriate allow for future improvements in life expectancy. Where credible data exists, actual plan experience is taken into account. No adjustments have been made to mortality assumptions as at 31 December 2021 to reflect the potential effects of COVID-19 as the actual plan experience is not yet available and as it is too soon to make a judgement on the impact of the pandemic on future mortality improvements. The mortality experience analysis for the scheme will be carried out in the future as part of the 30 September 2023 funding valuation for the UK Croda Pension Scheme. Applying the mortality tables adopted, the expected future average 145.4 150.4 lifetime of members currently at age 65 and members at age 65 in 20 years' time is as follows: world 16.4 17.0 Current age 65 20 years 1,340.1 1,536.8 (9.7) (9.6) 23.3 22.8 25.0 24.7 23.9 26.4 asset/(liability) in Group balance sheet (excluding post-employment medical benefits) 21.4 (17.2) The sensitivity of the defined benefit obligation to changes in the significant assumptions is as follows: 1,554.0 1,451.7 0.5% 6.5% -6.0% service cost – curtailments (11.2) – The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to 0.9 – occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting year) has been applied as when calculating the retirement benefit obligation recognised in the Group balance sheet. The weighted average duration of the defined benefit obligation is 18.1 years (2020: 19.2 years). Change in financial assumptions (46.7) 149.3 The assets in the schemes comprised: (46.8) (46.2) Equities 188.2 14% 277.9 18% Corporate bonds 70.6 5% 124.2 8% 1,318.7 1,554.0 20.1 26.5 Real estate (pooled investment vehicles) 61.6 5% 56.7 4% Return on scheme assets, excluding amounts included in financial expenses 26.9 143.5 Other 317.1 24% 288.8 19% Employee 3.0 2.9 Derivatives presented above represent the scheme’s net position on Government bond repurchase agreements and other swap contracts (valued (207.1) – on a mark-to-market basis) which form part of the scheme’s liability driven investment (LDI) portfolio. The non-derivative assets in the LDI portfolio have been presented in the relevant asset category. Other investments include; a fund of hedge funds, which consists of a fund of multiple differences on overseas schemes (6.4) 3.9 investment managers across both traditional markets such as equities and credit and also more specialist diversified strategies; infrastructure type 1,340.1 1,536.8 investments that hold assets linked to the value and income from UK and overseas infrastructure. As at the balance sheet date, the present value of retirement benefit obligations comprised approximately £351m in respect of active employees, £367m in respect of deferred members and £601m in relation to members in retirement. Total employer contributions to the schemes in 2022 are expected to be £10.7m. Croda International Plc ## Annual Report and Accounts 2021 141 Age 65 in | | | | | 2021 2021 | | | 2020 2020 | | | | 2021 2021 2020 2020 2021 2021 2020 2020 2021 2020 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Present value of funded obligations UK pension scheme US pension scheme Netherlands pension scheme Rest of world Fair value of schemes’ assets UK pension scheme US pension scheme Netherlands pension scheme Rest of Net asset/(liability) in respect of funded schemes Present value of unfunded obligations Net Movement in present value of retirement benefit obligations in the year: Opening balance Current service cost Past Settlements Acquisitions Interest cost Remeasurements Contributions paid in Benefits paid Exchange differences on overseas schemes Movement in fair value of schemes’ assets in the year: Opening balance Interest income Remeasurements Contributions paid in Settlements Benefits paid out Exchange Change in demographic assumptions Experience losses/(gains) Employee Employer | | | (1,309.0) 1,178.3 1,536.8 | (126.8) (207.1) (19.6) (46.8) 31.1 24.7 20.1 26.9 13.6 (7.3) 8.2 3.0 £m £m | – | (1,544.4) 1,163.7 1,390.8 | (133.9) 205.7 (19.7) (56.4) (46.2) 23.1 27.3 15.4 (7.6) (1.9) 2.9 4.2 | £m £m – | Inflation rate – CPI Duration of liabilities ( Male Mortality (assumes a one-year change in life expectancy) Unquoted Discount rate Inflation rate Rate of increase in salaries Rate of increase for pensions in payment Remaining working life Female Discount rate Inflation rate Quoted Netherlands* | Government bonds Derivatives Other quoted securities Cash and cash equivalents Of decrease Netherlands Netherlands Of increase Netherlands Sensitivity 1,340.1 1,536.8 | 100% 2.8% 1 year -4.8% 590.8 674.0 100% 1.8% 2.8% 3.1% -8.5% 2.4% 1.1% 1.3% 2.4% 1.8% 2.7% 4.9% 44% 0.8% 1.3% 0.5% 9.7% 44% 10.6 10.6 10.0 12.4 28.7 31.3 73.1 77.5 20.1 20.9 21.1 21.4 22.1 n/a n/a Impact on retirement benefit obligation n/a n/a 1% 0% n/a 9.6 n/a 9.6 2% 2% 5% 5% | n/a 6.4 UK US £m £m UK US 22.6 UK US UK US % % | | | | | Croda International Plc | | | | | | | | | | | | | Croda International Plc | | 140 | Annual report an | d Accounts 2021 | | | | | | | 141 | | | | Annual report and Accounts 2021 | | ### Financial statements (continued) ### Notes to the Group Accounts (continued) ### 11. Post-retirement benefits continued Post-employment medical benefits The Group operates an unfunded post-employment medical benefit scheme in the US. The method of accounting, significant assumptions and the frequency of valuations are similar to those used for defined benefit pension schemes set out above with the addition of actuarial assumptions relating to the long-term increase in health care costs of 5.0% a year (2020: 5.0%). The amounts recognised in the balance sheet in respect of this scheme are as follows: 13.5 15.1 retirement benefit obligations in the year: 0.4 0.4 – change in demographic assumptions – (0.2) – experience gains (0.9) (0.3) 0.1 (0.6) 13.5 15.1 Pension and medical benefits – risks and volatility Through its defined benefit pension schemes and post-employment medical schemes, the Group is exposed to a number of risks, the most significant of which are detailed below: Asset volatility The schemes’ liabilities are calculated using a discount rate set with reference to corporate bond yields; if scheme assets underperform this yield, a deficit will be created. The schemes hold a significant proportion of equities, which are expected to outperform corporate bonds in the long term while providing volatility and risk in the short term. As the schemes mature, the Group intends to reduce the level of investment risk by investing more in assets that better match the liabilities. However, the Group and the pension trustees (Trustees) believe that due to the long term nature of the scheme liabilities and the strength of the supporting Group, a level of continuing equity investment is an appropriate element of the Group’s long term strategy to manage the schemes efficiently. See below for more details on the Group’s asset-liability matching strategy. Changes in bond yields A decrease in corporate bond yields will increase scheme liabilities, although this will be partially offset by an increase in the value of the schemes’ bond holdings. Inflation risk Some of the Group’s pension obligations are linked to inflation, and higher inflation will lead to higher liabilities. However, the level of inflationary increases are usually capped to protect the scheme against extreme inflation. The majority of the schemes’ assets are either unaffected by inflation in the case of fixed interest bonds or loosely correlated in the case of equities, meaning that an increase in inflation will thus increase the deficit. In the US schemes, the pensions in payment are not linked to inflation, so this is a less material risk. Life expectancy The majority of the schemes’ obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the schemes’ liabilities. This is particularly significant in the UK scheme, where inflationary increases result in higher sensitivity to changes in life expectancy. In the case of the funded schemes, the Group ensures that the investment positions are managed within an asset-liability matching (ALM) framework that has been developed to achieve long-term investments that are cognisant of the obligations under the pension schemes. Within this framework, the Group’s ALM objective is to match a portion of assets to the pension obligations by investing in long-term fixed interest securities with maturities that match the benefit payments as they fall due and in the appropriate currency. The Group and Trustees actively monitor how the duration and the expected yield of the investments are matching the expected cash outflows arising from the pension obligations. The Group has not changed the processes used to manage its risks from previous years. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. A significant portion of assets in 2021 consists of equities and bonds, although the schemes also invest in property, cash and infrastructure funds. The Group believes that equities offer the best returns over the long term with an acceptable level of risk. The UK scheme makes use of a portfolio of derivative instruments to mitigate interest rate and inflation risk. The latest triennial valuation of the UK scheme was completed as at 30 September 2020. As a result, no deficit funding payments to this scheme are required prior to completion of the next triennial valuation (as at 30 September 2023). The funding review of our US scheme is undertaken annually. As at 1 December 2020 the scheme was 142.8% funded. Croda International Plc | | | 142 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | | | 2021 2020 2021 2020 | | | | Current service cost Remeasurements – change in financial assumptions Exchange differences on overseas schemes Present value of unfunded obligations US scheme Movement in present value of Opening balance Interest cost Remeasurements Remeasurements Benefits paid | 15.1 14.1 (1.2) (0.3) (0.4) 1.7 0.3 0.4 £m £m £m £m | | | Croda International Plc ## 142 Annual report an d Accounts 2021 ### Financial statements (continued) ### Financial statements The expected distribution of the timing of discounted benefit payments is as follows: ### Notes to the Group Accounts (continued) a year 1–2 years 2–5 years 5 years Total ### 11. Post-retirement benefits continued -employment medical benefits 0.5 0.5 1.6 10.9 13.5 Post-employment medical benefits The Group operates an unfunded post-employment medical benefit scheme in the US. The method of accounting, significant assumptions and the frequency of valuations are similar to those used for defined benefit pension schemes set out above with the addition of actuarial assumptions Defined contribution schemes relating to the long-term increase in health care costs of 5.0% a year (2020: 5.0%). The amounts recognised in the balance sheet in respect of this scheme are as follows: ### 12. Intangible assets 13.5 15.1 Technology Customer Trade names Other Goodwill Software processes relationships and brands intangibles Total retirement benefit obligations in the year: 3.1 (0.1) 1.8 (1.0) (0.3) (0.2) 3.3 0.4 0.4 515.1 0.8 90.8 183.5 82.8 0.3 873.3 – change in demographic assumptions – (0.2) – experience gains (0.9) (0.3) 866.7 35.7 154.3 218.6 89.4 3.9 1,368.6 0.1 (0.6) 13.5 15.1 – 5.5 – – – 0.2 5.7 Pension and medical benefits – risks and volatility -offs – (4.0) – – – – (4.0) Through its defined benefit pension schemes and post-employment medical schemes, the Group is exposed to a number of risks, the most significant of which are detailed below: Asset volatility The schemes’ liabilities are calculated using a discount rate set with reference to corporate bond yields; if scheme assets underperform this yield, a deficit will be created. The schemes hold a significant proportion of equities, which are expected to outperform corporate bonds in the long term while providing volatility and risk in the short term. As the schemes mature, the Group intends to reduce the level of investment risk by investing – 0.1 0.7 0.1 0.1 – 1.0 more in assets that better match the liabilities. However, the Group and the pension trustees (Trustees) believe that due to the long term nature of the scheme liabilities and the strength of the supporting Group, a level of continuing equity investment is an appropriate element of the Group’s long – – 0.1 – – (0.1) – term strategy to manage the schemes efficiently. See below for more details on the Group’s asset-liability matching strategy. – 19.6 22.2 10.9 2.6 1.6 56.9 Changes in bond yields 1 January 2021 – 19.6 22.2 10.9 2.6 1.6 56.9 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’ – (0.8) (1.6) (0.7) (0.1) – (3.2) bond holdings. 3) – 2.7 15.8 12.9 5.0 0.6 37.0 Inflation risk -offs – (0.9) – – – – (0.9) Some of the Group’s pension obligations are linked to inflation, and higher inflation will lead to higher liabilities. However, the level of inflationary – (0.2) – – – 0.2 – increases are usually capped to protect the scheme against extreme inflation. The majority of the schemes’ assets are either unaffected by inflation 31 December 2021 – 20.4 36.4 23.1 7.5 2.4 89.8 in the case of fixed interest bonds or loosely correlated in the case of equities, meaning that an increase in inflation will thus increase the deficit. In the US schemes, the pensions in payment are not linked to inflation, so this is a less material risk. Life expectancy The majority of the schemes’ obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase 2020 866.7 16.1 132.1 207.7 86.8 2.3 1,311.7 in the schemes’ liabilities. This is particularly significant in the UK scheme, where inflationary increases result in higher sensitivity to changes in life January 2020 348.5 12.0 48.1 29.7 5.5 1.5 445.3 expectancy. In the case of the funded schemes, the Group ensures that the investment positions are managed within an asset-liability matching (ALM) framework that has been developed to achieve long-term investments that are cognisant of the obligations under the pension schemes. Intangible asset amortisation is recorded in operating costs within the income statement on page 120. Within this framework, the Group’s ALM objective is to match a portion of assets to the pension obligations by investing in long-term fixed interest securities with maturities that match the benefit payments as they fall due and in the appropriate currency. The Group and Trustees actively monitor how the duration and the expected yield of the investments are matching the expected cash outflows arising from the pension obligations. The Group has not changed the processes used to manage its risks from previous years. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. A significant portion of assets in 2021 consists of equities and bonds, although the schemes also invest in property, cash and infrastructure funds. The Group believes that equities offer the best returns over the long term with an acceptable level of risk. The UK scheme makes use of a portfolio of derivative instruments to mitigate interest rate and inflation risk. The latest triennial valuation of the UK scheme was completed as at 30 September 2020. As a result, no deficit funding payments to this scheme are required prior to completion of the next triennial valuation (as at 30 September 2023). The funding review of our US scheme is undertaken annually. As at 1 December 2020 the scheme was 142.8% funded. Croda International Plc | | | | | | | | | | | | Annual Report and Accounts 2021 | 143 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | Less than Between Between | Beyond | | | | | | | | | | 2021 2021 | 2020 2020 | | | 2021 2020 | | | | | | | Present value of unfunded obligations US scheme Movement in present value of Opening balance Current service cost Interest cost Remeasurements Remeasurements – change in financial assumptions Remeasurements Benefits paid Exchange differences on overseas schemes | | | 15.1 (1.2) (0.3) 0.3 £m £m | 14.1 (0.4) 0.4 1.7 £m £m | Post Exchange differences Disposals and write At 31 December 2021 At 1 January 2020 Reclassifications At Disposals and write At Cost Additions Pension benefits Contributions paid charged to operating profit Reclassifications At 31 December 2020 At 1 January 2021 Additions Acquisitions Reclassifications Accumulated amortisation Exchange differences Charge for the year (note 3) At 31 December 2020 Exchange differences Charge for the year (note Reclassifications Net carrying amount At 31 December 2021 At 31 December At 1 At 1 January 2020 Exchange differences Acquisitions | 1,361.4 1,368.6 1,271.6 1,104.1 1,318.7 1,115.0 1,332.2 | 852.0 152.6 226.4 866.7 154.3 218.6 852.0 116.2 203.3 348.5 485.5 133.5 135.1 (34.7) (10.2) (57.8) 36.4 89.1 17.5 13.6 40.2 35.7 89.4 20.0 18.0 48.4 15.7 16.0 81.6 29.5 61.7 36.1 40.4 40.7 40.9 41.2 (0.7) (7.6) (4.5) (0.1) (0.3) (0.1) 4.9 6.4 1.3 1.4 5.3 0.1 0.9 6.3 7.8 6.1 0.2 0.2 3.9 0.2 6.0 4.2 0.9 0.5 2.0 7.8 4.4 1.2 0.3 2.5 6.8 2.9 £m £m | £m £m £m £m £m £m £m £m £m £m £m £m – – – – – – – – – – – – – – | | | | | | | Croda International Plc | | | | | | | | | Croda International Plc | | | | 142 | Annual report an | d Accounts 2021 | | | 143 | | | | Annual report and Accounts 2021 | | | | ### Financial statements (continued) ### Notes to the Group Accounts (continued) ### 12. Intangible assets continued Impairment testing for CGUs containing goodwill The Group’s goodwill balance predominantly relates to the value of commercial and other synergies arising from the combination of acquired businesses with Croda’s established global sales, marketing and R&D networks. This goodwill is allocated to the Group’s Cash Generating Units (CGUs) expected to benefit from that combination based on the smallest identifiable group of assets that generate independent cash inflows. As discussed in the accounting policies note on page 127, goodwill is tested at each year end for impairment with reference to the relevant CGU's recoverable amount compared to the unit's carrying value including goodwill. Assets are grouped at the lowest level for which there are separately identifiable cash flows relevant to the acquisition generating the goodwill. The recoverable amount is based on the higher of fair value less cost to sell and value in use calculations using discounted cash flow projections with the following key assumptions: • Terminal value growth rates – set for each CGU with reference to the long-term growth rate for the market and territory in which the CGU operates • Discount rate – set using a weighted average cost of capital adjusted for the specific risk profile of each CGU • Cash flow projections – based on key assumptions including revenue growth, operating margins and forecast period. The carrying amount of goodwill is allocated to CGUs as follows: CGUs goodwill Total CGUs goodwill Total Sciences 151.2 69.5 220.7 156.6 69.8 226.4 6.6 – 6.6 6.4 – 6.4 The allocated goodwill primarily relates to £59m (2020: £63m) associated with the 2020 acquisition of Iberchem as it relates to revenue synergies with Croda’s existing Consumer Care business and £192m (2020: £192m) associated with the 2006 acquisition of Uniqema (with all other balances individually less than £10m). Due to the geographical and operational scale of the Uniqema acquisition, this goodwill balance is tested for impairment at an operating segment level. Standalone CGUs operate independently of the Group’s core regional operating assets, are capable of generating largely independent cash inflows and are therefore annually tested separately for impairment. For impairment testing performed at an operating segment level, cash flow projections are based on the Group's current year results and a growth rate of 3% (an appropriate view based on past experience reflecting the market and territories in which the Group operates), discounted using a weighted average cost of capital, which for these purposes has been calculated to be approximately 8.5% pre-tax (2020: 8.3%). No reasonably possible changes in key assumptions would cause the recoverable amount of the operating segments to be less than their carrying value. Based on the testing performed, no impairment has been recognised for the year ended 31 December 2021. Standalone CGUs The carrying amount of goodwill is allocated to Standalone CGUs as follows: 67.6 72.1 22.1 21.3 2.3 2.4 – Fragrances 242.2 258.5 6.3 – Croda International Plc | | | | 144 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | --- | | Standalone Standalone Allocated | Allocated | | | | | | | 2021 2020 | | | | Life Biosector Rewitec Iberchem – Flavours Consumer Care Performance Technologies Industrial Chemicals Incotec Sipo Ionphase Avanti Iberchem Alban Muller Parfex | 596.0 605.1 852.0 866.7 210.6 214.7 284.5 289.0 385.4 390.4 567.5 577.7 28.7 28.8 2021 2020 24.3 24.3 | 123.6 131.9 4.4 4.5 567.5 577.7 £m £m £m £m £m £m 24.6 26.2 59.0 58.3 13.3 6.5 7.0 £m £m | – | | Croda International Plc ## 144 Annual report an d Accounts 2021 ### Financial statements (continued) ### Financial statements For impairment testing performed at a Standalone CGU level, the recoverable amount for Sipo, Ionphase and Rewitec CGUs was based on fair value Notes to the Group Accounts (continued) less cost to sell as they form part of the Performance Technologies and Industrial Chemicals business disposal. For other Standalone CGUs the recoverable amount was based on value in use calculations. Incotec and Avanti cash flow projections have been based on specific estimates for five years, with Biosector and Iberchem CGUs using 10-year projections to better reflect the industry and territory in which they operate and the period through to when they are expected to reach a steady state of operation. Unless otherwise stated, these cash flow projections assume an ### 12. Intangible assets continued appropriate view of past experience, specifically that the market share will not change significantly and that gross and operating margins will remain Impairment testing for CGUs containing goodwill broadly constant. The terminal value growth rates and discount rates applied in these CGU level calculations are set out below: The Group’s goodwill balance predominantly relates to the value of commercial and other synergies arising from the combination of acquired businesses with Croda’s established global sales, marketing and R&D networks. This goodwill is allocated to the Group’s Cash Generating Units growth rate discount rate (CGUs) expected to benefit from that combination based on the smallest identifiable group of assets that generate independent cash inflows. As discussed in the accounting policies note on page 127, goodwill is tested at each year end for impairment with reference to the relevant CGU's 3.0% 3.0% 11.9% 11.0% recoverable amount compared to the unit's carrying value including goodwill. Assets are grouped at the lowest level for which there are separately identifiable cash flows relevant to the acquisition generating the goodwill. The recoverable amount is based on the higher of fair value less cost to sell berchem – Fragrances 3.0% n/a 10.5% n/a and value in use calculations using discounted cash flow projections with the following key assumptions: • Terminal value growth rates – set for each CGU with reference to the long-term growth rate for the market and territory in which the CGU operates • Discount rate – set using a weighted average cost of capital adjusted for the specific risk profile of each CGU Based on the annual impairment testing performed, no impairment has been recognised for the year ended 31 December 2021, and all Standalone • Cash flow projections – based on key assumptions including revenue growth, operating margins and forecast period. CGUs remain on track to perform to our long-term expectations. In forming this conclusion, the Directors have reviewed sensitivity analysis which considered all reasonably possible downsides on key assumptions, both individually and in combination, and considered whether these would give The carrying amount of goodwill is allocated to CGUs as follows: rise to an impairment. This analysis concluded that no reasonably possible changes in key assumptions would cause the recoverable amount of the Standalone CGUs to be less than the carrying value, other than for the Iberchem CGUs. For the Iberchem CGUs, the assumptions underpinning the cash flow projections used in the value in use calculation reflect delivery of the CGUs goodwill Total CGUs goodwill Total acquisition business plan, which the business remains on track to achieve in the medium to long term. These projections use an appropriate view of past experience, specifically that operating margins will improve and sales growth targets will be achieved resulting in approximately 10% compound average growth rates ('CAGR') at a sales level and operating profit level over the period. The estimated recoverable amount of the CGUs exceeded Sciences 151.2 69.5 220.7 156.6 69.8 226.4 their carrying value by approximately £27m (Fragrances: £17m, Flavours: £10m) and therefore the Directors concluded that no impairment was required; however, the calculations are sensitive to changes in key assumptions. The key assumptions considered by the Directors, where a 6.6 – 6.6 6.4 – 6.4 reasonably possible change could give rise to an impairment, were the projection period operating profit CAGR, terminal value growth rate and discount rate. If the Fragrances/Flavours operating profit CAGR assumptions were reduced by 0.4%/0.6% or the pre-tax discount rates increased by 0.2%/0.3%, then the CGUs' recoverable amount would be reduced to a level comparable with the carrying value. A 1% decrease in the terminal The allocated goodwill primarily relates to £59m (2020: £63m) associated with the 2020 acquisition of Iberchem as it relates to revenue synergies value growth rate, which, although not management's current expectation, is considered to be reasonably possible, would lead to an impairment with Croda’s existing Consumer Care business and £192m (2020: £192m) associated with the 2006 acquisition of Uniqema (with all other balances charge of £45m (Fragrances: £32m, Flavours: £13m). individually less than £10m). Due to the geographical and operational scale of the Uniqema acquisition, this goodwill balance is tested for impairment Goodwill arising in the year was assessed for impairment with reference to the consideration paid and no impairment has been recognised. This at an operating segment level. Standalone CGUs operate independently of the Group’s core regional operating assets, are capable of generating goodwill will be subject to the same annual review process commencing the year after initial recognition. Parfex goodwill will be tested alongside the largely independent cash inflows and are therefore annually tested separately for impairment. Iberchem – Fragrances CGU in line with the level at which goodwill is monitored. For impairment testing performed at an operating segment level, cash flow projections are based on the Group's current year results and a growth rate of 3% (an appropriate view based on past experience reflecting the market and territories in which the Group operates), discounted using a weighted average cost of capital, which for these purposes has been calculated to be approximately 8.5% pre-tax (2020: 8.3%). No reasonably possible changes in key assumptions would cause the recoverable amount of the operating segments to be less than their carrying value. Based on the testing performed, no impairment has been recognised for the year ended 31 December 2021. Standalone CGUs The carrying amount of goodwill is allocated to Standalone CGUs as follows: 67.6 72.1 22.1 21.3 2.3 2.4 – Fragrances 242.2 258.5 6.3 – Croda International Plc | | | | | | | | | | | | | | | | | | | | | | | | Annual Report and Accounts 2021 | 145 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Standalone | | | Allocated | | | | | Standalone | | | Allocated | | | | Terminal value | Pre-tax | | | | | | | | | | | | | | | | | | | | | 2021 | | 2020 | | | | | | | | | | Consumer Care Life Performance Technologies Industrial Chemicals Incotec Biosector Sipo Ionphase Rewitec Avanti Iberchem Iberchem – Flavours Alban Muller Parfex | | | | 385.4 567.5 24.3 | £m | | 210.6 284.5 | 4.4 £m | 596.0 852.0 28.7 2021 | £m | | 390.4 577.7 24.3 | £m | 123.6 567.5 24.6 59.0 13.3 6.5 214.7 289.0 £m | 4.5 £m | 605.1 866.7 131.9 577.7 28.8 2020 26.2 58.3 7.0 £m | £m – | Incotec I Biosector Avanti Iberchem – Flavours | 11.0% 10.4% 3.0% 8.9% 3.0% 3.0% 3.0% 8.5% | 2021 2020 2021 2020 n/a n/a n/a n/a | | | | | | | Croda International Plc | | | | | | | | | | | | | | | | | | | | | Croda International Plc | | | | 144 | Annual report an | d Accounts 2021 | | | | | | | | | | | | | | | | 145 | | | Annual report and Accounts 2021 | | | | ### Financial statements (continued) ### Notes to the Group Accounts (continued) ### 13. Property, plant and equipment buildings equipment Total 2020 198.6 1,107.8 1,306.4 20.2 94.8 115.0 -offs (0.1) (3.3) (3.4) 2021 256.9 1,199.7 1,456.6 40.2 112.8 153.0 -offs (0.6) (8.8) (9.4) 2021 296.9 1,284.3 1,581.2 76.0 425.2 501.2 3) 6.9 48.6 55.5 (0.1) 0.1 – 83.9 471.9 555.8 3) 8.5 54.6 63.1 (0.9) 0.9 – 2021 209.1 779.0 988.1 173.0 727.8 900.8 1 January 2020 122.6 682.6 805.2 The value of assets under construction not yet subject to depreciation at 31 December was as follows: 42.8 16.9 Croda International Plc | | | | 146 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | --- | | | Land and Plant and | | | | | | | 2021 2020 | | | | Cost Additions Reclassifications to intangible assets Additions Reclassifications to intangible assets Accumulated depreciation and impairment losses Charge for the year (note Impairments Charge for the year (note Plant and equipment At 1 January Exchange differences Acquisitions Other disposals and write At 31 December 2020 At 1 January Exchange differences Acquisitions Other disposals and write At 31 December At 1 January 2020 Exchange differences Other disposals and write-offs Reclassifications At 31 December 2020 At 1 January 2021 Exchange differences Other disposals and write-offs Reclassifications At 31 December 2021 Net book amount At 31 December At 31 December 2020 At Assets under construction Land and buildings | 1,199.7 1,456.6 | 178.6 153.7 256.9 471.9 555.8 505.3 593.1 221.4 170.6 (11.5) (12.1) (24.6) (31.5) (16.0) (19.1) 32.5 18.4 50.9 13.0 83.9 87.8 (6.5) (0.2) (2.6) (0.5) (0.6) (6.9) (0.1) (2.9) (3.0) (3.1) (0.6) (6.1) (6.7) 6.3 2.1 0.7 0.4 1.1 9.9 3.1 0.5 0.5 1.0 £m £m £m £m £m | | | Croda International Plc ## 146 Annual report an d Accounts 2021 ### Financial statements (continued) ### Financial statements ### 14. Leases ### Notes to the Group Accounts (continued) Right of use assets buildings equipment Total ### 13. Property, plant and equipment 2020 48.4 9.3 57.7 buildings equipment Total 42.6 1.2 43.8 2020 198.6 1,107.8 1,306.4 2.4 0.1 2.5 20.2 94.8 115.0 -offs (0.1) (3.3) (3.4) 2021 91.1 10.0 101.1 10.1 7.6 17.7 2021 256.9 1,199.7 1,456.6 0.8 0.5 1.3 40.2 112.8 153.0 2021 101.7 17.2 118.9 -offs (0.6) (8.8) (9.4) 2021 296.9 1,284.3 1,581.2 2020 9.1 2.4 11.5 3) 9.0 1.6 10.6 76.0 425.2 501.2 0.3 – 0.3 | | 3) 6.9 48.6 55.5 | | 2020 17.5 3.5 21.0 | | | | | --- | --- | --- | --- | --- | --- | --- | | (0.1) | | 0.1 – | | | | | | | | | | (0.2) | (0.2) | (0.4) | | | | | | write-offs (2.3) | (0.5) | (2.8) | 83.9 471.9 555.8 3) 8.5 54.6 63.1 (0.9) 0.9 – 2021 209.1 779.0 988.1 Lease liabilities 173.0 727.8 900.8 1 January 2020 122.6 682.6 805.2 12.2 10.7 The value of assets under construction not yet subject to depreciation at 31 December was as follows: A maturity analysis of contractual undiscounted cash flows relating to lease liabilities is presented within note 20. 42.8 16.9 In addition to the lease liabilities recognised at 31 December 2021 the Group has committed to new lease contracts, commencing in 2022, with a total discounted value of £0.8m. Croda International Plc | | | | | | | | | | | | | | | Annual Report and Accounts 2021 | 147 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Land and | | Plant and | | | | | Land and Plant and | | | | | | | | | | | | | 2021 | | 2020 | | | 2021 2020 | | | | | | Cost At 1 January Exchange differences Additions Acquisitions Other disposals and write Reclassifications to intangible assets At 31 December 2020 At 1 January Exchange differences Additions Acquisitions Other disposals and write Reclassifications to intangible assets At 31 December Accumulated depreciation and impairment losses At 1 January 2020 Exchange differences Charge for the year (note Other disposals and write-offs Reclassifications Impairments At 31 December 2020 At 1 January 2021 Exchange differences Charge for the year (note Other disposals and write-offs Reclassifications At 31 December 2021 Net book amount At 31 December At 31 December 2020 At Assets under construction Land and buildings Plant and equipment | | | | 256.9 32.5 83.9 87.8 (0.6) (6.9) (2.6) (0.1) (3.1) (0.6) 6.3 9.9 0.5 0.7 £m | 1,199.7 | 471.9 505.3 178.6 221.4 (11.5) (24.6) (16.0) 18.4 (6.5) (2.9) (6.1) 3.1 2.1 0.5 0.4 £m £m | 1,456.6 | 555.8 593.1 153.7 170.6 (12.1) (31.5) (19.1) 50.9 13.0 (0.2) (0.5) (3.0) (6.7) 1.0 1.1 £m £m | At 1 January Remeasurements At 1 January Remeasurements At 1 January Other disposals and write-offs At 31 December Exchange differences Net book amount Non-current Cost Exchange differences Additions Acquisitions Other disposals and write-offs At 31 December 2020 Exchange differences Additions Acquisitions Other disposals and write-offs At 31 December Accumulated depreciation and impairment losses Exchange differences Charge for the year (note Impairments At 1 January 2021 Charge for the year (note 3) Other disposals and At 31 December 2021 At 31 December 2021 At 31 December 2020 At 1 January 2020 Lease liabilities included in the Group balance sheet Current | | 101.1 21.0 13.2 31.0 87.9 80.1 46.2 78.3 71.0 91.1 10.0 17.5 10.9 25.9 75.8 12.1 73.6 39.3 90.5 81.7 (0.4) (0.8) (2.0) (2.3) (0.5) (1.0) (0.9) (1.3) (2.8) (3.4) (0.5) (0.6) (0.4) (0.3) (0.5) (0.4) (0.6) (0.1) 0.2 0.2 0.4 3.4 0.1 3.5 3.5 2.3 5.1 6.5 6.9 £m £m £m £m £m | | | | | | | Croda International Plc | | | | | | | | | | | | Croda International Plc | | | | 146 | Annual report an | d Accounts 2021 | | | | | | | 147 | | | Annual report and Accounts 2021 | | | | ### Financial statements (continued) ### Notes to the Group Accounts (continued) ### 14. Leases continued Amounts recognised in the Group income statement -term leases 0.3 0.5 0.5 0.4 – 0.3 Total cash outflow for leases short-term, low value and variable lease components 1.4 1.0 ### 15. Future commitments Intangible assets 0.8 1.8 Property, plant and equipment 106.4 72.3 ### 16. Investments The amounts recognised in the balance sheet are as follows: 3.3 3.4 3.3 5.2 During the year, the Group impaired the carrying value of its minority shareholding in Cutitronics Limited resulting in a charge to the income statement of £1.1m. There have been no material changes in other investments during the year. All assets recognised as other investments on the Group balance sheet are non-quoted equity securities measured at fair value. The amounts recognised within administrative expenses in the income statement are as follows: associate 1.1 – 1.8 1.1 Croda International Plc | | | 148 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | | | 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 | | | | Expenses relating to low value leases, excluding short-term leases of low value assets Impairment of right of use assets Payment of At 31 December the Directors had authorised the following expenditure on capital projects: Other investments Impairment of Interest on lease liabilities Expenses relating to short Expenses relating to variable lease components Depreciation of right of use assets Profit on disposal of right of use assets Payment of lease liabilities Group capital projects Contracted, but not provided for Authorised, but not contracted for Associate Share of loss of associate Intangible assets Property, plant and equipment | 130.2 118.8 16.7 13.3 15.8 13.2 10.6 14.4 19.3 41.1 (0.1) (0.1) 0.6 0.1 8.6 3.7 3.6 2.2 1.5 7.6 1.8 0.7 1.1 £m £m £m £m £m £m £m £m £m £m | – | | Croda International Plc ## 148 Annual report an d Accounts 2021 ### Financial statements (continued) ### Financial statements ### 17. Inventories ### Notes to the Group Accounts (continued) 56.0 39.8 ### 14. Leases continued Amounts recognised in the Group income statement The Group consumed £950.7m (2020: £758.2m) of inventories during the year. -term leases 0.3 0.5 ### 18. Trade and other receivables 0.5 0.4 £m £m – 0.3 (2.9) (2.5) 45.9 41.6 Total cash outflow for leases The ageing of the Group’s year end overdue receivables against which no provision has been made is as follows: short-term, low value and variable lease components 1.4 1.0 red ### 15. Future commitments 6.3 5.2 The provision for impairment of receivables principally relates to customers in unexpectedly difficult economic circumstances. The overdue receivables against which no provision has been made relate to a number of customers for whom there is no recent history of default, nor any other indication that Intangible assets 0.8 1.8 settlement will not be forthcoming. The other classes within trade and other receivables do not contain impaired assets and are considered to be fully recoverable. Overall, the impact from COVID-19 on the Group's provision for impairment of trade receivables has been immaterial. Property, plant and equipment 106.4 72.3 The carrying amounts of the Group’s receivables are denominated in the following currencies: 17.2 11.9 ### 16. Investments The amounts recognised in the balance sheet are as follows: 106.4 105.4 3.3 3.4 Movements on the Group’s provision for impairment of trade receivables are as follows: 3.3 5.2 During the year, the Group impaired the carrying value of its minority shareholding in Cutitronics Limited resulting in a charge to the income statement of £1.1m. There have been no material changes in other investments during the year. All assets recognised as other investments on the harged to income statement 0.4 0.5 Group balance sheet are non-quoted equity securities measured at fair value. The amounts recognised within administrative expenses in the income statement are as follows: 2.9 2.5 Amounts charged to the income statement are included within administrative expenses. associate 1.1 – 1.8 1.1 Croda International Plc | | | | | | | | | | | | Annual Report and Accounts 2021 | 149 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 2021 2021 2021 2021 2021 | | 2020 2020 2020 2020 2020 | | 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 | | | | | | | Interest on lease liabilities Expenses relating to short Expenses relating to low value leases, excluding short-term leases of low value assets Expenses relating to variable lease components Depreciation of right of use assets Impairment of right of use assets Profit on disposal of right of use assets Payment of lease liabilities Payment of Group capital projects At 31 December the Directors had authorised the following expenditure on capital projects: Contracted, but not provided for Authorised, but not contracted for Associate Other investments Share of loss of associate Impairment of Property, plant and equipment Intangible assets | | | 130.2 13.2 16.7 14.4 15.8 19.3 (0.1) 2.2 0.6 3.7 0.7 £m £m £m £m £m | – | 118.8 10.6 13.3 41.1 (0.1) 1.5 0.1 7.6 8.6 1.8 1.1 3.6 £m £m £m £m £m | Work in progress Trade receivables Prepayments Not impai Over six months Euro C At 31 December Raw materials Finished goods Amounts falling due within one year Less: provision for impairment of receivables Trade receivables – net Other receivables Less than three months Three to six months Sterling US Dollar Other At 1 January Net write-off of uncollectible receivables | 443.0 302.6 280.3 241.0 337.9 289.9 121.8 265.2 198.9 277.4 238.5 337.9 289.9 112.0 102.3 14.6 63.9 39.1 29.5 46.5 39.1 75.5 97.1 (0.2) 9.8 1.1 4.4 2.5 2.2 £m £m | £m £m £m £m £m £m – | | | | | | | Croda International Plc | | | | | | | | | Croda International Plc | | | | 148 | Annual report an | d Accounts 2021 | | | | 149 | | | Annual report and Accounts 2021 | | | | ### Financial statements (continued) ### Notes to the Group Accounts (continued) ### 19. Trade and other payables 15.7 10.3 132.5 83.8 All trade payables are payable within one year. Included in the above are balances payable after one year of £8.5m (2020: £26.1m) contingent consideration and £3.8m (2020: £1.0m) other payables. During the period, contingent consideration has decreased by £6.2m due to fair value movements and £9.2m due to payments, increasing by £3.3m for the unwind of discounting and £0.1m for foreign exchange. Fair value movements in the year reflect the latest estimate of future revenue forecasts for applicable products. As at 31 December 2021, the undiscounted fair value of contingent consideration in respect of the Avanti acquisition was £26.9m, capped at a maximum remaining amount of £35.2m. ### 20. Borrowings, other financial liabilities and other financial assets This note should be read in conjunction with the further liquidity disclosures in our accounting policies note and the Finance Review on pages 46 to 49. -current assets – Investments 3.3 5.2 contingent consideration, accruals and deferred income) 192.2 134.4 21.9 30.8 12.2 10.7 6 262.2 218.1 74.1 73.2 note 58.7 62.7 note 70.0 70.0 65.0 65.0 9.8 1.8 ease liabilities 78.3 71.0 872.9 847.2 During October 2021, the Group extended the existing 2019 Club facility by a further year, resetting its five-year term and resulting in a maturity date of October 2026. Interest is charged on this agreement at a floating rate based on ICE GBP LIBOR, ICE LIBOR or EURIBOR, depending upon the drawdown currency, plus a variable margin. Due to the cessation of ICE GBP LIBOR at the end of 2021, the Group updated the existing 2019 Club facility to include SONIA (Risk Free Rate) for GBP based borrowings. Until 31 December 2021, GBP borrowings were drawn using ICE GBP LIBOR. In July 2020 the Group arranged a three-year amortising Term Loan for US$200m. Interest is charged on this agreement at a floating rate based on ICE LIBOR plus a variable margin. The margin the Group pays on this borrowing over and above standard rates is determined by the Group's net debt to EBITDA ratio. Croda International Plc | | | 150 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | | | 2021 2020 2021 2020 | | | | Taxation and social security Contingent consideration Assets Trade and other payables (excluding taxation, social security, Other loans Non-current liabilities US$100m 3.75% fixed rate 10 year note £30m 2.54% fixed rate 7 year note £65m 2.46% fixed rate 8 year note Other unsecured bank loans Trade payables Other payables Accruals and deferred income Non Current assets – Trade and other receivables (excluding prepayments) Current liabilities US$200m 3 year term loan due 2023 Unsecured bank loans and overdrafts due within one year or on demand Lease liabilities 2019 Club facility due 202 US$200m 3 year term loan due 2023 €30m 1.08% fixed rate 7 year note €70m 1.43% fixed rate 10 year £70m 2.80% fixed rate 10 year €50m 1.18% fixed rate 8 year note US$60m 3.70% fixed rate 10 year note Other secured bank loans L | 255.3 194.2 133.2 370.3 267.6 323.3 280.1 326.6 285.3 110.9 138.5 26.1 38.1 14.5 11.3 30.0 30.0 97.8 62.8 37.6 14.5 25.2 26.9 41.9 44.8 44.5 43.9 2.3 1.3 7.0 £m £m £m £m | | | Croda International Plc ## 150 Annual report an d Accounts 2021 ### Financial statements (continued) ### Financial statements ### Notes to the Group Accounts (continued) ### 19. Trade and other payables Bank loans and overdrafts 36.4 37.8 50.9 49.1 15.7 10.3 132.5 83.8 Within two to five years 397.9 385.4 All trade payables are payable within one year. Included in the above are balances payable after one year of £8.5m (2020: £26.1m) contingent 794.6 776.2 consideration and £3.8m (2020: £1.0m) other payables. During the period, contingent consideration has decreased by £6.2m due to fair value movements and £9.2m due to payments, increasing by £3.3m for the unwind of discounting and £0.1m for foreign exchange. Fair value movements in the year reflect the latest estimate of future revenue forecasts for applicable products. As at 31 December 2021, the undiscounted fair value of contingent consideration in respect of the Avanti acquisition was £26.9m, capped at a maximum remaining amount of £35.2m. liabilities fall due as follows: ### 20. Borrowings, other financial liabilities and other financial assets Within one to two years 13.0 11.8 This note should be read in conjunction with the further liquidity disclosures in our accounting policies note and the Finance Review on pages 46 to 49. Five years and over 54.6 55.0 liabilities (16.4) (17.0) -current assets – Investments 3.3 5.2 90.5 81.7 contingent consideration, accruals and deferred income) 192.2 134.4 21.9 30.8 Bank loans and overdrafts 38.3 Other loans 15.1 11.8 12.2 10.7 66.3 62.8 6 262.2 218.1 Within one to two years 187.6 45.3 74.1 73.2 Five years and over 245.5 391.4 note 58.7 62.7 Within one to two years 13.0 11.8 note 70.0 70.0 Five years and over 54.6 55.0 65.0 65.0 962.6 946.6 9.8 1.8 The analysis above includes estimated interest payable to maturity on the underlying loans. For the loans due after more than one year £14.9m (2020: £14.3m) of the interest falls due within one year of the balance sheet date, £13.4m (2020: £14.0m) within one to two years, £33.7m (2020: ease liabilities 78.3 71.0 £34.0m) within two to five years and £13.5m (2020: £22.1m) beyond five years. 872.9 847.2 During October 2021, the Group extended the existing 2019 Club facility by a further year, resetting its five-year term and resulting in a maturity date of October 2026. Interest is charged on this agreement at a floating rate based on ICE GBP LIBOR, ICE LIBOR or EURIBOR, depending upon the drawdown currency, plus a variable margin. Due to the cessation of ICE GBP LIBOR at the end of 2021, the Group updated the existing 2019 Club facility to include SONIA (Risk Free Rate) for GBP based borrowings. Until 31 December 2021, GBP borrowings were drawn using ICE GBP LIBOR. In July 2020 the Group arranged a three-year amortising Term Loan for US$200m. Interest is charged on this agreement at a floating rate based on ICE LIBOR plus a variable margin. The margin the Group pays on this borrowing over and above standard rates is determined by the Group's net debt to EBITDA ratio. Croda International Plc | | | | | | | | | | Annual Report and Accounts 2021 | 151 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 2021 2021 | 2020 2020 | | 2021 2020 2021 2020 | | | | | | Trade payables Taxation and social security Other payables Accruals and deferred income Contingent consideration Assets Non Current assets – Trade and other receivables (excluding prepayments) Current liabilities Trade and other payables (excluding taxation, social security, US$200m 3 year term loan due 2023 Unsecured bank loans and overdrafts due within one year or on demand Other loans Lease liabilities Non-current liabilities 2019 Club facility due 202 US$200m 3 year term loan due 2023 US$100m 3.75% fixed rate 10 year note €30m 1.08% fixed rate 7 year note €70m 1.43% fixed rate 10 year £30m 2.54% fixed rate 7 year note £70m 2.80% fixed rate 10 year €50m 1.18% fixed rate 8 year note £65m 2.46% fixed rate 8 year note US$60m 3.70% fixed rate 10 year note Other secured bank loans Other unsecured bank loans L | | | 133.2 370.3 323.3 326.6 255.3 110.9 62.8 26.1 14.5 14.5 25.2 30.0 41.9 44.5 2.3 £m £m | 267.6 280.1 285.3 194.2 138.5 97.8 37.6 38.1 11.3 26.9 30.0 44.8 43.9 7.0 1.3 £m £m | Repayments fall due as follows: After more than one year Future finance charges on lease Loans repayable Maturity profile of financial liabilities Within one year Loans repayable The minimum lease payments under lease Present value of lease liabilities Undiscounted maturity analysis of financial liabilities Within one year After more than one year Lease liabilities Other loans Lease liabilities Within two to five years Within one to two years Five years and over Lease liabilities Within one year Within two to five years Lease liabilities Within two to five years | 872.9 847.2 171.2 225.5 360.0 106.9 437.0 423.9 14.5 11.3 12.2 10.7 36.8 24.9 19.2 63.1 59.8 30.8 78.3 71.0 14.4 12.7 24.9 19.2 98.7 14.4 12.7 £m £m £m £m | | | | | | | Croda International Plc | | | | | | | Croda International Plc | | | | 150 | Annual report an | d Accounts 2021 | | | 151 | | Annual report and Accounts 2021 | | | | ### Financial statements (continued) ### Notes to the Group Accounts (continued) ### 20. Borrowings, other financial liabilities and other financial assets continued Interest rate and currency profile of Group financial liabilities 299.0 118.6 180.4 3.73 7.9 59.2 – 59.2 – – 936.0 409.4 526.6 2.53 5.3 287.0 117.1 169.9 3.73 8.9 95.5 – 95.5 – – Fair values Prior to 2016, the Group did not typically utilise complex financial instruments and accordingly the only element of Group borrowings where fair value differed from book value was the US$100m fixed rate 10-year note that was issued in 2010. In January 2020 the existing US$100m fixed rate 10- year note matured and was repaid, this was replaced with a new US$100m fixed rate 10-year note (27 January 2020). On 27 June 2016, the Group issued £100m and €100m of fixed rate notes. On 6 June 2019, the Group issued a further £65m, €50m and US$60m of fixed rate notes. The table below details a comparison of the book and fair values of the Group’s financial assets and liabilities. Where there are no readily available market values to determine fair values, cash flows relating to the various instruments have been discounted at prevailing interest and exchange rates to give an estimate of fair value. value value value value 2021 2021 2020 2020 3.3 3.3 5.2 5.2 | | | | (125.4) | (125.4) | (145.5) | (145.5) | | --- | --- | --- | --- | --- | --- | --- | | | | note (25.2) | | (25.5) | (26.9) | (27.5) | | | | note (30.0) | | (30.3) | (30.0) | (30.9) | | | | | (41.9) | (43.5) | (44.8) | (47.5) | | | | | (44.5) | (47.4) | (43.9) | (49.9) | | | (14.5) | | | (14.5) | (11.3) | (11.3) | | ease liabilities (90.5) | | | | (90.5) | (81.7) | (81.7) | For financial instruments with a remaining life of greater than one-year, fair values are based on cash flows discounted at prevailing interest rates. Accordingly, the fair value of cash deposits and short-term borrowings approximates to the book value due to the short maturity of these instruments. The same applies to trade and other receivables and payables excluded from the above analysis. Financial instruments Financial instruments measured at fair value use the following hierarchy: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2) • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). All of the Group’s financial instruments are classed as level 2 with the exception of contingent consideration, other investments and lease liabilities, which are classed as level 3. Croda International Plc | | Book Book Fair Fair | | | | | --- | --- | --- | --- | --- | | | | 152 | | Annual Report and Accounts 2021 | | Fixed period Interest rate | Floating Fixed Total | | Fixed rate | | | US Dollar Sterling Other Cash deposits US$200m 3 year term loan due 2023 €70m 1.43% fixed rate 10 year note €50m 1.18% fixed rate 8 year note Other bank borrowings L Sterling Euro Other At 31 December 2021 US Dollar Euro At 31 December 2020 Other investments 2019 Club facility due 2026 US$100m 3.75% fixed rate 10 year note €30m 1.08% fixed rate 7 year £30m 2.54% fixed rate 7 year £70m 2.80% fixed rate 10 year note £65m 2.46% fixed rate 8 year note US$60m 3.70% fixed rate 10 year note Other loans Contingent consideration Forward foreign currency contracts | (262.2) (262.2) (218.1) (218.1) 254.3 165.0 112.8 112.8 106.5 106.5 336.4 165.0 171.4 241.4 125.8 115.6 270.2 134.4 135.8 907.0 416.5 490.5 (58.7) (61.5) (34.0) (34.0) (74.1) (78.2) (70.0) (71.9) (65.0) (65.7) (26.1) (26.1) (62.7) (67.0) (33.9) (33.9) (73.2) (82.9) (70.0) (75.2) (65.0) (68.9) (38.1) (38.1) Years 89.3 2.62 2.62 1.28 1.28 2.50 (2.3) (2.3) 5.3 4.3 4.2 5.2 6.3 | £m £m £m £m £m £m £m % – – weighted average | | | Croda International Plc ## 152 Annual report an d Accounts 2021 ### Financial statements (continued) ### Financial statements Borrowing facilities Notes to the Group Accounts (continued) As at 31 December 2021, the Group had undrawn committed facilities of £334.4m (2020: £378.3m). In addition, the Group had other undrawn facilities of £40.1m (2020: £50.1m) available. Of the Group's total committed facilities of £1,225.8m, £1,211.0m expire after 2022. New and repaid borrowings disclosed in the Group Statement of Cash Flows reflect routine short-term cash management, comprising regular monthly drawdowns and repayments on the Group's revolving credit facilities. ### 20. Borrowings, other financial liabilities and other financial assets continued Financial risk factors Interest rate and currency profile of Group financial liabilities The Group’s activities expose it to a variety of financial risks: currency risk, interest rate risk, liquidity risk, and credit risk. The Group’s overall risk management strategy is approved by the Board and implemented and reviewed by the Risk Management Committee. Detailed financial risk management is then delegated to the Group Finance department which has a specific policy manual that sets out guidelines to manage financial risk. Regular reports are received from all sectors and regional operating units to enable prompt identification of financial risks so that appropriate action may be taken. In the management definition of capital the Group includes ordinary and preference share capital and net debt. 299.0 118.6 180.4 3.73 7.9 Currency risk The Group operates internationally and is exposed to currency risk arising from various currency exposures, primarily with respect to the US Dollar 59.2 – 59.2 – – and the Euro. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign 936.0 409.4 526.6 2.53 5.3 operations. Entities in the Group use foreign currency bank balances to manage their foreign exchange risk arising from future commercial transactions, recognised assets and liabilities. The Group’s risk management policy is to manage transactional risk up to three months forward. The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising 287.0 117.1 169.9 3.73 8.9 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. Currency exposure arising from significant one-off transactions (for example acquisitions or 95.5 – 95.5 – – disposals) is reviewed and hedged through forward contracts if required. For 2021, had the Group’s basket of reporting currencies been 10% weaker/stronger than the actual rates experienced, post-tax profit for the year would have been £29.4m (2020: £18.9m) lower/higher than reported, primarily as a result of the translation of the profits of the Group’s overseas Fair values entities, and equity would have been £156.5m (2020: £141.5m) lower/higher. Prior to 2016, the Group did not typically utilise complex financial instruments and accordingly the only element of Group borrowings where fair value Cash flow hedging differed from book value was the US$100m fixed rate 10-year note that was issued in 2010. In January 2020 the existing US$100m fixed rate 10- At 31 December 2021, the Group held two instruments to hedge exposures to changes in foreign currency on a highly probable future business year note matured and was repaid, this was replaced with a new US$100m fixed rate 10-year note (27 January 2020). On 27 June 2016, the Group disposal and debt repayment (hedged items), with a maturity profile of less than one year. The combined nominal value of the contracts was issued £100m and €100m of fixed rate notes. On 6 June 2019, the Group issued a further £65m, €50m and US$60m of fixed rate notes. £601.9m and the average forward contract rates were 0.85 (EUR:GBP) and 1.12 (EUR:USD). These contracts are contingent on the successful The table below details a comparison of the book and fair values of the Group’s financial assets and liabilities. Where there are no readily available completion of the business disposal and were designated as cash flow hedges. These hedging activities provide the Group with certainty over market values to determine fair values, cash flows relating to the various instruments have been discounted at prevailing interest and exchange rates approximately 85% of its estimated FX exposure on these forecast future transactions. to give an estimate of fair value. The combined carrying amount of the contracts was a £2.3m liability at 31 December 2021, reported within trade and other payables. At 31 December 2021, the cash flow hedging reserve was £3.0m credit (2020: £nil), net of £0.7m tax, and the costs of hedging reserve was £4.9m debit value value value value (2020: £nil), net of £1.1m tax. There was no hedge ineffectiveness or reclassifications recognised in the income statement during the year ended 31 2021 2021 2020 2020 December 2021. A 10% strengthening/weakening of GBP, Euro or USD at 31 December 2021 would have affected the measurement of the forward contracts and 3.3 3.3 5.2 5.2 therefore equity by approximately £56m. This analysis assumes that all other variables remain constant and ignores any impact of forecast future transactions. (125.4) (125.4) (145.5) (145.5) Interest rate risk The Group has both interest bearing assets and liabilities. In 2016, the Group had a policy of maintaining no more than 60% of its gross borrowings note (25.2) (25.5) (26.9) (27.5) at fixed interest rates in normal circumstances. During 2016, the Group increased its amount of fixed rate debt following payment of the £136m special dividend and consequent increase in core debt requirements. Notes were issued in the amounts of £100m and €100m with an average note (30.0) (30.3) (30.0) (30.9) maturity of 3.6 years and interest rate of 2.08%. During 2017, the policy formally increased the upper limit for fixed rate debt to 75% of gross borrowings. During 2019, the Group increased its amount of fixed rate debt following payment of the £151.5m special dividend. Notes were issued (41.9) (43.5) (44.8) (47.5) in the amounts of £65m, €50m and US$60m with an average maturity of 6.1 years and interest rate of 2.47%. In January 2020 the Group repaid its US$100m 10-year loan note carrying a fixed rate of 5.94% and replaced it with a US$100m 10-year loan note carrying a fixed rate of 3.75%. At 31 (44.5) (47.4) (43.9) (49.9) December 2021, approximately 45% of Group borrowings were at fixed rates. At 31 December 2021, aside from the loan notes referred to above, all Group debt and cash was exposed to repricing within 12 months of the (14.5) (14.5) (11.3) (11.3) balance sheet date. At 31 December 2021, the Group’s fixed rate debt was at a weighted average rate of 2.53% (2020: 2.50%). The Group’s floating rate liabilities are ease liabilities (90.5) (90.5) (81.7) (81.7) predominantly based on LIBOR and its overseas equivalents. Based on the above, had interest rates moved by 10 basis points in the territories where the Group has substantial borrowings, post-tax profits would have moved by £0.5m (2020: £0.4m) due to a change in interest expense on the Group’s floating rate borrowings. For financial instruments with a remaining life of greater than one-year, fair values are based on cash flows discounted at prevailing interest rates. Accordingly, the fair value of cash deposits and short-term borrowings approximates to the book value due to the short maturity of these instruments. The same applies to trade and other receivables and payables excluded from the above analysis. Financial instruments Financial instruments measured at fair value use the following hierarchy: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2) • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). All of the Group’s financial instruments are classed as level 2 with the exception of contingent consideration, other investments and lease liabilities, which are classed as level 3. Croda International Plc | | | | | Book | | Fair | | Book | | | | Fair | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | | | | | | Annual Report and Accounts 2021 | 153 | | | | | Total | Fixed | Floating | | Interest rate | | | Fixed period | Fixed rate | | | | | | | | Sterling US Dollar Euro Other At 31 December 2021 Sterling US Dollar Euro Other At 31 December 2020 Cash deposits Other investments 2019 Club facility due 2026 US$200m 3 year term loan due 2023 US$100m 3.75% fixed rate 10 year note €30m 1.08% fixed rate 7 year €70m 1.43% fixed rate 10 year note £30m 2.54% fixed rate 7 year £70m 2.80% fixed rate 10 year note €50m 1.18% fixed rate 8 year note £65m 2.46% fixed rate 8 year note US$60m 3.70% fixed rate 10 year note Other bank borrowings Other loans Contingent consideration L Forward foreign currency contracts | | | 336.4 241.4 254.3 270.2 907.0 £m | (262.2) 112.8 165.0 125.8 165.0 134.4 416.5 (74.1) (58.7) (70.0) (65.0) (34.0) (26.1) (2.3) £m £m | (262.2) 112.8 171.4 115.6 135.8 490.5 (78.2) (61.5) (71.9) (65.7) (34.0) (26.1) | 89.3 (2.3) £m £m | | (218.1) 106.5 (73.2) (62.7) (70.0) (65.0) (33.9) (38.1) 2.62 1.28 2.62 1.28 2.50 | £m % – weighted average | | (218.1) 106.5 (82.9) (67.0) (75.2) (68.9) (33.9) (38.1) | Years 4.3 4.2 5.3 5.2 6.3 £m – | | | | | | | | Croda International Plc | | | | | | | | | | | | | | Croda International Plc | | | | 152 | Annual report an | d Accounts 2021 | | | | | | | | | | | 153 | Annual report and Accounts 2021 | | | | ### Financial statements (continued) ### Notes to the Group Accounts (continued) ### 20. Borrowings, other financial liabilities and other financial assets continued Liquidity risk The Group actively maintains a mixture of long-term and short-term committed facilities designed to ensure that the Group has sufficient funds available for operations and planned investments. On a regular basis, management monitors forecasts of the Group’s cash flows against both internal targets and those targets imposed by external lenders. The Group has substantial committed, unused facilities and the Directors are confident this situation will remain the case for the foreseeable future. Credit risk The Group has no significant concentrations of credit risk. It has policies in place to ensure that sales of products are made to customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high-credit quality financial institutions. The Group has policies that limit the amount of credit exposure to any individual financial institution. Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, as well as maintaining an optimal capital structure to reduce overall cost of capital. In order to maintain this optimal structure, the Group may adjust the amount of dividends paid, issue new shares, return capital to shareholders or dispose of assets to reduce net debt. Given the Group’s strong balance sheet and sustained trading growth, the Group announced a dividend policy in 2011 of paying a dividend of between 40% and 50% of sustainable earnings. Further details can be found in the Finance Review on pages 46 to 49. Underlying growth coupled to Return on Invested Capital (ROIC) is the key perceived driver of shareholder value within the Group. The Group’s ROIC now stands at 14.2% against a post-tax Weighted Average Cost of Capital (WACC) of 6.4%, thus hitting the Group’s target of maintaining ROIC at two to three times WACC. In addition, the Group employs two widely used ratios to measure its ability to service its debt. Both net debt/EBITDA and EBITDA interest cover were well ahead of target in 2021. Further details can be found in the Finance Review on pages 46 to 49. The Group was in compliance with its covenant requirements throughout the year. Additional information on progress against Key Performance Indicators can be found on pages 44 and 45. ### 21. Provisions 0.1 – – 0.1 0.8 – 2.8 3.6 2021 5.7 – 3.4 9.1 Analysis of total provisions 5.5 6.7 Provisions are made where a constructive or legal obligation has arisen from a past event, can be quantified and where the timing of the transfer of economic benefits relating to the provisions cannot be ascertained with any degree of certainty. The environmental provision relates to soil and potential groundwater contamination on a number of sites, both currently in use and previously occupied, in Europe and the Americas. In relation to the environmental provision, the Directors expect that the balance will be utilised within 10 years. Provisions for remediation costs are made when there is a present obligation, it is probable that expenditures for remediation work will be required and the cost can be estimated within a reasonable range of possible outcomes. The costs are based on currently available facts and prior experience. Environmental liabilities are recorded at the estimated amount at which the liability could be settled at the balance sheet date. Remediation of environmental damage typically takes a long time to complete due to the substantial amount of planning and regulatory approvals normally required before remediation activities can begin. In addition, increases in or releases of environmental provisions may be necessary whenever new developments occur or additional information becomes available. Consequently, environmental provisions can change significantly and the timing and quantum of costs are inherently uncertain. The level of environmental provision is based on management’s best estimate of the most likely outcome for each individual exposure. The Group has also considered the impact of discounting on its provisions and has concluded that, as a consequence of the significant utilisation expected in a relatively short timescale, the impact is not material. Croda International Plc | | | 154 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | | Environmental Restructuring | Other Total 2021 2020 | | | | At 1 January 2021 Charged to the income statement At 31 December Current Exchange differences Released to the income statement Cash paid against provisions and utilised Non-current | 10.6 10.6 (0.8) (2.0) (0.2) (3.2) (0.4) (0.8) (1.1) (1.9) 1.6 9.1 3.6 3.9 £m | 6.3 2.7 £m £m £m £m £m | | Croda International Plc ## 154 Annual report an d Accounts 2021 ### Financial statements (continued) ### Financial statements ### 22. Ordinary share capital ### Notes to the Group Accounts (continued) – 142,536,884 (2020: 131,906,881) ordinary shares 15.1 14.0 ### 20. Borrowings, other financial liabilities and other financial assets continued Liquidity risk The Group actively maintains a mixture of long-term and short-term committed facilities designed to ensure that the Group has sufficient funds available for operations and planned investments. On 20 November 2020, following consultation with shareholders, the Company issued 10,630,003 ordinary shares at a price of 5900p per share, On a regular basis, management monitors forecasts of the Group’s cash flows against both internal targets and those targets imposed by raising £615.5m net of fees resulting in a share premium of £614.4m. external lenders. The Group has substantial committed, unused facilities and the Directors are confident this situation will remain the case for the During 2021, options were granted to employees under the Croda International Plc Sharesave Scheme to subscribe for 55,474 ordinary shares at foreseeable future. an option price of 7327p per share and under the Croda International Plc International Sharesave Plan to subscribe for 202,071 ordinary shares at Credit risk an option price of 7327p per share. Conditional awards over 130,131 ordinary shares were granted under the Performance Share Plan during the The Group has no significant concentrations of credit risk. It has policies in place to ensure that sales of products are made to customers with an year and 52,370 under the Free Share Plan. Also granted in the year were 8,621 shares under the Restricted Share Plan. appropriate credit history. Derivative counterparties and cash transactions are limited to high-credit quality financial institutions. The Group has During the year consideration of £2.6m was received on the exercise of options over 62,581 shares. The options were satisfied with shares policies that limit the amount of credit exposure to any individual financial institution. transferred from the Group's employee share trusts. Since the year end a further 999 shares have been transferred from the trusts. During the year, Capital risk management the Group purchased 78,744 of its own ordinary shares to satisfy awards under various share-based payment schemes for consideration of £4.9m. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for The outstanding options to subscribe for ordinary shares were as follows at the balance sheet date: shareholders and benefits for other stakeholders, as well as maintaining an optimal capital structure to reduce overall cost of capital. In order to maintain this optimal structure, the Group may adjust the amount of dividends paid, issue new shares, return capital to shareholders or option Number of dispose of assets to reduce net debt. Given the Group’s strong balance sheet and sustained trading growth, the Group announced a dividend policy in 2011 of paying a dividend of between 40% and 50% of sustainable earnings. Further details can be found in the Finance Review on pages 46 to 49. 2019 83,463 3898p 2 to 30 Apr 2023 Underlying growth coupled to Return on Invested Capital (ROIC) is the key perceived driver of shareholder value within the Group. The Group’s ROIC now stands at 14.2% against a post-tax Weighted Average Cost of Capital (WACC) of 6.4%, thus hitting the Group’s target of maintaining ROIC at 2021 54,505 7327p 4 to 30 Apr 2025 two to three times WACC. In addition, the Group employs two widely used ratios to measure its ability to service its debt. Both net debt/EBITDA and 2019 249,158 3898p 2 to 30 Nov 2022 EBITDA interest cover were well ahead of target in 2021. Further details can be found in the Finance Review on pages 46 to 49. The Group was in compliance with its covenant requirements throughout the year. Additional information on progress against Key Performance Indicators can be 2021 198,868 7327p 4 to 30 Nov 2024 found on pages 44 and 45. 2019 135,111 Nil Mar 2022 ### 21. Provisions 2020 48,447 Nil Apr 2023 0.1 – – 0.1 2019 582 Nil 0.8 – 2.8 3.6 2021 8,421 Nil Free Share Plan 2021 51,580 Nil 2021 5.7 – 3.4 9.1 ### 23. Share-based payments Analysis of total provisions The impact of share-based payment transactions on the Group’s financial position is as follows: 5.5 6.7 -based payment transactions 10.3 2.5 -based payment transactions 11.1 Provisions are made where a constructive or legal obligation has arisen from a past event, can be quantified and where the timing of the transfer of 41.3 13.6 economic benefits relating to the provisions cannot be ascertained with any degree of certainty. The environmental provision relates to soil and potential groundwater contamination on a number of sites, both currently in use and previously occupied, in Europe and the Americas. -based payment transactions 28.0 9.2 In relation to the environmental provision, the Directors expect that the balance will be utilised within 10 years. Provisions for remediation costs are The key elements of each scheme along with the assumptions employed to arrive at the charge in the income statement are set out below. Where made when there is a present obligation, it is probable that expenditures for remediation work will be required and the cost can be estimated within appropriate the expected volatility has been based on historical volatility considering daily share price movements over periods equal to the expected a reasonable range of possible outcomes. The costs are based on currently available facts and prior experience. Environmental liabilities are future life of the awards and the risk free rate is based on the Bank of England’s projected nominal yield curve with appropriate duration. recorded at the estimated amount at which the liability could be settled at the balance sheet date. Remediation of environmental damage typically takes a long time to complete due to the substantial amount of planning and regulatory approvals normally required before remediation activities can begin. In addition, increases in or releases of environmental provisions may be necessary whenever new developments occur or additional information becomes available. Consequently, environmental provisions can change significantly and the timing and quantum of costs are inherently uncertain. The level of environmental provision is based on management’s best estimate of the most likely outcome for each individual exposure. The Group has also considered the impact of discounting on its provisions and has concluded that, as a consequence of the significant utilisation expected in a relatively short timescale, the impact is not material. Croda International Plc ## Annual Report and Accounts 2021 155 Year | | | | Environmental | | Restructuring | | Other 2021 | 2020 Total | | | 2021 2020 2021 2020 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | At 1 January 2021 Exchange differences Released to the income statement Charged to the income statement Cash paid against provisions and utilised At 31 December Current Non-current | | | | (0.4) (1.1) 6.3 £m | | (0.8) (1.9) 2.7 £m | (0.8) (0.2) 3.6 9.1 £m 1.6 £m | 10.6 10.6 (2.0) (3.2) 3.9 £m £m | At 1 January At 31 December – 142,536,884 (2020: 142,536,884) ordinary shares Croda International Plc Sharesave Scheme 1 Nov 2021 to 30 Apr 2022 1 Nov 202 Croda International Plc International Sharesave Plan (2009) 1 Nov 202 Croda International Plc Performance Share Plan (2014) 12 24 Mar 2024 Croda International Plc Deferred Bonus Share Plan 12 Mar 2022 Croda International Plc Restricted Share Plan 26 Mar 2022 17 Mar 2024 Charged in respect of cash settled share Analysis of amounts recognised in the balance sheet: Ordinary shares of 10.61p (2020: 10.61p) Allotted, called up and fully paid Issued in the year 1 Nov 202 1 Nov 2023 to 30 Apr 2024 1 Nov 2023 to 30 Nov 2023 1 Nov 202 25 Mar 2023 29 9 Aug 2022 25 Mar 2023 Croda International Plc 25 Apr 2022 Analysis of amounts recognised in the income statement: Charged in respect of equity settled share Liability in respect of cash settled share Options exercisable from | granted 4144p 129,389 4804p 205,219 4804p 113,353 2018 2021 2019 2019 2020 2020 2020 2020 70,019 Price 4,434 8,913 4,821 7,134 shares | Nil Nil Nil Nil Nil 15.1 15.1 31.0 1.1 £m £m £m £m | – | | | | | Croda International Plc | | | | | | | | | | | | | Croda International Plc | | 154 | Annual report an | d Accounts 2021 | | | | | | | 155 | | | | Annual report and Accounts 2021 | | ### Financial statements (continued) ### Notes to the Group Accounts (continued) ### 23. Share-based payments continued Croda International Plc Sharesave Scheme (‘Sharesave’) The Sharesave Scheme, established in 1983 and renewed in 2013, grants options annually in September to employees of the Group at a fixed exercise price, being the market price of the Company’s shares at the grant date discounted by up to 20%. Employees then enter into a savings contract over three years and, subject to continued employment, purchase options at the end of the period based on the amount saved. Options are then exercisable for a six month period following completion of the savings contract. For options granted in the year, the fair value per option granted and the assumptions used in the calculation of the value are as follows: 9144p 6078p 727 692 Three years Three years Six months Six months 1.0% 1.5% 2094.0p 1337.2p average average exercise exercise 230,705 4243p 241,912 3681p (11,177) 4524p (6,659) 3895p Croda International Plc International Sharesave Plan 2009 (‘International’) The International scheme, established in 1999 and renewed in 2009, has the same option pricing model, savings contract and vesting period as the Sharesave scheme. At exercise, employees are paid a cash equivalent for each option purchased, being the difference between the exercise price and market price at the exercise date. For options granted in the year, the fair value per option granted and the assumptions used in the calculation of the value are as follows: 9144p 6078p 2,973 2,287 Three years Three years One month One month 0.9% 1.4% 2934.8p 1741.3p Croda International Plc | | Weighted Weighted | | | | | | --- | --- | --- | --- | --- | --- | | | | | 156 | | Annual Report and Accounts 2021 | | | | | 16 Sep 16 Sep 10 Sep 10 Sep | | | | Share price at grant date Shares under option Option life Possibility of forfeiture A reconciliation of option movements over the year is as follows: Forfeited Outstanding at 31 December Grant date Number of employees Expected volatility Dividend yield Option pricing model Grant date Exercise price Number of employees Vesting period Expected volatility Risk free rate Dividend yield Fair value per option at grant date Option pricing model Outstanding at 1 January Granted Exercised Exercisable at 31 December For options exercised in year, weighted average share price at date of exercise Weighted average remaining life at 31 December (years) Share price at grant date Exercise price Shares under option Vesting period Option life Risk free rate Possibility of forfeiture Fair value per option at 31 December | Black Scholes Black Scholes 212,421 230,705 | Black Scholes Black Scholes (62,581) (79,126) Number 55,474 74,578 Number 5082p 7327p 4081p 4144p 9206p 4243p 4804p 3081p 3092p 5969p 4,434 3,745 price 2021 2020 price 7.5% p.a. 7.5% p.a. | 7.5% p.a. 7.5% p.a. 2.4 2.4 202,071 226,138 55,474 74,578 7327p 4804p 7327p 4804p -0.1% -0.2% | 0.3% 0.3% 2021 2020 2021 2020 20% 20% 20% 20% 2021 2020 2021 2020 | | Croda International Plc ## 156 Annual report an d Accounts 2021 ### Financial statements (continued) ### Financial statements A reconciliation of option movements over the year is as follows: ### Notes to the Group Accounts (continued) average average exercise exercise ### 23. Share-based payments continued Croda International Plc Sharesave Scheme (‘Sharesave’) 202,071 7327p 226,138 4804p The Sharesave Scheme, established in 1983 and renewed in 2013, grants options annually in September to employees of the Group at a fixed exercise price, being the market price of the Company’s shares at the grant date discounted by up to 20%. Employees then enter into (173,185) 4141p (222,394) 3106p a savings contract over three years and, subject to continued employment, purchase options at the end of the period based on the amount saved. Options are then exercisable for a six month period following completion of the savings contract. For options granted in the year, the fair value per option granted and the assumptions used in the calculation of the value are as follows: Croda International Plc Performance Share Plan 2014 (‘PSP’) 9144p 6078p The PSP scheme was established in 2014 and replaced the Company’s previous Executive long-term incentive plans. The PSP provides for awards of free shares (i.e. either conditional shares or nil-cost options) normally made annually which vest after three years dependent upon an EPS performance related sliding scale (non-market condition), an NPP growth measure (non-market condition), sustainability conditions in relation to 727 692 decarbonisation roadmaps and emissions (non-market conditions) and the Group’s total shareholder return (market condition). The PSP is discussed in detail in the Directors’ Remuneration Report (pages 84 to 108). Shares (on an after-tax basis) are subject to a two-year post vesting Three years Three years holding period. 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: Six months Six months 1.0% 1.5% 2094.0p 1337.2p 2021 2021 2020 2020 2020 2020 68 68 2 2 57 57 | | | | | | | Three | Three | Three | Three | Three | Three | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | average | average | | | | | | | | | | | | exercise | exercise | | | years | years | years | years | years | years | | | 230,705 4243p 241,912 3681p | | | 1.4% 1.4% 1.8% 1.8% 2.1% 2.1% | | | | | | | | | (11,177) | | 4524p (6,659) | 3895p | | 2420p 6136p 3352p 4676p 3022p 4021p | | | | | | | Closed form valuation valuation valuation valuation valuation valuation average average exercise exercise Croda International Plc International Sharesave Plan 2009 (‘International’) The International scheme, established in 1999 and renewed in 2009, has the same option pricing model, savings contract and vesting period as the Sharesave scheme. At exercise, employees are paid a cash equivalent for each option purchased, being the difference between the exercise price 130,131 – 174,312 – 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: (56,759) – (115,245) – 9144p 6078p Croda International Plc Deferred Bonus Share Plan (‘DBSP’) 2,973 2,287 The DBSP scheme was established in 2014. Under the DBSP, one third of any annual bonuses due to certain senior executives are deferred. The size of award is determined by the amount of the total bonus divided by one third and converted into a number of Croda shares using the market Three years Three years value of shares at the time the award is granted. Awards are increased by the number of shares equating to the equivalent value of any dividend paid during the option period. The awards vest on the third anniversary of the date of grant unless the recipient has been dismissed for cause. No One month One month further awards were granted after 2019. There are no performance conditions applied to the award. The DBSP is also discussed in the Directors’ Remuneration Report (pages 84 to 108). 0.9% 1.4% 2934.8p 1741.3p Croda International Plc | | | | | | Weighted | | | | | | | | Weighted | | | Weighted Weighted Weighted Weighted | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | | | | | | | | | | | Annual Report and Accounts 2021 | 157 | | | | | | | | | | 16 Sep 16 Sep | | | | | 10 Sep 10 Sep | | Vesting period Grant date Option pricing model | Closed form Closed form Closed form Closed form Closed form | 24 Mar 24 Mar 25 Mar 25 Mar 29 Apr 29 Apr | | | | | | | | | | | | | | | | | | | | | | | Non-market Non-market Non-market | Market | Market Market | | | | | | Grant date Share price at grant date Exercise price Number of employees Shares under option Vesting period Expected volatility Option life Risk free rate Dividend yield Possibility of forfeiture Fair value per option at grant date Option pricing model A reconciliation of option movements over the year is as follows: Outstanding at 1 January Granted Forfeited Exercised Outstanding at 31 December Exercisable at 31 December For options exercised in year, weighted average share price at date of exercise Weighted average remaining life at 31 December (years) Grant date Share price at grant date Exercise price Number of employees Shares under option Vesting period Expected volatility Option life Risk free rate Dividend yield Possibility of forfeiture Fair value per option at 31 December Option pricing model | | | 212,421 (62,581) Number 55,474 4,434 | 2.4 | Black Scholes Black Scholes | 7327p 4081p 5082p 4144p 9206p price | 2021 7.5% p.a. 7.5% p.a. | 202,071 55,474 7327p 7327p | 0.3% 0.3% 2021 2021 20% 20% 2021 2021 | 230,705 (79,126) | 74,578 Number 3,745 2.4 | Black Scholes Black Scholes | 7.5% p.a. 7.5% p.a. 226,138 74,578 | 4804p 4804p -0.1% 4804p 3081p 4243p 3092p 5969p -0.2% 2020 2020 20% 20% 2020 2020 2020 price | Forfeited Outstanding at 31 December For options exercised in year, weighted average share price at date of exercise Share price at grant date Possibility of forfeiture A reconciliation of option movements over the year is as follows: Granted Outstanding at 1 January Granted Exercised Weighted average remaining life at 31 December (years) Number of employees Shares under conditional award Expected volatility Dividend yield Fair value per option at grant date Outstanding at 1 January Forfeited Exercised Outstanding at 31 December For options exercised in year, weighted average share price at date of exercise Weighted average remaining life at 31 December (years) | (108,077) (112,018) 653,245 681,756 3.45% p.a. 3.45% p.a. 681,756 726,941 461,005 513,956 426,300 461,005 3.45% p.a. 3.45% p.a. 3.45% p.a. 3.45% p.a. (57,397) (48,929) Number Number Number Number | 4519p 5227p 9378p 4262p 6205p 3725p 4262p 6063p 3704p 4259p condition condition condition condition condition condition price price 2021 2020 2021 2020 45,546 84,585 16,956 31,491 44,053 81,812 price price 6401p 6401p 4936p 4936p 4280p 4280p 1.3 | 1.8 1.9 1.3 20% 20% 20% 20% 20% 20% 2021 2020 – – – – – – | | | | | | | Croda International Plc | | | | | | | | | | | | | | | | | | | Croda International Plc | | | | 156 | Annual report an | d Accounts 2021 | | | | | | | | | | | | | 157 | | | | Annual report and Accounts 2021 | | | | ### Financial statements (continued) ### Notes to the Group Accounts (continued) ### 23. Share-based payments continued average average exercise exercise enhancement 101 – 422 – Croda International Plc Restricted Share Plan (‘RSP’) The RSP scheme was established in 2018 and provides for awards of free shares or cash equivalent to a limited number of employees not eligible for the PSP scheme, based on a percentage of salary. The awards vest on the third anniversary of the date of grant, subject to the condition that the employee remains employed by the Group. There are no performance conditions applied to the award. On the vesting date, UK employees will be awarded free shares and non-UK employees will be paid a cash equivalent based on the market price. 17 Mar 2021 25 Mar 2020 66 35 Three years Three years 1.4% 2.1% grant date 6049p 4021p pricing model Closed form valuation valuation average average exercise exercise 8,621 – 7,134 – (6,258) – – – Croda International Plc | | Weighted Weighted Weighted | Weighted | | | | | --- | --- | --- | --- | --- | --- | | | | | 158 | | Annual Report and Accounts 2021 | | Option | | Closed form | | | | | Dividend Outstanding at 31 December For options exercised in year, weighted average share price at date of exercise Share price at grant date Vesting period Possibility of forfeiture A reconciliation of option movements over the year is as follows: Granted A reconciliation of option movements over the year is as follows: Outstanding at 1 January Exercised Weighted average remaining life at 31 December (years) Grant date Number of employees Shares under conditional award Expected volatility Dividend yield Fair value per option at Outstanding at 1 January Forfeited Exercised Outstanding at 31 December For options exercised in year, weighted average share price at date of exercise Weighted average remaining life at 31 December (years) | Number 19,288 20,958 127,588 (19,315) | (99,883) Number 28,127 28,127 (693) Number 6205p 12,393 19,288 Number 6257p 8,913 4259p 1.5 3.45% p.a. price 3.45% p.a. 2021 price 2021 2020 (239) 2020 price price | 0.2 0.5 1.3 – – – – – – – – – – – – – 6314p 4280p | 8,621 7,134 20% 20% 2021 2020 | | Croda International Plc ## 158 Annual report an d Accounts 2021 ### Financial statements (continued) ### Financial statements Croda International Plc Free Share Plan (‘FSP’) Notes to the Group Accounts (continued) The FSP scheme was established in 2021 and provides for awards of free shares or cash equivalent to eligible employees. The Company has discretion to set the number of shares awarded. The awards will vest provided that the employee remains employed by the Group and that a bonus payment is paid under the terms of the Company's Group Profit Incentive Bonus Scheme in respect of the financial year concerned. Subject to the two conditions being met, on the vesting date, UK employees (and certain other identified jurisdictions) will be awarded free shares and non-UK ### 23. Share-based payments continued employees will be paid a cash equivalent based on the market price. average average exercise exercise 9597p – conditional award 52,370 – enhancement 101 – 422 – 20% – 7.5% p.a. – Closed form Croda International Plc Restricted Share Plan (‘RSP’) valuation – The RSP scheme was established in 2018 and provides for awards of free shares or cash equivalent to a limited number of employees not eligible for the PSP scheme, based on a percentage of salary. The awards vest on the third anniversary of the date of grant, subject to the condition that the 2021 2020 employee remains employed by the Group. There are no performance conditions applied to the award. On the vesting date, UK employees will be awarded free shares and non-UK employees will be paid a cash equivalent based on the market price. average average exercise exercise Number price Number price 17 Mar 2021 25 Mar 2020 – – – – 66 35 (790) – – – Three years Three years 1.4% 2.1% grant date 6049p 4021p Croda International Plc Share Incentive Plan (‘SIP’) Closed form The SIP was established in 2003 and has similar objectives to the Sharesave Scheme in terms of increasing employee retention and share valuation valuation ownership. Under the SIP scheme, employees enter into an agreement to purchase shares in the Company each month. For each share purchased by an employee, the Company awards a matching share which passes to the employee after three years’ service. The matching shares are allocated each month at market value with this fair value charge being recognised in the income statement in full in the year of allocation. | average | average | | | | | --- | --- | --- | --- | --- | | exercise | exercise | 24. Preference share capital | | | | | | | £m | £m | 8,621 – 7,134 – (6,258) – – – 20: 498,434) 0.5 0.5 1.1 1.1 The preference shares have no redemption rights and carry no voting rights other than in certain circumstances affecting the rights of the preference shareholders, details of which are set out in the Company’s Articles of Association. The three classes of preference shares rank pari passu with each other but ahead of the ordinary shares on a winding up. Rights on a winding up are limited to repayment of capital and any arrears of dividends. Croda International Plc | | | | | | Weighted Weighted | | | | | | Weighted Weighted | | | | Weighted Weighted | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | | | | | | | | | | | | Annual Report and Accounts 2021 | 159 | | Option pricing model | | | | | | Closed form | | | | | | | | Option pricing model | | | | | | | | | | | | | | | | | | | | | | | | | | | 2021 2020 | | | | | | | | | A reconciliation of option movements over the year is as follows: Outstanding at 1 January Dividend Exercised Outstanding at 31 December For options exercised in year, weighted average share price at date of exercise Weighted average remaining life at 31 December (years) Grant date Share price at grant date Number of employees Shares under conditional award Vesting period Expected volatility Dividend yield Possibility of forfeiture Fair value per option at A reconciliation of option movements over the year is as follows: Outstanding at 1 January Granted Forfeited Exercised Outstanding at 31 December For options exercised in year, weighted average share price at date of exercise Weighted average remaining life at 31 December (years) | | | Number (19,315) 19,288 20,958 Number 28,127 | 8,913 (693) 1.5 0.2 | | 6205p 6257p price price 2021 2021 | 3.45% p.a. – – – – – – | 6314p 8,621 20% | 2021 127,588 (99,883) 28,127 Number 12,393 19,288 Number | (239) 0.5 1.3 | 3.45% p.a. | 4259p 4280p 7,134 2020 20% price 2020 2020 price | – – – – – – – | Share price at grant date Vesting period Possibility of forfeiture Granted 615,562 5.9% preference shares of £1 (2020: 615,562) Grant date Number of employees Shares under Expected volatility Dividend yield Fair value per option at grant date A reconciliation of option movements over the year is as follows: Outstanding at 1 January Forfeited Exercised Outstanding at 31 December For options exercised in year, weighted average share price at date of exercise Weighted average remaining life at 31 December (years) The authorised, issued and fully paid preference share capital comprises: 498,434 6.6% preference shares of £1 (20 21,900 7.5% preference shares of £1 (2020: 21,900) | 52,370 51,580 | 3 Nov 2021 0.3 One year – 0.6 0.6 | – – – – – – – – – – – – – – 9503p | 5,237 1.0% 2021 2020 | – – – – – | | | | | | | Croda International Plc | | | | | | | | | | | | | | | | | | | | Croda International Plc | | | | 158 | Annual report an | d Accounts 2021 | | | | | | | | | | | | 159 | | | | | | Annual report and Accounts 2021 | | | | ### Financial statements (continued) ### Notes to the Group Accounts (continued) ### 25. Shareholders’ equity Croda International Plc Qualifying Share Ownership Trust (QUEST), Croda International Plc Employee Benefit Trust (CIPEBT) and Croda International Plc AESOP Trust (AESOP) each hold shares purchased on the open market or transferred from treasury shares to satisfy the future issue of shares under the Group's share option schemes. As at 31 December 2021 the QUEST had a net amount due from the Company of £16.1m (2020: £13.6m) and held 30,640 (2020: 93,221) shares transferred at a nil cost (2020: nil cost) with a market value of £3.1m (2020: £6.1m). As at 31 December 2021 the CIPEBT was financed by a repayable on demand loan to the Company of £26.9m (2020: £21.9m) and held 910 (2020: 910) shares transferred at a nil cost (2020: nil cost) with a market value of £0.1m (2020: £0.1m). As at 31 December 2021 the AESOP had issued all its previously held shares, as financed by the Company, and thus had no residual loan balance with the Company. All of the shares held by the QUEST and CIPEBT were under option at 31 December 2021 and, except for a nominal amount, the right to receive dividends has been waived. As at 31 December 2021 the total number of treasury shares held was 3,018,203 (2020: 3,018,203) with a market value of £303.2m (2020: £199.1m). ### 26. Non-controlling interests in equity £m £m 9.3 7.0 2.0 – a non-controlling interest in an existing subsidiary (0.2) – -controlling interests (0.2) – ### 27. Related party transactions The Group has no related party transactions, with the exception of remuneration paid to key management and Directors which is included in note 10. ### 28. Business combinations 2021 Acquisitions On 2 March 2021, the Group acquired the worldwide business activities of Alban Muller including 100% of the shares and voting interests of Acallmi for a total consideration of £15.2m. Established in France and employing 90 people, Alban Muller specialises in eco-responsible solutions to developing innovative botanical extracts, natural formulation ingredients and natural organic cosmetics. The company is an excellent fit for Croda’s Beauty Actives business (part of the Consumer Care sector) and provides Croda with access to innovative technology in the botanicals market. On 1 June 2021, the Group acquired a 96% majority shareholding in Parfex S.A. ('Parfex'), a fine fragrance business based in Grasse, France for a total consideration of £35.4m. Employing 75 people, Parfex creates fragrances principally for premium personal care and fine perfumery markets, leveraging the natural raw materials that are available in the region. The company will form part of the newly created Fragrances & Flavours business (part of the Consumer Care sector) alongside Iberchem acquired in November 2020. Croda International Plc | | | 160 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | | | 2021 2020 | | | | Exchange differences Acquisition of At 1 January Profit for the year Acquisition of a subsidiary with non-controlling interest Issue of share capital Dividends paid to non At 31 December | 12.8 0.1 0.1 1.6 2.2 0.2 9.3 | – | | Croda International Plc ## 160 Annual report an d Accounts 2021 ### Financial statements (continued) ### Financial statements The following table summarises the Directors’ assessment of the consideration paid in respect of the acquisitions, and the fair value of assets ### Notes to the Group Accounts (continued) acquired and liabilities assumed. ### 25. Shareholders’ equity Croda International Plc Qualifying Share Ownership Trust (QUEST), Croda International Plc Employee Benefit Trust (CIPEBT) and Croda 8.9 19.5 International Plc AESOP Trust (AESOP) each hold shares purchased on the open market or transferred from treasury shares to satisfy the future issue of shares under the Group's share option schemes. As at 31 December 2021 the QUEST had a net amount due from the Company of 1.2 0.1 £16.1m (2020: £13.6m) and held 30,640 (2020: 93,221) shares transferred at a nil cost (2020: nil cost) with a market value of £3.1m (2020: £6.1m). As at 31 December 2021 the CIPEBT was financed by a repayable on demand loan to the Company of £26.9m (2020: £21.9m) and held 910 1.8 (0.1) (2020: 910) shares transferred at a nil cost (2020: nil cost) with a market value of £0.1m (2020: £0.1m). As at 31 December 2021 the AESOP had issued all its previously held shares, as financed by the Company, and thus had no residual loan balance – 4.6 with the Company. All of the shares held by the QUEST and CIPEBT were under option at 31 December 2021 and, except for a nominal amount, the right to receive dividends has been waived. (3.0) (5.9) As at 31 December 2021 the total number of treasury shares held was 3,018,203 (2020: 3,018,203) with a market value of £303.2m (2020: £199.1m). ### 26. Non-controlling interests in equity Total cash consideration paid in the period of £58.1m includes the above acquisitions (net of cash) of £48.9m and £9.2m of payment on contingent £m £m consideration in respect of previous acquisitions. Acquisition-related costs of £1.5m have been charged to administration expenses in the income 9.3 7.0 statement for the year ended 31 December 2021 (2020: £11.7m). Post-acquisition, Alban Muller and Parfex contributed combined revenue of £23.3m and a small adjusted operating profit. Had the acquisitions been made on 1 January 2021, the Group’s revenue would have been 2.0 – £1,924.7m with adjusted operating profit of £469.8m. 2020 Acquisitions a non-controlling interest in an existing subsidiary (0.2) – On 12 August 2020, the Group acquired 100% of the shares and voting interests of Avanti Polar Lipids, LLC (‘Avanti’), a knowledge-intensive leader in lipid-based drug delivery technologies for next generation pharmaceuticals. Based in Alabama in the US, Avanti creates and makes high-purity -controlling interests (0.2) – polar lipids that are increasingly being used as delivery systems for complex therapeutic drugs and in next-generation mRNA vaccines. The acquisition will continue to operate under its existing brand, led by the current management team, and will form part of our Health Care business (Life Sciences sector). The acquisition will more than double Croda's research and development (R&D) capability in drug delivery and also provide a 27. Related party transactions new channel to market for Croda's ingredients for early-stage pharmaceutical research. Avanti was acquired for total consideration of £173.9m, with The Group has no related party transactions, with the exception of remuneration paid to key management and Directors which is included identifiable net assets of £112.8m, generating goodwill of £61.1m. Total consideration for Avanti is inclusive of £35.5m contingent consideration, in note 10. representing the gross fair value at the date of acquisition of £42.1m before discounting. The additional consideration is payable semi-annually over three years based on the revenue from near-term commercial opportunities using Avanti’s lipid-based solutions which were not included in the valuation for payment of the initial consideration. ### 28. Business combinations On 24 November 2020, the Group acquired 100% of the shares and voting interests of Fragrance Spanish Topco, S.L. trading as Iberchem 2021 Acquisitions ('Iberchem'), a leading global fragrances and flavours ('F&F') company. Headquartered in Murcia, Spain, Iberchem has approximately 850 On 2 March 2021, the Group acquired the worldwide business activities of Alban Muller including 100% of the shares and voting interests of Acallmi employees, 14 manufacturing facilities, 10 R&D centres and a commercial presence in 120 countries. The acquisition will form part of the new for a total consideration of £15.2m. Established in France and employing 90 people, Alban Muller specialises in eco-responsible solutions to Consumer Care sector from 2021. The acquisition will create a new full service formulation and fragrance offering for Personal Care and Home Care developing innovative botanical extracts, natural formulation ingredients and natural organic cosmetics. The company is an excellent fit for Croda’s as well as providing access to a high growth adjacency in the global F&F market with significant exposure to emerging markets. Iberchem was Beauty Actives business (part of the Consumer Care sector) and provides Croda with access to innovative technology in the botanicals market. acquired for consideration of £756.5m, with identifiable net assets of £304.7m, generating goodwill of £454.0m. On 1 June 2021, the Group acquired a 96% majority shareholding in Parfex S.A. ('Parfex'), a fine fragrance business based in Grasse, France for a During 2021, the Group completed the fair value review relating to its 2020 acquisitions. This review did not identify any changes to the asset base total consideration of £35.4m. Employing 75 people, Parfex creates fragrances principally for premium personal care and fine perfumery markets, or goodwill. leveraging the natural raw materials that are available in the region. The company will form part of the newly created Fragrances & Flavours business (part of the Consumer Care sector) alongside Iberchem acquired in November 2020. Croda International Plc | | | | | | | | | | | | Annual Report and Accounts 2021 | 161 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 2021 | 2020 | | Alban Muller | Parfex | | | | | | | At 1 January Exchange differences Profit for the year Acquisition of a subsidiary with non-controlling interest Acquisition of Issue of share capital Dividends paid to non At 31 December | | | 12.8 0.1 1.6 0.2 | 0.1 2.2 9.3 | – | Fair value of assets and liabilities acquired Right of use assets Borrowings Deferred tax Goodwill Cash consideration Intangible assets Property, plant and equipment Lease liabilities Cash/(overdrafts) Working capital Retirement benefit liabilities Total identifiable net assets Fair value of NCI | 13.5 15.2 35.4 23.5 (5.7) (1.2) (0.1) (0.4) (0.5) (1.6) 6.5 7.1 5.9 8.7 | £m £m – – | | | | | | | Croda International Plc | | | | | | | | | Croda International Plc | | | | 160 | Annual report an | d Accounts 2021 | | | | 161 | | | Annual report and Accounts 2021 | | | | ### Financial statements (continued) ### Company Financial Statements ### Company Balance Sheet at 31 December 2021 D 0.8 0.8 K 0.8 – 1,388.5 1,371.8 H 0.4 0.1 I (76.1) (64.9) 1,313.4 1,414.3 -current liabilities J (525.2) (495.4) 2,176.5 2,290.0 15.1 15.1 16.2 16.2 1 1,452.6 1,566.1 2,176.5 2,290.0 1 Included within Reserves is profit after tax of £2.2m (2020: £43.0m) The financial statements on pages 162 to 167 were approved by the Board on 28 February 2022 and signed on its behalf by Anita Frew Jez Maiden Chair Group Finance Director Registered in England number 206132 Croda International Plc | | | | 162 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | --- | | | | 2021 2020 | | | | Fixed assets Investments Deferred tax asset Borrowings Borrowings Ordinary share capital Reserves Intangible assets Tangible assets Retirement benefit assets Current assets Debtors Cash and cash equivalents Current liabilities Creditors: Amounts falling due within one year Net current assets Total assets less current liabilities Non Deferred tax liability Retirement benefit liabilities Net assets Capital and reserves Preference share capital Called up share capital Share premium account Total shareholders’ funds Shares in Group undertakings | 1,389.5 1,479.6 1,385.6 1,369.5 1,373.2 1,479.5 2,701.9 2,786.1 (525.4) (496.1) | 707.7 707.7 (76.1) (65.3) 15.9 Note (0.2) (0.4) (0.7) 1.3 1.5 1.1 1.1 £m £m | G E H K J – F – – – | | Croda International Plc ## 168 Annual report and Accounts 2021 ### Financial statements (continued) ### Financial statements ### Company Statement of Changes in Equity ### Company Financial Statements for the year ended 31 December 2021 Share premium redemption Revaluation Other Retained capital account reserve reserve reserves earnings Total ### Company Balance Sheet at 31 December 2021 income – – – – – 9.7 9.7 D 0.8 0.8 8 – – – – – (115.9) (115.9) 1.1 614.4 – – – – 615.5 K 0.8 – 1,388.5 1,371.8 20 16.2 707.7 0.9 2.1 – 1,563.1 2,290.0 H 0.4 0.1 | | | | (expense)/income – – – – (0.2) | | 9.1 8.9 | | | --- | --- | --- | --- | --- | --- | --- | | I (76.1) | (64.9) | | | | | | | | | | | 8 – – – – – (132.5) | | (132.5) | | | | own shares – – – – – (2.4) | | | | (2.4) | 1,313.4 1,414.3 21 16.2 707.7 0.9 2.1 (0.2) 1,449.8 2,176.5 -current liabilities Other reserves include the Hedging Reserve of £4.0m (2020: £Nil) and the Cost of Hedging Reserve of £(4.2)m (2020: £Nil). Of the retained earnings, £852.7m (2020: £720.0m) are realised and £597.1m (2020: £843.1m) are unrealised. Details of investments in own shares J (525.2) (495.4) are disclosed in note 25 of the Group financial statements. 2,176.5 2,290.0 15.1 15.1 16.2 16.2 1 1,452.6 1,566.1 2,176.5 2,290.0 1 Included within Reserves is profit after tax of £2.2m (2020: £43.0m) The financial statements on pages 162 to 167 were approved by the Board on 28 February 2022 and signed on its behalf by Anita Frew Jez Maiden Chair Group Finance Director Registered in England number 206132 Croda International Plc | | | | | | | | | | | | | Share Capital | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | | | | | Annual Report and Accounts 2021 | | 163 | | | | | | | | 2021 | | | 2020 | | | | | | | | | | Fixed assets Intangible assets Tangible assets Investments Retirement benefit assets Current assets Debtors Deferred tax asset Cash and cash equivalents Current liabilities Creditors: Amounts falling due within one year Borrowings Net current assets Total assets less current liabilities Non Deferred tax liability Borrowings Retirement benefit liabilities Net assets Capital and reserves Ordinary share capital Preference share capital Called up share capital Share premium account Reserves Total shareholders’ funds Shares in Group undertakings | | | Note | G H K E F J | 1,385.6 1,373.2 1,389.5 2,701.9 (525.4) | 707.7 (76.1) 15.9 (0.2) 1.3 1.1 £m | – – | 1,369.5 1,479.5 1,479.6 2,786.1 (496.1) | 707.7 (65.3) (0.4) (0.7) 1.5 1.1 | £m – – | At 1 January 2020 Other comprehensive Share-based payments At 1 January 2021 Other comprehensive Share-based payments Profit for the year attributable to equity shareholders Transactions with owners: Dividends on equity shares Issue of ordinary shares Transactions in own shares Total transactions with owners Total equity at 31 December 20 Profit for the year attributable to equity shareholders Transactions with owners: Dividends on equity shares Transactions in Total transactions with owners Total equity at 31 December 20 Note 1,630.7 1,742.1 1,563.1 2,290.0 | (120.3) (124.6) (124.6) 15.1 16.2 707.7 614.4 495.2 93.3 1.1 10.3 10.3 43.0 43.0 £m (6.9) (6.9) £m | 2.5 2.5 2.2 2.2 £m – – – – – – £m £m 0.9 – – 0.9 – – – – – – – 2.1 2.1 £m £m – – – – – – – – – – – – – – – – – – – – | | | | | | | Croda International Plc | | | | | | | | | | | | | Croda International Plc | | | | | 168 | Annual report and | Accounts 2021 | | | | | | | | | 169 | | | | Annual report and | Accounts 2021 | | ### Financial statements (continued) ### Notes to the Company Financial Statements The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been applied consistently to all years presented, unless otherwise stated. ### A. Accounting policies Basis of accounting The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial Reporting Council. These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”). In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of UK-adopted international accounting standards, but makes amendments where necessary in order to comply with the Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken. The financial statements have been prepared under the historical cost convention, in compliance with the provisions of the Act and the requirements of the Listing Rules of the Financial Conduct Authority. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under the standard in relation to share-based payments, financial instruments, capital management, presentation of comparative information in respect of certain assets, presentation of a cash flow statement, standards not yet effective, impairment of assets and related party transactions. Where required, equivalent disclosures are provided in the Group financial statements of Croda International Plc. Going concern The financial statements which appear on pages 162 to 167 have been prepared on a going concern basis as, after making appropriate enquiries, including a review of forecasts, budgets and banking facilities, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence. Principal accounting policies The accounting policies which have been applied by the Company when preparing the financial statements are in accordance with FRS 101. FRS 101 is based on the recognition and measurement requirements of Adopted IFRSs, under which the Group financial statements have been prepared. As a result, the accounting policies of the Company are consistent with those used by the Group as presented on pages 125 to 131, except for those relating to the recognition and measurement of goodwill and the recognition of revenue, which are not directly relevant to the Company financial statements. Investments are held at cost less accumulated impairment. Investments are subject to impairment testing upon indication of impairment, at which point the carrying value is reviewed against the underlying net assets or forecast cash generation of the entity. The Group accounting policy for financial risk factors is also relevant to the preparation of the Company financial statements and is disclosed on pages 153 and 154. ### B. Profit and loss account Of the Group’s profit for the year, £2.2m (2020: £43.0m) is included in the profit and loss account of the Company which was approved by the Board on 28 February 2022 but which is not presented as permitted by Section 408 Companies Act 2006. Included in the Company profit and loss account is a charge of £0.2m (2020: £0.1m) in respect of the Company’s audit fee. ### C. Employees 13.1 6.7 1.9 1.1 21.7 9.7 Number Number function 41 39 62 54 As required by the Companies Act 2006, the figures disclosed above are weighted averages based on the number of employees including Executive Directors. At 31 December 2021, the Company had 69 (2020: 54) employees in total. Detailed information concerning Directors’ remuneration, interests and options is shown in section D of the Directors’ Remuneration Report, which is subject to audit, on pages 97 to 105 which forms part of the Annual Report and Accounts. Croda International Plc | | | 164 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | | | 2021 2020 2021 2020 | | | | Share-based payment charges (note L) Administration Company employment costs including Directors Wages and salaries Social security costs Post-retirement benefit costs Average employee numbers by Production | 5.9 1.2 0.8 0.7 £m £m | 21 15 | | Croda International Plc ## 170 Annual report and Accounts 2021 ### Financial statements (continued) ### Financial statements ### D. Intangible assets ### Notes to the Company Financial Statements software The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been applied 1 January 2021 1.6 consistently to all years presented, unless otherwise stated. ### A. Accounting policies Basis of accounting The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial Reporting Council. These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”). In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of UK-adopted international the year 0.2 accounting standards, but makes amendments where necessary in order to comply with the Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken. The financial statements have been prepared under the historical cost convention, in compliance with the provisions of the Act and the requirements of the Listing Rules of the Financial Conduct Authority. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under the standard in relation to 1 0.8 share-based payments, financial instruments, capital management, presentation of comparative information in respect of certain assets, 2020 0.8 presentation of a cash flow statement, standards not yet effective, impairment of assets and related party transactions. Where required, equivalent ### disclosures are provided in the Group financial statements of Croda International Plc. E. Tangible assets Going concern buildings equipment Total The financial statements which appear on pages 162 to 167 have been prepared on a going concern basis as, after making appropriate enquiries, including a review of forecasts, budgets and banking facilities, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence. 1 January 2021 2.2 1.8 4.0 Principal accounting policies The accounting policies which have been applied by the Company when preparing the financial statements are in accordance with FRS 101. FRS 2021 2.2 1.6 3.8 101 is based on the recognition and measurement requirements of Adopted IFRSs, under which the Group financial statements have been prepared. As a result, the accounting policies of the Company are consistent with those used by the Group as presented on pages 125 to 131, except for those relating to the recognition and measurement of goodwill and the recognition of revenue, which are not directly relevant to the 1 January 2021 1.5 1.0 2.5 Company financial statements. Investments are held at cost less accumulated impairment. Investments are subject to impairment testing upon indication of impairment, at which point the carrying value is reviewed against the underlying net assets or forecast cash generation of the entity. – (0.2) (0.2) The Group accounting policy for financial risk factors is also relevant to the preparation of the Company financial statements and is disclosed on 1.5 1.0 2.5 pages 153 and 154. ### B. Profit and loss account December 2021 0.7 0.6 1.3 Of the Group’s profit for the year, £2.2m (2020: £43.0m) is included in the profit and loss account of the Company which was approved by the 20 0.7 0.8 1.5 Board on 28 February 2022 but which is not presented as permitted by Section 408 Companies Act 2006. Included in the Company profit and loss account is a charge of £0.2m (2020: £0.1m) in respect of the Company’s audit fee. ### F. Shares in Group undertakings ### C. Employees 1 January 2021 1,111.3 287.5 1,398.8 13.1 6.7 4.9 148.2 153.1 1.9 1.1 21.7 9.7 Number Number – – – function 41 39 mber 2021 1,088.1 297.5 1,385.6 31 December 2020 1,083.5 286.0 1,369.5 As required by the Companies Act 2006, the figures disclosed above are weighted averages based on the number of employees including Executive Directors. At 31 December 2021, the Company had 69 (2020: 54) employees in total. The undertakings which affect the financial statements are listed on pages 168 to 170. Detailed information concerning Directors’ remuneration, interests and options is shown in section D of the Directors’ Remuneration Report, which is Additions to shares in the year of £0.5m relate to the continued investment in Cowick Insurance Services Ltd and £4.4m of capital contributions in subject to audit, on pages 97 to 105 which forms part of the Annual Report and Accounts. relation to share-based payments. The Directors believe that the carrying value of the investments is supported by their underlying net assets or forecast cash generation. Croda International Plc | | | | | | | | | | | Annual Report and Accounts 2021 | | 165 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | Computer Land and Plant and | | | | | | | | | | | 2021 2021 | 2020 2020 | | | Shares Loans Total | | | | | | | Company employment costs including Directors Wages and salaries Share-based payment charges (note L) Social security costs Post-retirement benefit costs Average employee numbers by Production Administration | | | 5.9 0.8 £m 21 62 | 1.2 0.7 15 54 £m | Cost Accumulated amortisation Cost Accumulated depreciation Disposals Net book amount At 31 December 20 Cost Additions At 31 December 2021 Impairment in the year At 31 Dece At At Additions At 31 December 2021 At 1 January 2021 Charge for At 31 December 2021 Net carrying amount At 31 December 202 At 31 December At Disposals At 31 December At Charge for the year At 31 December 2021 At 31 At Exchange differences Amounts repaid Impairment At 1 January 2021 At 31 December 2021 Net book value | 1,115.9 1,414.9 | (130.4) (130.7) 299.0 27.8 29.3 27.8 29.3 | (0.2) (0.3) (0.2) 0.2 (6.3) (6.3) 0.2 1.5 1.5 £m 0.2 1.8 0.8 1.0 £m £m £m £m £m £m – – – | | | | | | | Croda International Plc | | | | | | | | Croda International Plc | | | | | 170 | Annual report and | Accounts 2021 | | | 171 | | | | | Annual report and | Accounts 2021 | | ### Financial statements (continued) ### Notes to the Company Financial Statements (continued) ### G. Debtors 46.4 27.0 1.6 0.2 1,373.2 1,479.5 Although the amounts owed by Group undertakings have no fixed date of repayment, £1,324.6m (2020: £1,450.2m) is expected to be collected after one year. Of the amount at 31 December 2021, £1,324.1m will continue to attract interest from 1 January 2022 at a floating rate based on the main facility agreement. The remainder will continue to be interest free. ### H. Deferred tax The deferred tax (liabilities)/assets included in the balance sheet are attributable to the following: 0.4 – 0.2 0.1 0.1 0.4 charged to other comprehensive income (0.2) (0.1) Deferred tax assets were recognised in all cases where such assets arose, as it was probable that the assets would be recovered. ### I. Creditors: Amounts falling due within one year 0.5 2.3 54.6 51.0 15.5 6.8 The amounts owed to Group undertakings are interest free, unsecured and have no fixed date of repayment. Croda International Plc | | | | 166 | Annual Report and Accounts 2021 | | --- | --- | --- | --- | --- | | | | 2021 2020 2021 2020 2021 2020 | | | | Corporation tax Retirement benefit obligations At 1 January Trade payables Other payables Amounts owed by Group undertakings Other receivables Prepayments Cash flow hedging The movement on deferred tax balances during the year is summarised as follows: Deferred tax credited/(charged) through the profit and loss account Deferred tax At 31 December Amounts falling due within one year Taxation and social security Amounts owed to Group undertakings Accruals and deferred income | 1,325.2 1,452.2 | 76.1 64.9 (0.2) (0.2) 0.1 3.3 3.3 0.1 0.3 0.2 0.1 2.2 1.5 £m £m £m £m £m £m | – | | Croda International Plc ## 172 Annual report and Accounts 2021 ### Financial statements (continued) ### Financial statements ### J. Borrowings ### Notes to the Company Financial Statements (continued) The Company’s objectives, policies and strategies in respect of financial instruments are outlined in the accounting policies note on page 130 which forms part of the Annual Report and Accounts. Short-term receivables and payables have been excluded from all of the following disclosures. ### G. Debtors 6 234.4 196.1 46.4 27.0 note 58.7 62.7 1.6 0.2 note 70.0 70.0 1,373.2 1,479.5 65.0 65.0 Although the amounts owed by Group undertakings have no fixed date of repayment, £1,324.6m (2020: £1,450.2m) is expected to be collected after one year. Of the amount at 31 December 2021, £1,324.1m will continue to attract interest from 1 January 2022 at a floating rate based on the 525.2 495.8 main facility agreement. The remainder will continue to be interest free. ### H. Deferred tax Bank loans and overdrafts – 0.4 The deferred tax (liabilities)/assets included in the balance sheet are attributable to the following: – 0.4 Within one to five years 418.3 252.9 0.4 – 0.2 0.1 525.2 495.4 ### 0.1 0.4 K. Post-retirement benefits In line with the requirements of FRS 101, the Company recognises its share of the UK pension scheme assets and liabilities based on the number of charged to other comprehensive income (0.2) (0.1) scheme members. A full reconciliation of the Group retirement benefit obligation can be found in note 11 of the Group financial statements on pages 139 to 143. The table below shows the movement in the obligation during the year. Deferred tax assets were recognised in all cases where such assets arose, as it was probable that the assets would be recovered. ### I. Creditors: Amounts falling due within one year Assets 56.0 53.2 0.5 2.3 Contributions 0.8 1.4 54.6 51.0 lance 0.8 (0.7) 15.5 6.8 ### L. Share-based payments The amounts owed to Group undertakings are interest free, unsecured and have no fixed date of repayment. The total charge for the year in respect of share-based remuneration schemes was £5.9m (2020: £1.2m). The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity. The key elements of each scheme along with the assumptions employed to arrive at the charge in the profit and loss account are set out in note 23 to the Group financial statements. ### M. Contingent liabilities The Company has guaranteed loan capital and bank overdrafts of subsidiary undertakings amounting to £272.3m (2020: £285.3m). ### N. Dividends Details of dividends are disclosed in note 8 of the Group financial statements. ### O. Related party transactions The Company has taken advantage of the exemption available under FRS 101 from disclosing transactions with other Group undertakings. There were no other related party transactions during the year. Information on the Group can be found in note 27 on page 160 of the Group financial statements. Croda International Plc | | | | | | | | | | | | | | Annual Report and Accounts 2021 | 167 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 2021 2021 2021 | | | 2020 2020 2020 | | 2021 2020 2021 2020 | | | | | | | Amounts owed by Group undertakings Corporation tax Other receivables Prepayments Retirement benefit obligations Cash flow hedging The movement on deferred tax balances during the year is summarised as follows: At 1 January Deferred tax credited/(charged) through the profit and loss account Deferred tax At 31 December Amounts falling due within one year Trade payables Taxation and social security Amounts owed to Group undertakings Other payables Accruals and deferred income | | | 1,325.2 | 76.1 (0.2) 0.3 0.2 2.2 3.3 £m £m £m | – | 1,452.2 | 64.9 (0.2) 0.1 0.1 0.1 1.5 3.3 £m £m £m | 2019 Club facility due 202 £30m 2.54% fixed rate 7 year note £65m 2.46% fixed rate 8 year note Repayments fall due as follows: Loans repayable Closing ba Maturity profile of financial liabilities €30m 1.08% fixed rate 7 year note €70m 1.43% fixed rate 10 year £70m 2.80% fixed rate 10 year €50m 1.18% fixed rate 8 year note Bank loans and overdrafts repayable on demand Within one year After more than one year Opening balance: Movements in the year: Liabilities Net opening retirement benefit liability After five years Service cost – current Remeasurements | 106.9 242.5 (56.7) (55.2) 30.0 30.0 25.2 26.8 41.9 44.8 (0.7) (0.8) (2.0) (0.7) 0.4 1.5 0.6 £m £m £m £m | – | | | | | | | Croda International Plc | | | | | | | | | | | Croda International Plc | | | | 172 | Annual report and | Accounts 2021 | | | | | | 173 | | | Annual report and Accounts 2021 | | | | ### Other information ### Related Undertakings ### Related undertakings of Croda International Plc All companies listed below are owned by the Group and all interests are in ordinary share capital, except where otherwise indicated. All subsidiaries have been consolidated. All companies operate principally in their country of incorporation. Unless otherwise indicated, all shareholdings represent 100% of the issued share capital of the subsidiary. ### Wholly owned subsidiaries: | Incorporated in the UK | | Incorporated in China | | --- | --- | --- | | Cowick Hall, Snaith, Goole, East Yorkshire, DN14 9AA | | Unit BCD, 19 Floor, Urban City Center, No.45, | | | (vii) | Nanchang Road, Shanghai | Bio Futures Limited (vii) Croda China Trading Company Ltd (viii) Brookstone Chemicals Limited (xi) No. 2 Xiang Shan Avenue, Ning Xi Street, Zeng Cheng District, Cowick Hall Trustees Limited Guangzhou, China (viii) Croda (Goole) Limited Croda Iberchem (Guangzhou) Fragrance and Flavour Manufacturing Co., (viii) (vi) (viii) Croda Application Chemicals Limited Ltd (viii) Croda Bakery Services Limited Unit 501, 5th floor (actual 4th floor), Nominal floor, Block B (No.1 (v) (viii) Building), No.3 Linhong Road, Changning District, Shanghai Croda Bowmans Chemicals Limited (vii) (viii) Croda (Shanghai) Specialty Materials Co., Ltd Croda CE Limited (viii) 191 Dong Jiang Street, GET Development Zone, 510730 Guangzhou Croda Chemicals Limited (vii) (viii) Guangzhou Iberchem, Co. Ltd Croda Colloids Limited (i) (v) (viii) 2nd Floor, No. 21, Eastern of Yonyou Industrial Park, No. 9 Yongfeng Croda Cosmetics & Toiletries Limited (iii) (viii) Road, Haidian District, Beijing Croda Cosmetics (Europe) Limited (vii) Incotec (Beijing) Agricultural Technology Co. Ltd (i) (x) Croda Distillates Limited (viii) No.3 Plant, No.202, Huashan Road, Modern Industrial Zone, Tianjin Croda Enterprises Limited (i) (vii) Development Zone, Tianjin Croda Europe Limited (vii) Incotec (Tianjin) Agricultural Science & Technology Co. Ltd (viii) Croda Fire Fighting Chemicals Limited (viii) No.656 East Tangxun Road, Economic-Technological Development Croda Food Services Limited Zone, Mianyang, Sichuan 621000 (xiv) Croda Foundation (vii) Sichuan Xihe Rape Seed Industry Co., Ltd (viii) Croda Hydrocarbons Limited (ix) No.139, Jianqing Road, Pu'an Town, Jiange County Guangyuan, Croda Investments Limited Sichuan, 628300 (ix) (vii) Croda Investments No 2 Limited Sichuan Xiyuan Grease Chemical Co., Ltd (ix) Croda Investments No 3 Limited (viii) Croda JDH Limited Incorporated in France (viii) Croda Leek Limited (viii) 9, rue Jean Monnet, 28630 Fontenay Sur Eure Croda Limited (vii) Alban Muller International (i) (ix) Croda Overseas Holdings Limited (viii) 1, rue de Lapugnoy, 62920 Chocques Croda Pension Trustees Limited (vii) (i) (ix) Croda Chocques SAS Croda Polymers International Limited (viii) | Croda Resins Limited | | Futura III, 1, avenue de Westphalie, 78180 Montigny-le-Bretonneux | | | | --- | --- | --- | --- | --- | | | (iii) (iv) (viii) | | (vii) | | | Croda Solvents Limited | | Croda France SAS | | | | | (viii) | | | (ix) | | Croda Trustees Limited | | Croda Holdings France SAS | | | (viii) Croda Universal Limited Zone artisanale, 48230 Chanac (i) (v) (viii) Croda World Traders Limited (vii) Crodarom SAS (vii) Equus UK Holding Limited (i) (vii) 29 rue du Chemin Vert, 78610, Le Perray en Yvelines Equus UK Topco Limited (vii) Sederma SAS (vii) P.I. Bioscience Limited (ix) Plant Impact Limited (viii) Incorporated in the Netherlands John L Seaton & Co Limited (i) (viii) | Southerton Investments Limited | | | | Buurtje 1, 2802 BE Gouda | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | (viii) | | | | (v) (viii) | | | Sowerby & Co Limited | | | | AM Coatings BV | | | | | | | | (i) (viii) | | (ix) | | | | Technical and Analytical Services Limited | | | | Croda EU BV | | | | | | (i) (viii) | | | | | | (vii) | | Uniqema Limited | | | | Croda Nederland B.V | | | . | (i) (viii) Uniqema UK Limited Westeinde 107, 1601 BL Enkhuizen (vii) c/o Cutitronics Limited, Torus Building, Rankine Avenue, Incotec Europe B.V. (i) (ix) | Scottish Enterprise Technology Park, East Kilbride, G75 0QF | | Incotec Group B.V. | | | --- | --- | --- | --- | | | (ix) | | (ix) | | Croda (CPI) Limited | | Incotec Holding B.V. | | Croda International Plc ## 168 Annual Report and Accounts 2021 Croda International Plc ## 174 Annual report and Accounts 2021 ### Other information Incorporated in the USA Hong Kong – Room 908, East Ocean Centre, No.9 Science Museum 700 Industrial Park Drive, Alabaster, AL 35007 (vii) Road, Tsim Sha Tsui, East Kowloon Avanti Polar Lipids, LLC (vii) Croda Hong Kong Company Ltd 777 Scudders Mill Road, Building 2, Suite 200, Plainsboro, NJ 08536 Hong Kong – Kreston CAC CPA Ltd, Rooms 2702-3, 27th Floor, Bank (viii) of East Asia Harbour View Centre, 56 Gloucester Road, Wan Chai Croda Americas LLC (vii) (viii) IonPhaseE (H.K.) Limited Croda Finance Inc (vii) | Croda Inc. | | Hungary – 1117 Budapest XI, Bölcso utca 6. 1. emelet 4. | | | --- | --- | --- | --- | | | (viii) | | (i) (vii) | | Croda Inks Corp | | Croda Magyarorszag Kft | | (ix) Croda Investments Inc India – Plot No. 1/1, Part TTC Industrial Area, Thane Belapur Road, (viii) | Croda Storage Inc | | Koparkhairne, Navi Mumbai 400710, Maharashtra | | | --- | --- | --- | --- | | | (ix) | | (i) (vii) | | Croda Synthetic Chemicals Inc | | Croda India Company Private Ltd | | (viii) Mona Industries Inc India – 38/A, Radhe Industrial Estate, Tajpur Road, Changodar (vii) Sederma Inc 382213, Ahmedabad 1293 Harkins Road, Salinas, CA 93901 (vii) Iberchem India Ltd . (vii) Incotec Integrated Coating and Seed Technology, Inc India – 47, Mahagujarat Industrial Estate, Opp. Pharma Lab, Sarkhej- Bavla Highway, At. Moraiya, Ta. Sanand, Ahmedabad-382213, Incorporated in other overseas countries Gujarat (vii) Integrated Coating and Seed Technology India Pvt. Ltd Argentina – Office Dardo Rocha 2044, 1640, Martinez, Buenos Aires (vii) Indonesia – Kawasan Industri Jababeka, Jl. Jababeka IV Blok V Kav Croda Argentina SA 74-75, Cikarang Bekasi 17530 (iii) (iv) (vii) Australia – Suite 2, Level 6, 111 Phillip Street, Parramatta, NSW 2150 PT Croda Indonesia (vii) Croda Australia Pty Ltd Indonesia – Palma Tower , 17th Floor, Jl. RA Kartini II-S Kav.6 , Jakarta 12310 Brazil – Rua Croda, 580, Distrito Industrial, Campinas, São Paulo, (vii) PT Croda Trading Indonesia CEP 13.074-710 (vii) Croda do Brasil Ltda Indonesia – Pusat Niaga Terpadu, JI. Daan Mogot Raya Km 19, 6 Blok GG8N, 15122 Tangerang Brazil – AFAS Adviser Consultores Associados Ltda, Rua Manuel de (vii) PT Scentium Flavours Nóbrega, 1.280, 10º andar, Paraíso, São Paulo, CEP 04001-902 (viii) Iberchem Brazil Participaçoes Ltda Iran – Apt. 305, 3rd Floor, No 14 Golestan Avenue, Alikhani Avenue, Southern Shiraz Street, Tehran Canada – 1700 Langstaff Road, Suite 1000, Vaughan, (vii) Croda Pars Trading Co Ontario, L4K 3S3 Italy – Via P. Grocco 915, 27036 Mortara (vii) Croda Canada Ltd (vii) Croda Italiana S.p.A. Chile – Los Militares 4611, 17th Floor – 7560968, Las Condes, | Santiago | | Italy – Via del Commercio, 2, Desio (MB) | | | | --- | --- | --- | --- | --- | | | (vi) (vii) | | | (vii) | | Croda Chile Ltda | | Iberchem Italia SRL | | | | Colombia – Calle 90 # 19-41 Office 601, Bogotá | | Japan – 7-1 Nishi-shinjuku 3-chome, Shinjuku-ku, Tokyo 163-1001 | | | | | (ii) (vii) | | (i) (vii) | | | Croda Colombia | | Croda Japan KK | | | Malaysia – 6 Jalan Anggerik Mokara 31/54, Kota Kemuning, Section Colombia – Aut. Medellín km. 7, Bodega 88-02, Celta Trade Park, 31, 40460 Shah Alam, Selangor Darul Ehsan Funza, Cundinamarca (vii) Flavor Inn Corporation Sdn Bhd (vii) Iberchem Colombia SAS Mexico – Hamburgo 213, Piso 10, Colonia Juárez, Delegacion | Czech Republic – Praha 5, Pekarˇská 603/12, 150 00 | | | Cuauhtémoc, D.F., C.P. 06600 | | | --- | --- | --- | --- | --- | | | (vii) | | | (vii) | | Croda Spol. s.r.o | | | Croda México SA de CV | | | Denmark – Elsenbakken 23, 3600 Frederikssund | | | Mexico – Alfredo Nobel No. 3, 3 y 4, Col. Fraccionamiento Industrial | | | | | (vii) | Los Reyes, Estado de México, 54073 Tlalnepantla | | Croda Denmark A/S (vii) Iberchem Mexico SA de CV Finland – Hepolamminkatu 29, 33720 Tampere (vii) Nigeria – Landmark Towers, 5B, Water Corporation Road, Victoria IonPhasE Oy Island, Lagos Germany – Herrenpfad Süd 33, 41334 Nettetal (vii) Croda SI&T Nigeria Limited (vii) Croda GmbH (vii) Peru – Av. Juan de Aliaga 425 Of. 401, Magdalena del Mar Sederma GmbH (vii) Croda Peruana S.A.C Germany – Dr.-Hans-Wilhelmi-Weg 1, 35633 Lahnau (vii) Poland – ul. Wadowicka 6, 30-415 Kraków Rewitec GmbH (i) (vii) Croda Poland Sp. z o.o. Guernsey – PO Box 33, Dorey Court, Admiral Park, St Peter Port, GY1 4AT Republic of Korea – Rm. 1201, 12th Floor, 42, Hwang Sae UI-Ro 360 (i) (xii) Beon-Gil, Bun Dang-Gu, Seong Nam-Si, Gyeong Gi-Do, 13591 Cowick Insurance Services Ltd (ii) (vii) Croda Korea Croda International Plc ## Annual Report and Accounts 2021 169 Croda International Plc ## 175 Annual report and Accounts 2021 ### Other information (continued) ### Related Undertakings (continued) ### Incorporated in other overseas countries c o n t i n u e d Non-wholly owned subsidiaries, associates and ### investments: Russian Federation – Office 1333, 16 Raketnyi bulvar, Moscow, 129164 Incorporated in the UK (vii) Croda RUS LLC 3 Huxley Road, Surrey Research Park, Guildford, GU2 7RE Singapore – 30 Seraya Avenue, Singapore 627884 c o n t i n u e d SiSaf Ltd 3.89% (i) (v) (vii) Croda Singapore Pte Ltd Singapore – 2 International Business Park, #04-06 The Strategy Incorporated in other overseas countries (Tower 1) Brazil – Rua das Sementes nr. 291, Holambra, State of São Paulo (vii) Iberchem Far East Pte Ltd (vii) Incotec America do Sul Tecnologia em Sementes Ltda. 99.99% South Africa – Clearwater Estate Office Park, Block G, Corner of China – No 656 East Tangxun Road Economic and Technological Atlas & Park Road, Parkhaven Ext 8, Boksburg 1459 Development Zone Miangyang Sichuan (vii) Croda (SA) (Pty) Ltd (vii) Croda Sipo (Sichuan) Co., Ltd 65.00% (vii) Incotec South Africa (Pty.) Ltd China – 2nd Industrial Road (E), Changleng Foreign Investment | South Africa – 5 Marconi Nook, Hennopspark, Centurion, 0157 | | | Industrial Park II, Xinjian County, Nanchang City, Jiangxi, 330100 | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | (vii) | | | | (vii) | | | Iberchem South Africa (Pty) Ltd | | | Nanchang Xinduomei Bio-Technology Co.,Ltd | | | 70.00% | | | Spain – Plaza. Francesc Macià, 7, 7ºB, 08029 Barcelona | | | France – 51 avenue Louison Bobet, 06130 Grasse | | | | | | | (vii) | | | (vii) | | | | | Croda Ibérica SA | | | Parfex | | | | 99.47% | | Spain – Avenida del Descubrimiento, Parcela 9/9, Polígono I, 30820 | | | Indonesia – Pusat Niaga Terpadu, JI. Daan Mogot Raya Km 19, 6 | | | | | | Alcantarilla, Murcia | | | Blok GG8N, 15122 Tangerang | | | | | | | | (ix) | | | (vii) | | | | Fragrance Spanish Topco, S.L. | | | PT Iberchem Indonesia Fragrances | | 98.00% | | | (vii) Iberchem SA Indonesia – Pusat Niaga Terpadu, Blok EE 8A, Jl, Daan Mogot, Raya, Sweden – Geijersgatan 2B, 216 18 Limhamn Km.19, Tangerang, 15122, Jakarta West Java, Indonesia (vii) Croda Nordica AB (viii) PT Inti Berkah Chemindo 51.00% (xiii) MX Adjuvac AB Spain – Avenida de Holanda, Parcela 12/14, Polígono Industrial Las | Vietnam – Room # 606A, Floor 6th, Centre Point Building 106 Nguyen | Salinas, 30840 Alhama de Murcia, Murcia | | | --- | --- | --- | | Van Troi Street, Ward 8, Phu Nhuan District, | | (vii) | | | Scentium Flavours, S.L. | 98.60% | Ho Chi Minh City The Representative Office of Croda Singapore Pte Ltd in Sweden – Scheelevägen 22, 22363 Lund (ii) (vii) (xiii) Ho Chi Minh City Enza Biotech AB 88.00% Thailand – 319 Chamchuri Square Building, 16th Floor, Unit 13- Tunisia – 39, rue Jamel Abdennaceur, Z.I. Borj Cédria, Bir El Bey, BP 14, Payathai Road, Patumwan, Bangkok 10330 69, 2055 Ben Arous (i) (vii) (vii) Croda (Thailand) Co., Ltd Iberchem Tunisie S.A.R.L. 63.70% Thailand – No. 41/87 Moo 6 Bangna Trad Road Km. 16.5, Bangcha Turkey – Yeiltepe Mahallesi smetinönü-2 Cad. No:2/57 Tepebai, long-Sub District, Bangplee District, 10540 Bangkok, Samutprakarn Eskiehir Province (vii) Entekno Industrial, Technological and Nano Materials Corp. 9.00% Iberchem Thailand Ltd United Arab Emirates – Units 2601 & 2602, Al Manara Tower, Al Abraj Turkey – Nidakule Göztepe Is¸ Merkezi, Merdivenköy Mahallesi, Bora St., Business Bay, P.O. Box 191160, Dubai Sokak, No: 1 Kat:2/5 Kadıköy 34732, Istanbul (vii) (vii) The Essence of Nature F&F Trading LLC 49.00% Croda Kimya Ticaret Limited irketi United Arab Emirates – P. O. BOX 17916, Office 1209, 1210 & 1211, 12th Floor, Jafza One, Tower B, Jebel Ali Free Zone, Dubai (vii) Croda Middle East FZE Zimbabwe – 4a Knightsbridge Crescent, Highlands, Harare (viii) Croda Chemicals Zimbabwe Pvt Ltd Classifications Key (i). Companies owned directly by Croda International Plc (ii). Branch office (iii). A Ordinary (iv). B Ordinary (v). Preference including cumulative, non-cumulative and redeemable shares (vi). No share capital, share of profits (vii). Manufacture, sales or distribution of speciality chemicals, or of seed treatment services and products, or fragrances and flavours compositions (viii). Dormant (ix). Holding company (x). Property holding company (xi). Trustee (xii). Captive insurance company (xiii). Research enterprise (xiv). Not consolidated; Company limited by Guarantee and not having a Share Capital Croda International Plc ## 170 Annual Report and Accounts 2021 Croda International Plc ## 176 Annual report and Accounts 2021 ### Shareholder Information ### Other information ### Overseas shareholders – choose ### to receive your next dividend in ### your local currency If you live outside the UK, Link has partnered with Deutsche Bank to provide you with a service that will convert Sterling dividends into your local currency at a competitive rate. You can choose to receive payment directly to your local bank account or alternatively ### Investor relations Dividend reinvestment plan (‘DRIP’) you can be sent a currency draft. 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This means that: Shareholders who register on the above receive information rights under section website can also check their shareholding, 146 of the Companies Act 2006 are • your dividend reaches your bank account view their dividend history, choose their required to direct all communications to on the payment date; dividend options, register changes of the registered holder of their shares rather address and dividend mandate instructions. • it is more secure – cheques can than to the Company’s registrar, Link sometimes get lost in the post; Group, or to the Company directly. ### Share price information • you don’t have the inconvenience of ### Share fraud warning The latest ordinary share price is available on depositing a cheque; and our website at www.croda.com. Fraudsters use persuasive and high-pressure • helps reduce cheque fraud. tactics to lure investors into scams. They The middle market values of the listed share may offer to sell shares that turn out to be If you have a UK bank account you can capital at 31 December 2021, or last date worthless or non-existent, or to buy shares at sign up to this service on Signal Shares traded*, were as follows: an inflated price in return for an upfront (www.signalshares.com by clicking on payment. While high profits are promised, if ‘your dividend options’ and following the you buy or sell shares in this way you will on-screen instructions) or by contacting probably lose your money. the Customer Support Centre. 5,000 people contact the Financial Conduct Authority (‘FCA’) about share fraud each year, with victims losing an average of £20,000. Croda International Plc | | | Annual Report and Accounts 2021 | 171 | | --- | --- | --- | --- | | 2022 Full year results announcement 7 March 2023 | | | | | 2022 Preference dividend payments 30 June 2022 6.6% preference shares 2022 Half year results announcement 26 July 2022 Ordinary shares 2021 Final ordinary dividend payment 6 June 2022 31 December 2022 2022 Interim ordinary dividend payment 4 October 2022 5.9% preference shares 2022 Annual General Meeting 20 May 2022 | 106.5p* 105.5p* 10045p | | | Croda International Plc ## 177 Annual report and Accounts 2021 ### Other information (continued) ### Shareholder Information (continued) | How to avoid share fraud | Secretary and Registered Office | | --- | --- | | • Keep in mind that firms authorised by the | Tom Brophy (Company Secretary) | | FCA are unlikely to contact you out of the | Cowick Hall, Snaith, Goole, East Yorkshire | | blue with an offer to buy or sell shares. | DN14 9AA | Tel: +44 (0)1405 860551 • Do not get into a conversation, note the Fax: +44 (0)1405 861767 name of the person and firm contacting Website: www.croda.com you and then end the call. Registered in England number 206132 • Check the Financial Services Register ### at www.fca.org.uk to see if the person Registrars and firm contacting you is authorised by Link Group the FCA. 10th Floor, Central Square, 29 Wellington | • Beware of fraudsters claiming to be from | Street, Leeds, LS1 4DL | | --- | --- | | an authorised firm, copying its website or | Tel: 0371 664 0300 (from UK) | | giving you false contact details. | +44 (0)371 664 0300 (from overseas) | Calls are charged at the standard geographic • Use the firm’s contact details listed on the rate and will vary by provider. Calls outside Register if you want to call it back. the United Kingdom will be charged at the | • Call the FCA on 0800 111 6768 if the firm | applicable international rate; lines are open | | --- | --- | | does not have contact details on the | 9.00am to 5.30pm, Monday to Friday | | Register or you are told they are out | excluding public holidays in England | | of date. | and Wales. | Fax: + 44 (0)1484 601512 • Search the list of unauthorised firms to Website: www.linkgroup.eu avoid at www.fca.org.uk/scams. Email: enquiries@linkgroup.co.uk • Consider that if you buy or sell shares from ### an unauthorised firm you will not have Independent Auditors access to the Financial Ombudsman KPMG LLP Service or Financial Services 15 Canada Square, London, E14 5GL Compensation Scheme. ### • Think about getting independent financial Principal Financial Advisers and professional advice before you hand Morgan Stanley & Co. International plc over any money. ### Principal Solicitors • Remember: if it sounds too good to be Freshfields Bruckhaus Deringer LLP true, it probably is! ### Report a scam Stockbrokers If you are approached by fraudsters please Morgan Stanley & Co. International plc tell the FCA using the share fraud reporting HSBC Bank plc form at www.fca.org.uk/scams, where you can find out more about investment scams. ### Financial PR Advisers Teneo You can also call the FCA 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 ## 172 Annual Report and Accounts 2021 Croda International Plc ## 178 Annual report and Accounts 2021 ### Other Information ### Five Year Record ### Other information ### Earnings £m £m £m £m £m 4 1 1 1 1 Pence Pence Pence Pence Pence 1 Times Times Times Times Times 2 ### Summarised Balance Sheet £m £m £m £m £m , plant and equipment and investments 2,350.9 2,297.8 1,301.4 1,240.0 1,072.5 443.0 302.6 268.9 287.2 258.5 337.9 289.9 216.8 233.6 202.2 (370.3) (267.6) (164.7) (191.3) (202.5) 2,395.6 1,416.3 1,423.5 1,211.4 1,753.1 1,585.8 861.6 990.5 822.3 -controlling interests 12.8 9.3 7.0 7.5 7.6 ### Return on capital £m £m £m £m £m 1 2,589.1 2,395.6 1,416.3 1,423.5 1,211.4 Goodwill previously written off to reserves 50.2 50.2 50.2 50.2 50.2 Accumulated amortisation of acquired intangible assets 70.6 36.3 22.7 14.8 8.2 2,709.9 2,482.1 1,489.2 1,488.5 1,269.8 3 1 1 Before exceptional items, amortisation of intangible assets arising on acquisition and the tax thereon where applicable 2 Interest excludes net interest on retirement benefit liabilities 3 The Group acquired Avanti Polar Lipids, LLC on 12 August 2020 and Fragrance Spanish Topco, S.L. (‘Iberchem’) on 24 November 2020. Given the value of the acquisitions, the Group’s measure of average adjusted invested capital for 2020 has been adjusted for the related weighted average impact. The Group acquired Brenntag Biosector A/S on 28 December 2018. Given the value of the acquisition and its proximity to the balance sheet date, the Group’s measure of average adjusted invested capital for 2018 has been adjusted for the related impact 4 Covenant EBITDA is EBITDA as defined in the Finance Review but before share-based payment charges and the loss on associates. Covenant EBITDA is also adjusted to reflect the annualised impact of acquisitions in the period. The five year record is presented based on the applicable accounting standards at the relevant reporting date. Croda International Plc | | | | | | Annual Report and Accounts 2021 | 173 | | --- | --- | --- | --- | --- | --- | --- | | | | 2021 2020 2019 2018 2017 2021 2020 2019 2018 2017 2021 2020 2019 2018 2017 | | | | | | Intangible assets, property Tax, provisions and other Adjusted operating profit net of tax Turnover Adjusted profit before tax Return on sales Adjusted earnings per share Net debt/Covenant EBITDA Trade and other payables Invested capital Adjustments for: Charge for invested capital Inventories Trade and other receivables Retirement benefit assets/(liabilities) Net assets Net debt Post-tax cost of capital (%) Covenant EBITDA Adjusted operating profit Profit after tax Profit attributable to owners of the parent Effective tax rate Ordinary dividends per share Covenant EBITDA interest cover Capital employed Shareholders’ funds Non Invested capital Adjusted invested capital Average adjusted invested capital Return on invested capital (ROIC) Economic value added | 1,889.6 1,390.3 1,377.7 1,386.9 1,373.1 2,589.1 2,395.6 1,416.3 1,423.5 1,211.4 1,765.9 1,595.1 2,761.5 2,622.7 1,622.4 1,569.5 1,330.7 2,589.1 2,596.0 1,665.6 1,488.9 1,343.6 1,148.6 (180.3) (166.1) (194.8) (131.1) (127.5) (103.3) | 369.2 242.6 252.8 258.2 243.2 445.2 300.6 322.1 331.5 320.3 250.0 175.5 185.0 190.2 179.0 868.6 998.0 829.9 823.2 800.5 547.7 425.5 381.5 591.4 433.4 402.9 408.6 398.1 468.6 319.6 339.7 342.5 332.2 322.8 201.6 223.8 238.3 236.7 320.8 201.6 223.9 238.5 237.0 100.0 203.1 139.3 160.5 189.7 188.1 (88.8) (92.3) (68.5) (55.1) (32.3) (75.0) (18.5) (30.5) 24.8 23.0 24.7 24.7 24.2 21.2 24.1 25.6 24.6 26.8 91.0 90.0 87.0 81.0 22.4 22.5 23.3 29.8 29.9 14.2 14.6 17.0 19.2 21.2 1.4 1.8 1.4 1.0 1.0 7.9 6.4 6.2 6.2 5.1 4.8 | (%) (%) | (%) | | | Croda International Plc ## 179 Annual report and Accounts 2021 ### Glossary Adjusted Before exceptional items, amortisation of intangible IFRS International Financial Reporting Standards assets arising on acquisition and the tax thereon IIRC International Integrated Reporting Council where applicable IP Intellectual Property AGM Annual General Meeting ISO International Organization for Standardization ALM Asset-Liability Matching ISSB International Sustainability Standards Board Bio-based Carbon containing, from renewable, non-fossil sources IT Information Technology CARE Career Average Revalued Earnings KPI Key Performance Indicator CDP Carbon Disclosure Project LDI Liability driven investment CEO Chief Executive Officer M&A Mergers and acquisitions CGU Cash Generating Unit Market Consumer Care, Life Sciences, Performance CIPEBT Croda International Plc Employee Benefit Trust sectors Technologies, Industrial Chemicals Code Financial Reporting Council’s 2018 UK Corporate NCI Non-controlling interest Governance Code Net debt Borrowings and other financial liabilities less cash CO Carbon dioxide 2 and cash equivalents CO e Carbon dioxide equivalent 2 NGO Non-governmental Organisation Constant Current year results for existing business translated at NPP New and protected products currency the prior year’s average exchange rates and include the impact of acquisitions PSP Performance Share Plan CPI Consumer Price Index QUEST Croda International Plc Qualifying Share Ownership Trust CPS Croda Pension Scheme R&D Research and Development DRIP Dividend Reinvestment Plan Return on Adjusted operating profit divided by revenue sales DBSP Deferred Bonus Share Plan RFT Right first time EBITDA Earnings Before Interest, Taxation, Depreciation | | and Amortisation | ROIC Return on Invested Capital | | --- | --- | --- | | EBT Employee Benefit Trust | | RPI Retail Price Index | | EPS Earnings per share | | RSP Restricted Share Plan | | EU European Union | | RSPO Roundtable on Sustainable Palm Oil | | EVA Economic Value Added | | SASB Sustainability Accounting Standards Board | | F&F Fragrances and Flavours | | SBT Science Based Targets | | FCA Financial Conduct Authority | | SDGs United Nations Sustainable Development Goals | | FRC Financial Reporting Council | | SHE Safety, health, environment | | FRS Financial Reporting Standard | | SHEQ Safety, health, environment, quality | | FSP Free Share Plan | | SIP Share Incentive Plan | | FTSE Financial Times Stock Exchange | | SMEs Small and Medium Enterprises | | GDPR General Data Protection Regulation | | STEM Science, technology, engineering and mathematics | | GHG Greenhouse gas | | TCFD Task Force on Climate-related Financial Disclosure | | Scope 1 | Direct emissions from our own, or controlled sources | Te Tonnes | emissions TeCO e Tonnes carbon dioxide equivalent 2 Scope 2 Indirect emissions from the generation of purchased TRIR Total Recordable Injury Rate emissions electricity, steam, heating and cooling TSR Total shareholder return Scope 3 All other indirect emissions that occur in our emissions UV Ultraviolet value chain VRF Value Reporting Foundation GMP Good Manufacturing Practice WACC Weighted Average Cost of Capital HMRC HM Revenue & Customs WHO World Health Organization IASB International Accounting Standards Board Croda International Plc ## 174 Annual Report and Accounts 2021 Cautionary Statement Designed and produced by The information in this publication is believed to be accurate atthedate Black Sun Plc. of its publication and is given in good faith but no representation or This Report is printed on UPM warranty as to its completeness or accuracy ismade. Suggestions in Fine Offset which has been this publication are merely opinions. Some statements and in particular independently certified according forward-looking statements, bytheir nature, involve risks and uncertainties to the rules of the Forest because they relate toevents and depend on circumstances that will or ® ® Stewardship Council (FSC ). may occur inthe future and actual results may differ from those Printed in the UK by Pureprint, expressed insuch statements as they depend on a variety of factors ® aCarbonNeutral company. outside the control of Croda International Plc. No part of this publication Both manufacturing paper mill and should be treated as an invitation or inducement to invest in theshares the printer are registered to the of Croda International Plc and should not be relied uponwhen making Environmental Management System investment decisions. ISO 14001:2004 and are Forest ® Stewardship Council (FSC) chain-of-custody certified. ### Annual Report and Accounts 2021 ### Registered office Croda International Plc Cowick Hall Snaith Goole East Yorkshire DN14 9AA England T +44 (0)1405 860551 www.croda.com