Operations in 45 countries worldwide with manufacturing facilities in 29 countries

ANNEX:

CRAIGIELAW plc

ANNUAL REPORT YEAR 7 (extract)

[This document is adapted from the annual report of a leading UK company, with the sole purpose of presenting illustrative extracts appropriate to a first-level study of financial reporting.]

Introduction to Craigielaw

Craigielaw is an international chemical group. Our core competences are polymer technology, cellulose chemistry and surface science. We employ 17,000 people in 30 countries worldwide.

We are global suppliers of coatings, sealants, packaging, films, chemicals and fibres to multinational customers in a wide range of industrial markets, from shipbuilding, aerospace, automotive and construction to pharmaceuticals, electronics, food and textiles. We group our activities into three business areas: Coatings & Sealants; Polymer Products; and Fibres & Chemicals.

Our strategic objectives are to build Fortel, our pioneering new kastel fibre, into a leading fibre throughout the world; to develop strong positions for Coatings, Packaging and Fortel in the fast growing Asia Pacific region; to grow our Coatings & Sealants businesses and increase their added value; to expand Polymer Products and exploit its considerable potential; to reduce our exposure to mature cyclical products; and to build on our position as an efficient, high-productivity manufacturer in all our established businesses.

In everything we do, we aim to meet our customers needs faster, better and more distinctively than the international competition, and by so doing to increase shareholder value.

ContentsPrincipal Features of the Year and Financial Highlights1

Principal Activities2

Chairmans Statement3

Chief Executives Review5

Business Review [not included in this extract]-

People8

Health, Safety and the Environment9

Research, Technology and Development10

Board of Directors11

Directors Report13

Corporate Governance 14

Remuneration Committee Report16

Operating and Financial Review18

Summary of Financial Data Year 3 ( Year 721

Independent auditors' report22

Consolidated income statement (profit and loss account)24

Consolidated Statement of comprehensive incomeConsolidated Statement of changes in equity

Consolidated statement of financial position2525

26

Consolidated statement of cash flows27

Statement of Accounting Policies28

Notes to Accounts29

Principal Subsidiary and Associated Undertakings36

Analysis of Ordinary Shareholdings and Financial Calendar37

Principal Features of the Year

Fortel demand continues to climb. European plant on schedule for Autumn Year 7.

Strong profits growth in Coatings & Sealants despite adverse exchange-rate movements.

Far East sales and profits rising swiftly. Further plants opened in China and India.

Polymer Products returns to growth.

Acrylic fibres recover, but Vestel rayon demand remains weak. European Vestel rayon capacity cut by 20%.

Financial Highlights

Year ended 31 DecemberYear 7

mYear 6

m

Sales*2,0822,080

Operating profit*166151

Return on sales*7.9%7.2%

Profit before tax*134117

Earnings per share20.0p19.4p

Dividends per share16.4p16.0p

Gearing43%35%

* continuing operationsSales by

business areaSales by

destinationOperating profit by business area

Coatings & Sealants 47% United Kingdom 14% Coatings & Sealants 48%

Polymer Products 11% Rest of Europe 33% Polymer Products 13%

Fibres & Chemicals 42% Rest of World 11% Fibres & Chemicals 39%

Far East 13%

Americas 29%

Principal Activities

Coatings & Sealants

Coatings: One of Asias largest drinks brands uses both three-piece and two-piece cans coated with internal and external lacquers supplied by Craigielaw.

Sealants: Craigielaw Aerospace sealants and coatings enable the wings of aircraft to be used as fuel tanks.

Year 7

mYear 6

m

Sales979954

Operating profit8172

Capital employed392390

Return on capital employed21%18%

Return on sales8%8%

Polymer Products

Packaging: The healthcare market is the largest potential market for plastic and laminate tubes.

Performance films: Craigielaw high performance window films filter out the suns heat, glare and harmful ultraviolet rays.

Year 7

mYear 6

m

Sales237233

Operating profit2218

Capital employed121117

Return on capital employed18%15%

Return on sales9%8%

Fibres & Chemicals

Fibres: Printed fabric in 100% Fortel is one of an exciting range of applications for this versatile new fibre.

Chemicals: Craigielaw Chemicals cellulose acetate tow is used to produce filter tips for major brands of cigarettes worldwide.

Year 7

mYear 6

m

Sales874904

Operating profit6557

Capital employed535509

Return on capital employed12%11%

Return on sales7%6%

Chairman's Statement

from Sir Alan Alder

Mr Gerald Grove It is fitting that I should start this, my first statement as Chairman of Craigielaw, with a tribute to my predecessor, Gerald Grove. He relinquished the post of Chief Executive eight years ago but continued as Non-Executive Chairman until April of Year 7. His contribution to Craigielaw in his various roles has been considerable and much appreciated by all those ( and there are many ( who know him well.

Results The results for the last financial year are described in detail in the Operating and Financial Review on pages 18 to 20. Profit before tax of 133.6m was marginally ahead of Year 6, and earnings per share of 20.0p compares with 19.4p. The financial performance in Year 7 was rather better than the raw figures may suggest. Although currency movements in the second half of the year were unhelpful, profit progress was achieved in almost all of the businesses and Coatings & Sealants, in particular, had a much improved year. The notable exception to this positive trend was the Vestel rayon fibres business. Vestel rayon, which accounts for around 10% of Group sales, had another difficult year; and although the final quarter was the best of the four, it was insufficient to offset what had gone before. The imbalance between the worldwide capacity to produce Vestel rayon fibres and the demand for them is discussed in the Chief Executive's Review. A move to reduce our European capacity was announced in November, but unless there is a substantial and sustained increase in demand, further rationalisation in the Western hemisphere is likely to be necessary.

Fortel continues to make good progress, particularly in Europe, and for the first time made a useful contribution to Group operating profits. The construction of our third plant, in Yorkshire, UK, which is due to be commissioned towards the end of this year, is on target and plans for investment in a fourth plant are at an advanced stage.

Borrowings Net borrowings increased during the year by 49m, the greater part of which is attributable to capital investment in our core businesses, including the third Fortel plant, the modernisation of Coatings and Chemicals facilities, and continued expansion in the Far East.

Dividend Policy The dividend for Year 7, totalling 16.4p per share, shows a 2.8 % increase over last year, slightly ahead of RPI inflation of 2.6%. For some years now the Craigielaw dividend policy has been at least to maintain the dividend in real terms, and this year's increase in the dividend is a continuation of that policy. Our aim remains to increase the dividend by more than the rate of inflation if justified by financial performance.

We have decided this year to offer shareholders the opportunity to take all or part of the final dividend in shares. This permits shareholders to acquire additional shares in Craigielaw without incurring dealing costs and enables the Company to retain cash in the business that would otherwise be paid out, A circular to shareholders giving further details of these arrangements will be despatched in March.

Corporate Governance Corporate governance is a topic that has attracted considerable attention in recent times following the publication of the Cadbury , Greenbury and Hampel reports. Each of these made important contributions to the subject, and Craigielaw has had no difficulty in complying with the recommended Combined Code of practice resulting from them.

Since corporate governance is a dynamic issue, we should expect change in practices and processes. However, relying on processes alone runs the risk of compliance with the letter of the law rather than the spirit. The surest way to preserve high standards of corporate governance lies in the composition and quality of the Board, and it is on this that we would now hope shareholders will concentrate their attention.

I remain convinced that a strong Board comprising a balance of executive and non-executive directors is the structure most likely to provide shareholders with both reassurance on matters of corporate governance and a worthwhile contribution to the development of the business.

Directors Following the AGM last year, Stephen Sloane retired from the Board, having served Craigielaw for 35 years, of which 12 were as a Director and the last five as Chief Executive. His efforts on behalf of the Company are gratefully acknowledged. On 1 May Year 7 Howard Hope, who has been with Craigielaw for ten years, was appointed to the Board as Director responsible for Polymer Products, Chemicals and Engineering. On 18 January Year 8 we announced the appointment to the Board with effect from 31 March Year 8 of Peter Payne as Finance Director. He has been 19 years with Craigielaw and succeeds Donald Durie.

Prospects The trend in results in recent months has been rather more encouraging in spite of a period of worldwide recession and unpredictable currency movements. Looking forward, our strategy is firmly in place and, as Barry Brave makes clear in his Chief Executive's Review, there are good grounds for our belief that Year 8 will be a year of advancement for Craigielaw.

Sir Alan Alder Chairman20 February Year 8

Chief Executive's Review

By Barry Brave

Year 7 saw significant progress in the pursuit of the main themes of Craigielaws strategy. The key elements of this strategy are to exploit Fortel as fast and as profitably as possible; to grow our Coatings businesses, whilst improving margins; to continue to expand in the fast -growing Asian economies; and to develop Polymer Products into a more significant part of the Craigielaw Group. The consequence of expansion in these areas will mean that your company becomes less dependent upon the mature and cyclical businesses that have caused us difficulties over the last two years. Nevertheless, those mature businesses have generated substantial cash over a number of years, and with proactive management action we anticipate their continuing so to do.Success in each of our business areas is dependent upon the service we give to our customers and the quality of the products we supply. It also depends upon new and innovative products that help meet the needs of our customers. This year's Report and Accounts contains a section outlining many such products that will provide the impetus for growth. [The section is not reproduced in this extract] Increasing shareholder value will be the measure by which we judge our performance.

On a continuing business basis and at constant exchange rates, operating profits increased by 13% despite a deteriorating position in Vestel fibre. The considerable strengthening of sterling during the year not only affected the translation of overseas profits but also squeezed margins on our UK produced goods.Coatings & Sealants For the second successive year, Coatings & Sealants recorded a significant increase in profits. We are a supplier primarily of industrial coatings to global markets. In such competitive markets, raising margins is not easy. It is particularly encouraging, therefore, that in some of our major global businesses, such as Marine and Aerospace, margins did improve. We aim to strengthen our positions in other markets in order to achieve our targeted 10% return on sales.

We also made very good progress in Asia. Our sales in Asia have grown between 15% and 20% per annum over the last four years, but margins have suffered as a consequence of high start-up costs. With many of the new businesses now fully operational, we have been able this year to concentrate on achieving our targeted margins without sacrificing growth. We now have operations in 13 Asian countries, including three manufacturing units in China. India was the one country in which we remained in loss during the year, and it will be some time before our investment there gives a satisfactory return. Nevertheless, we feel we must be present in a country of such evident potential.

In North America we saw the benefits of the restructuring programme and the associated improved management information systems. These will be fully operational in Year 8 and, combined with the upturn in the aerospace market, should provide the background against which this year's improvement can continue. Investment in Europe continued, although the first phase of the modernisation of the resin production facility in London was delayed somewhat by a fire during commissioning.

Polymer Products now comprises essentially two businesses, each of which has a potential for rapid growth whilst sustaining better margins. Performance Films had another good year and showed the consistent improvement in profits and revenue that have characterised the business since we reorganised it in Year 2. Our Packaging business continues to grow, although the results were retarded by the problems associated with transferring the extruded tubes facility from an obsolete plant in Iowa to a state-of-the-art facility in Illinois. Relocating factories to new, greenfield sites is notoriously difficult, and we underestimated the problems of so doing. In order to maintain the service to our customers, we had to incur not only the start-up costs for the new plant, but also those of keeping the old plant open for 12 months longer than had been anticipated. This move is now complete, and we have an impressive new facility. With the exception of rigid packaging in the US, where competitive pressure is acute, the remainder of our packaging businesses continue to expand and achieve good margins.

Fibres & Chemicals The problems with our mature staple fibre businesses continued from the previous year. Nevertheless, the acrylic fibre business improved throughout Year 7. By the end of the year demand was quite strong, although the benefits had to be shared with our suppliers. Unfortunately, that strong demand in acrylic fibre was not matched in Vestel rayon. This, combined with capacity expansions by local producers in Asia, for which there was no immediate market, meant that margins suffered throughout the year. Even weak prices for woodpulp, the main raw material for Vestel, could not offset the deterioration in selling prices, and profits declined. As a consequence, we decided to reduce capacity in Europe by some 20% in order to help restore a more sustainable supply-and-demand balance. Towards the end of the year, there were a few signs that the market might be recovering, but it will require further improvement in demand to preclude the need for additional capacity reductions in the Western hemisphere. Our ability to reduce costs was yet again tested, but it was only by so doing that we ensured a positive cash flow in extremely difficult circumstances.

Whilst Acetate Yarns is also a mature business, it showed robustness by delivering an excellent result in a market that was considerably more difficult than in the previous year. By responding rapidly to evidently weakening European demand, full capacity operation and strong margins were maintained. Our mainstream acetate tow business also sustained satisfactory margins, although this is one of our businesses which is particularly exposed to the relative values of the dollar and sterling. The strengthening of sterling in the latter half of Year 6 was decidedly unhelpful in a market that was slightly off the boil. Investment in the modernisation of our facility in Yorkshire, UK, for the manufacture of flake, the raw material for our tow business, continued. When this is complete, productivity will have been improved by two-thirds and it should be amongst the most efficient flake plants in the world. Our Fine Chemicals business again proved remarkably resilient and capable of delivering good profits. We are investing and expanding in those areas of Fine Chemicals where we have strong market positions.

Despite an almost doubling of capacity in the early part of Year 6, demand for Fortel exceeded our capacity, and we had to balance the development of demand with our ability to supply. This was difficult but important, since existing demand is primarily from the textile market and we have an untapped industrial market still to develop. The most encouraging feature of the textile demand, however, is the breadth of products now available from our customers and which demonstrate the versatility of Fortel. Clearly, the parts of the textile industry that will survive in the developed world are those that are capable of creative and innovative design. Our next Fortel plant ( the first in Europe ( is intended to serve this market and is on schedule to open before the end of Year 8. Fortel also made a firm breakthrough into profit last year, despite unfavourable exchange-rate movements and the increasing expenditure on marketing. The latter, together with continued investment in research and development, imposes short-term costs but is essential if Fortel's world leadership is to be maintained.

Capital expenditure remained high in Year 7. Fortel is a significant component of our capital spend, but we are not ignoring the potential in our other businesses. If we are to remain internationally competitive, and to seize those opportunities for growth that are available, we shall have to maintain this high level of investment. The efficient use of working capital, therefore, is essential, and over the year good progress was made in this respect. The major disposal programme, designed to sharpen the focus of the Group's three business areas, was largely completed with the sale of our Architectural coatings business in Australia.

Health, Safety and the Environment The chemical industry has a fundamental obligation to operate both safely and with a care for the environment. Our performance in both areas continues to improve. It is often thought that the fulfilment of these obligations imposes financial burdens on the industry, but safe operation has its own pay-back, and concerns for the environment offer as many opportunities as they do costs. Fortel was originally conceived as a more environmentally friendly way to manufacture Vestel. This was many years before the environment occupied centre stage, and is an extreme example of a new product being created in anticipation of environmental concerns. However, in many of our activities, such pressure offers potential opportunities. The fastest-growing sector of the coatings industry is powder coatings. This is driven partly by economics but substantially by the need to reduce solvent emissions to the atmosphere. Environmental pressures will continue to offer product development opportunities for companies with the technical and marketing skills to exploit them.

Customers The globalisation of our customer base and of its suppliers ( our competitors ( also creates openings. It is those suppliers who can meet and exceed the quality and service requirements of their customers who win in this increasingly competitive global environment. We have therefore launched a major programme to raise the quality standards of our processes and products, and to ensure that quality is an integral part of all our operations.

People None of the above can be achieved without the dedicated commitment of the people we employ. I am grateful for the support, hard work and loyalty that our employees have shown over many years of change. The changing nature of any business today puts additional stresses on people, and demands that the human resources of a company be managed proactively. This is particularly true when there is a shift in the geographic balance of the business. We now employ more people outside the UK than we do within it, and this is a measure of how international the Group has become. I am pleased, therefore, by the increasing extent to which expatriates are being succeeded by locally developed management at all levels in our overseas operations. There will, of course, still be a need for expatriates of all nationalities, but the Group will be more secure as a result of the opportunities created for local employees to develop their own careers and to contribute to the Group's success.

Outlook Your company has seen a declining trend in profits in recent years. Much of this has been due to the cyclical problems of the mature fibre businesses, which have obscured an improving underlying position. I believe that we shall now start to see the benefit of the many good things that have been achieved over the past seven years, including the successful launch of Fortel, the restructuring of Coatings & Sealants and Polymer Products, and the successful expansion of our business in Asia. As a result, we have a sound platform for profit growth throughout the rest of this decade and, with it, for improvement in shareholder value.

Barry Brave Chief Executive20 February Year 8

People

Craigielaw is an international company; 86% of our sales are outside the UK. The UK remains our largest manufacturing base, but well over half our employees are now located in the Americas, Asia-Pacific and Continental Europe. We have manufacturing plants in 29 countries, and non-manufacturing operations in a further 16. Our businesses are management and skills intensive; the great majority are technology based and depend on providing customers with a high level of service. The customers, moreover, are frequently international in scale.

It therefore remains a prime objective to develop management and staff in all the countries in which we operate and so reflect the character of the Group. To this end we are able to take advantage of our geographic spread to advance the careers of our employees. Some 70 international career moves now take place each year. In Year 7 in Packaging, to take one example, such moves took place between the UK, Indonesia, India and the USA. Craigielaws Management Development Programme offers senior and high-potential managers an international, high-calibre programme, based on case studies and with faculty both from senior company management and major business schools.

Recruitment is worldwide and, in addition to our close links with universities in Europe and the USA, we are developing strong relationships with academic institutions in China, notably Shanghai, where we have been a prime sponsor in the establishment of the China Europe International Business School.

During Year 7 we continued to link our training and development schemes to the particular needs of the businesses. In Europe the year saw agreement to set up a Craigielaw European Works Council. The first meeting is scheduled for April Year 8, and the 23 representatives will include 10 from the UK, with provision for non-union as well as union representation.

Every reasonable effort is made to give disabled applicants and employees who become disabled opportunities for work, training and career development fitted to their aptitudes and abilities.

During Year 7 we issued two brochures designed to give our employees guidance on business practices and mandatory codes of behaviour. The first was a code of business practice and good conduct, applicable generally throughout the Group. The second dealt specifically with the USA. Both laid out Craigielaws commitment to equal opportunities, irrespective of gender, race, religion or nationality, and emphasised that harassment of any kind is not tolerated. They set out in practical terms the implications for employee behaviour of the values underlying Craigielaws business practices.

EmployeesYear 7 Year 6

000000

Coatings & Sealants7.97.7

Polymer Products2.53.3

Fibres & Chemicals6.26.7

16.617.7

Health, Safety and the Environment

Craigielaw has had a record of continual improvement in health, safety and environmental performance for many years. In Year 7 we restated our commitment to this progress.

Over the past six years, we have reduced our accident rate by 75%. This trend of improvement has continued: in Year 7 there were 11.2 injuries per 1,000 employees involving lost time of one day or more or serious injury, a reduction of 15% over Year 6.

This improvement stems from a company-wide programme of analysing risk, developing safe procedures, and training staff. During the past year, particular emphasis has been placed on training staff in auditing and process hazard study techniques.

Occupational health is managed within a framework of standard basic requirements for procedures and reporting at all locations around the world. Progress has been made in identifying some causes of work-related health problems, and dealing with them.

For several years, our main environmental concern has been to reduce the release of materials defined in national legislation as hazardous. In Year 7 we achieved our first target of reducing worldwide emissions of such materials into the air and water to 50% of the levels applying ten years ago. Our next target is a reduction of at least 75% from those levels within the next five years. The best contribution to reduced pollution in Year 7 was made by the Craigielaw Fibers site in Alabama, where new spinning technology has resulted in a 50% reduction of carbon disulphide emissions over the last three years.

We also aim to prevent any contamination of soil or groundwater at our sites and have an active spill-prevention programme to achieve this. Where contamination has been found from past activity, we have taken steps to investigate and remedy it. At many sites where production has ceased, clean-up activities progressed in Year 7, notably at sites in the UK, France and Canada.

We continue to make information about our environmental plans and progress available to neighbours, customers, employees and regulatory authorities. In Year 7 our Coatings site in Melbourne, Australia, received an award from the Victorian Environment Protection Agency for its voluntary environmental improvement plan, developed in co-operation with its neighbours. In Yorkshire, UK, the Fibres site published an updated report on its environmental programme, which was made available to neighbours and visitors to the site on an open day.

Despite the steady improvement, plant operating permits were breached on occasions. Four improvement notices were served in the UK. In the USA fines of between 600 and 10,000 were levied on Craigielaw Coatings and Craigielaw Aerospace for breaches of a waste water discharge permit and for an emission to air. Craigielaw Fibers in the USA was also fined for exceeding an environmental permit and for a minor safety procedure omission.

Research, Technology and Development

To supply demanding multinational customers in all our product areas requires continuing investment in research and development. It also requires us to act quickly in the face of changes in the market-place, particularly to regulatory change such as tougher environmental standards. So research and development at Craigielaw is overwhelmingly driven by the needs of the market-place and the customer. It is the responsibility of each business to identify its development priorities, and this involves anticipating market trends.

In the traditional acrylic and Vestel fibres, apart from the considerable ongoing activity in support of customers and the development of higher added-value products, the emphasis is increasingly away from textiles and into industrial uses less subject to the cyclical and seasonal fluctuations of the textile markets. Development has therefore concentrated on industrial uses, such as materials for aircraft brakes and highly-absorbent products for personal hygiene, or on speciality textiles such as antimicrobial products. Fortel, a new product itself, continues to be developed for wider applications.

In Packaging, feedback from the customer is reasonably swift, and we pursue a policy of constant product refinement. Factors such as shelf space and personal convenience drive this market, and new developments in the pipeline include a new tube-making process, new, soft-feel materials, and graphic enhancements. The applications of performance films are very wide. Our thermal insulation and security glass window films are developing in complexity and versatility all the time. We have also developed touch-sensitive screen films for the electronics industry. They have many uses in popular electronic devices such as touch panels, membrane switches, instrumentation panels and slot machines. Similar films are also used in watch displays and car dashboards.

One of the prime movers of change in the coatings and sealants market has been increasing environmental regulation. We have responded to this with a range of environmentally friendly products. Our Gastel HS aircraft coating ( low on volatile organic compounds, high in solids ( is the first such aircraft coating to be approved by Boeing. We are one of the leaders in solvent-free powder coatings for a variety of industrial uses, including domestic appliances and automotive components. Partel, a totally biocide-free, ultra-smooth underwater marine coating to which fouling will not adhere, is now demonstrating its potential in the market-place. In the yacht market, Rontel tin-free antifouling has been used on contenders in the BT Global Challenge round-the-world yacht race, and has performed excellently.

Craigielaws own in-house polymer technology has been applied to delivering a wide range of innovations. A new sealant for insulating glass provides improved performance and convenient application. We have also developed a new lightweight polymer for aerospace sealants, and the Martel range of tough, anti-abrasion coatings.

Research and Technology expands beyond products to manufacturing and market support. In partnership with the pharmaceutical, adhesives and photographic industries, we are continuing to develop efficient processes for the manufacture of fine chemicals and intermediates. Information technology (IT) is another key development area. We use IT to track our markets and support new product development. In our marine business, for example, we track product performance and docking/repair schedules worldwide for all vessels of over 4,000 tonnes. This enables us to provide greatly enhanced service to our customers, as does a new Group-wide product information system designed for increasingly global businesses such as Packaging Coatings and Fortel. To transfer best practice and management control across the Group, we have introduced a single integrated business software package; progress this year in installing this package has been significant.Board of Directors

Sir Alan Alder (60) ChairmanSir Alan joined the Board eight years ago and became Non-Executive Chairman in April Year 7. He is also Non-Executive Chairman of AB plc, which he joined 30 years ago and where he was appointed Finance Director 15 years ago, subsequently Group Managing Director and then Chairman and Chief Executive ten years ago. He is a Non-Executive Director of the Bank of England.

Executive DirectorsB G Brave (50) Chief ExecutiveBarry Brave joined Craigielaw 28 years ago and has been a Director for 10 years. He has at different times held responsibility for a range of businesses, including Aerospace, Chemicals and Fibres. He was appointed Deputy Chief Executive (Operations) in October Year 4 and Chief Executive in April Year 7. He has recently become a Non-Executive Director of Brown plc.

C L Crane (53) Deputy Chief Executive (Development)Lawrie Crane joined Craigielaw 25 years ago and has been a Director for 16 years. His previous responsibilities have included the Coatings, Films and Packaging businesses, and three years ago he became responsible for Research & Technology and for Corporate and Business Development. He was appointed Deputy Chief Executive (Development) three years ago, and is also responsible for Fine Chemicals. He is a Non-Executive Director of Craigielaw Textiles plc.

D Durie (46) FinanceDonald Durie qualified as a chartered accountant with a major accountancy practice , where he was a partner for 10 years before joining Craigielaw as Finance Director in June three years ago. As previously announced, he will leave the Group at the end of March Year 8.

E J Easton (49) Human Resources and Health, Safety & EnvironmentErrol Easton joined Craigielaw 20 years ago and has been a Director for 10 years. He was responsible for Research & Technology until three years ago, when he became responsible for Human Resources. He is also responsible for Health, Safety & Environment, and is Chairman of the Trustees of the Craigielaw Pension Scheme. He is a member of the UK Engineering and Physical Sciences Research Council.

F S Flowers (57) Coatings & SealantsFrederick Flowers joined Craigielaw five years ago from Peerless Paints in Australia, of which he was Chief Executive. He became a Director three years ago and is now responsible for all Coatings & Sealants operations worldwide. He is also a Non-Executive Director of Groats plc.

H P Hope (49) Polymer Products, Chemicals and EngineeringHoward Hope, who joined Craigielaw 11 years ago, held senior financial and general management positions in Fibres and in Coatings before becoming Chief Executive of Craigielaw Chemicals three years ago. He was appointed a Director in May Year 7.

K L Kramer (57) FibresKurt Kramer first joined Craigielaw 40 years ago and became a Director two years ago. He spent the previous 15 years in senior management positions in the Fibres businesses, and has subsequently been Chief Executive of Performance Films in North America and of the Australasian Coatings businesses. He has responsibility for all Fibres operations.

Non-Executive DirectorsJ K Johnston (68)James Johnston joined the Board eight years ago. He was formerly Chairman and Chief Executive Officer of Interchem (USA), and Chemicals Co-ordinator and a Director of Action PLC and Action NV. He will retire from the Board at the forthcoming Annual General Meeting.

M P Major CBE (59)Mike Major, who joined the Board eight years ago, is Executive Chairman of National Oil plc, and a Non-Executive Director of Merchant Bank Ltd and of Tobacco Group Plc. He has previously held the position of Finance Director of Craigielaw.

N L Norris CBE (61)Norton Norris is, until his retirement at the end of April, Chief Executive of Superchem plc, which he joined 12 years ago as Managing Director; he is also President of the Chemical Industries Association. He joined the Board three years ago.

R L Roper (52)Roger Roper, who has been Group Chief Executive of Roads plc for the past five years and Deputy Chairman for the past three years, joined the Board three years ago. He is also a Non-Executive Director of the Bank of England.

Note: Peter Payne will join the Board as Finance Director on 31 March Year 8. He is 43, a chartered management accountant, and has had extensive experience of the Groups business since joining Craigielaw 20 years ago.

Directors' Report (extract) The Companies Act 2006 requires the Company to set out in this report a fair review of the business of the Group during the financial year ended 31 December Year 7, including an analysis of the position of the Group at the end of the financial year, and a description of the principal risks and uncertainties facing the Group (known as a Business review). The information that fulfils the Business review requirements can be found in the separate Business Review section (not reproduced here).

Information about the following matters on which the Directors are required to report appears elsewhere:

Pages

People8

Health, Safety and the Environment9Research, Technology and Development10

Composition of the Board11 ( 12

Remuneration Committee16 ( 17

Accounts for the year to 31 December Year 7

24 ( 37Dividends The Board recommends a final dividend of 11.95p per share. An interim dividend of 4.45p was paid in October Year 7, making a total for the year of 16.4p (Year 6: 16.0p). The final dividend, if approved at the Annual General Meeting, will be paid on 30 April Year 8 to Ordinary Shareholders on the register on 1 March Year 8.

Directors Details of retirements and appointments are indicated in the detailed biographical notes on pages 11 and 12.No Director has, or has had during the year, a material interest in any contract with the Company or any of its subsidiaries (other than the interests in employee trusts that are disclosed in the Remuneration Committee Report on pages 16 and 17).

Payments to Suppliers Operating businesses are responsible for agreeing the terms and conditions under which business transactions with their suppliers are conducted. It is Group policy that payments to suppliers are made in accordance with these terms, provided that the supplier is also complying with all relevant terms and conditions. Group trade creditors at 31 December Year 7 were equivalent to 67 days of purchases during the year ended on that date.

Annual General Meeting The Annual General Meeting will be held on 23 April Year 8, and the Notice is set out on page 37.

Resolutions Nos 1 and 2 concern the approval of the accounts and the dividend, and Resolutions Nos 3 to 7 propose the re-election of Directors.

Resolution No 8 proposes the reappointment of the Auditors, and Resolution No 9 authorises the Directors to determine their remuneration.

Sponsorship and Charitable Donations Craigielaw is not connected with a charitable trust and therefore channels its sponsorship and charitable donations principally to causes that publicise its products in relevant markets, that foster an understanding of the chemical industry (particularly in schools and universities), that benefit local communities in which Craigielaw is a significant employer, or that otherwise benefit the Company.

The Company also supports a number of academic posts at universities in the UK and USA, and is involved in the establishment of the China Europe International Business School in Shanghai. Relationships with local communities are conducted at business-unit level, and are designed to encourage an understanding of the Company and its activities, and to ensure that local concerns are understood by the business unit and properly reflected in its conduct. Involvement in local education is given particular emphasis.

Charitable payments in the UK in Year 7 totalled 187,428. In line with policy for many years, no payments have been made for political purposes.

Corporate Governance

Corporate Governance The Board believes Craigielaw complies fully with the Combined Code on Corporate Governance, 2008.

.

Information on Craigielaws compliance with some of the principal provisions of the Code, and on certain related matters that may be of interest to shareholders, is set out in this statement.

Board of Directors The Board normally meets nine times in a year.

The roles of Chairman and Chief Executive have been separate for the past six years.

The Board currently comprises five Non-Executive Directors (including the Chairman) and seven Executive Directors. The Non-Executive Directors are appointed for specific terms: they are independent of the Company and do not participate in share option schemes or qualify for pension benefits.

Each of the Executive Directors has a service contract that can be terminated at two years' notice.

There is an agreed procedure for Directors to take independent legal or other professional advice at the Company's expense, and this principle is incorporated in the Articles of Association. There is also a formal schedule of matters specifically reserved for the Board.

All Directors have access to the advice and services of the Company Secretary, who is also responsible for ensuring that Board procedures are followed, and that applicable rules and regulations are observed.

Board Committees The principal standing committees appointed by the Board are:

Audit: comprising the Chairman and all of the Non-Executive Directors and chaired by MrMP Major. The Committee's functions are to ensure as far as possible that the Annual Accounts, the Interim Statement, and any other major financial statements put out in the name of the Board follow generally accepted accounting principles, and give a fair and meaningful account of the Group's affairs; and to satisfy itself as to the adequacy and effectiveness of the Group's audit and control procedures. To that end it meets regularly with the external and internal auditors and with the Finance Director, and with other Directors as appropriate.

Nomination: comprising the Chairman, the Chief Executive and all of the Non-Executive Directors, and chaired by Sir Alan Alder. The Committee's functions are to make recommendations to the Board about future appointments of Non-Executive Directors and of the Chairman and the Chief Executive, and to consider recommendations from the Chief Executive to the Board about future appointments of Executive Directors.

Remuneration: comprising the Chairman and all of the Non-Executive Directors, and chaired by Mr R L Roper. The Committee's principal functions are to authorise the remuneration, bonuses, and other benefits of Executive Directors, and to grant awards under the Craigielaw Long Term Incentive Scheme; more details are contained in the Committee's Report, which appears on pages 16 to 17.

Directors Remuneration The companys approach is to recognise the competition for top talent in an international market. The companys remuneration packages are highly competitive, but executives must earn their remuneration each year by delivering superior individual and team performance. A full report on remuneration policy and details of the remuneration of each Director can be found on pages 16 to 17.

Relations with Shareholders Craigielaw has one of the leading communications programmes for both private and institutional shareholders. The annual and half-year reports, together with the Companys earnings announcements, share price information and extensive other information about the Company are available on the World Wide Web. The Annual General Meeting is the principal forum for dialogue with private investors. The chairpersons of major committees are present to answer questions. Papers for the meeting are sent out six weeks before the meeting. All voting at the AGM is conducted by poll. The Chairman maintains a regular dialogue with major institutional investors, and there is also a programme of regular one-to-one visits and briefings by management.

Directors' Responsibilities The Directors are responsible for preparing the annual report. Company law requires the directors to prepare financial statements for each financial year. The Directors have prepared the financial statements in accordance with IFRS as adopted by the EU. Under company law the Directors must not approve the financial statements unless they are satisfied they give a true and fair view of the state of affairs of the group and of the profit or loss of the group. In preparing these financial statements, the Directors are required to:

select suitable accounting policies and apply them consistently make judgements and accounting estimates that are reasonable and prudent;

state whether applicable IFRS as adopted by the EU have been followed, subject to any material departures disclosed and explained in the financial statements;

prepare the financial statements on the going concern-basis unless it is inappropriate to presume that the company will continue in business.

The Directors consider that they have complied fully with the above requirements in preparing the financial statements on pages 24 ( 36.

The Directors' responsibilities also include:

Keeping appropriate accounting records, which disclose with reasonable accuracy the financial position of the Company at any time;

Taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the companys website.

Each of the directors confirms that, to the best of his knowledge, the financial statements give a true and fair view of the assets, liabilities, financial position and profit of the group, and the Business Review includes a fair review of the development and performance of the business, with a description of the principal risks and uncertainties that the company faces.

Going Concern In arriving at their decision to adopt the going concern basis for the preparation of the financial statements on pages 23 ( 36, the Directors have reviewed the Group's budget for the year to 31 December Year 8 and also its forecasts for the two subsequent years. This process included an analysis of the business operating plans for the relevant periods, including proposed capital expenditure, and of the associated cash flow projections. It also included a comparison of these projections with the Group's committed borrowing facilities.

Internal Control Craigielaw has an established system of internal controls, which complements the Group's decentralised management and legal structures. The Directors are responsible for establishing the internal control system and, through the Audit Committee, for reviewing its effectiveness, while recognising that any such system can provide only reasonable, and not absolute, assurance against material misstatement or loss. The components of the internal control system include:

Financial Reporting A detailed formal budgeting process for all Group businesses culminates in an annual Group budget that is approved by the Board. Results for the Group and for its main constituent businesses are reported monthly against this budget to the Board, and revised forecasts for the year are prepared each quarter.

Financial and Accounting Standards A comprehensive Financial and Accounting Standards Manual sets out the principles of, and minimum standards for, effective financial control, and defines financial and accounting policies to be applied throughout Craigielaw. Compliance with the policies and procedures set out in the Manual is reviewed on a regular basis by external and internal audit. The main controls relating to Treasury operations are described in the Operating and Financial Review on page 18.

Financial Controls Assurance The Company has implemented a formal mechanism, based on self- assessment, for the measurement and assessment of the principal financial controls across the Group to complement the existing internal and external audit procedures; the evaluation of risk forms an integral part of this assessment.

Capital Investment The Company has defined procedures for the appraisal, review and control of capital expenditure; in particular, all projects over 1m require the approval of three Craigielaw Directors, and all projects over 10m require the approval of the Board.

On behalf of the Board

I J Inkerman Secretary

20 February Year 8

Remuneration Committee Report

(extract from the full report)

The Remuneration Committee comprises the Chairman and all of the Non-Executive Directors. Its principal functions are to determine the Company's overall policy for the remuneration of Executive Directors, to authorise the remuneration, bonuses, pension rights and other compensations of the Executive Directors, to approve their terms of service, and to administer the Craigielaw Long Term Incentive Scheme. The Committee is also responsible for the remuneration and terms of service of the Chairman, in which case its membership comprises the other Non-Executive Directors; and for the remuneration of the other Non-Executive Directors, when its membership comprises the Chairman and the Chief Executive. The Committee has complied with the recommendations of the Combined Code; it met four times during Year 7.

Remuneration Policy Craigielaws overall remuneration policy is to provide remuneration packages that will enable the Company to attract and retain high quality individuals, and that will ensure that they are motivated to act in ways that are consistent with the enhancement of long-term shareholder value. In establishing the detailed remuneration packages for each Director, the Committee has given full consideration to Section B of the Combined Code annexed to the Listing Rules of the London Stock Exchange, and to the remuneration arrangements in force elsewhere in Craigielaw. The Committee has also considered information available to it on other comparable companies, and has paid particular regard to a survey prepared for it by external consultants covering a comparator group of 20 UK-based companies which are in compatible industries and/or are of similar size and scope to Craigielaw.

The main elements of the Executive Directors' remuneration packages are:

A base salary.

A short-term bonus scheme.

Benefits in kind, including the provision of a company car and of private health insurance.

A long-term incentive scheme.

Pension arrangements provided by the Company's pension scheme.

Salary, bonuses and benefits in kind

Directors remuneration is set out in the following table.

Year 7Year 7Year 6Year 6

SalaryBonusBenefitsTotalSalaryBenefitsTotal

000000000000000000000

Chairman

Sir Alan Alder (from April Year 7)228--228

Mr Gerald Grove (to April Year 7)62-66821020230

Highest paid Director

B G Brave622502669848452536

Executive Directors

C L Crane530402459448022502

S Sloane (to April Year 7)4601447468444728

D Durie424322848438828416

E J Easton342262239030622328

F S Flowers436343450438836424

H P Hope (from 1 May Year 7)2402812280---

K Kramer432342048636620386

3,7762441864,2063,3062443,550

Non-Executive Directors fees

Year 7Year 6

000000

J K Johnston4040

M P Major4040

N L Norris4040

R L Roper4040

Sir Alan Alder (to Apr Year 7)1240

172200

Long-term incentive scheme and Options The long-term incentive scheme provides for Executive Directors and senior managers to be awarded conditional rights to receive specific maximum numbers of Ordinary shares, calculated by reference to their salaries and to the average share price of the preceding financial year. The number of shares they will ultimately receive depends on performance during the following three years. [A formula is defined for measuring performance based on share price - not reproduced here.]

All Executive Directors have options under the Craigielaw Savings-Related Share Option Scheme (SAYE Scheme), which is open to all UK employees, and under the (now closed) Executive Share Option Schemes (ESOS). Options issued under the SAYE Scheme are normally exercisable on completion of a three-year or five-year regular savings contract, while those issued under the ESOS are normally exercisable between three and ten years after the Date of Grant.

Pension Arrangements All the Executive Directors are full members of the Senior Executives Pension Fund (SEPF), which provides a pension at age 60 of up to two-thirds of remuneration excluding bonuses, depending upon service.

Share Interests The beneficial interests of the Directors, including their family interests, are set out in the table below.

Beneficial holdings

31.12.Yr 71.1.Yr 7

or date of

appointment

Sir Alan Alder5,0005,000

B G Brave29,46029,460

C L Crane6,9856,985

D Durie6,4002,000

E J Easton16,27116,271

F S Flowers2,000-

H P Hope3,8422,656

J K Johnston2,3452,345

K Kramer14,98514,985

M P Major1,0001,000

N L Norris4,0004,000

R L Roper1,0001,000

Contracts of Employment All of the Executive Directors other than Mr Durie have service contracts that can be terminated by two years' notice. The Committee has reviewed this notice period in light of current market practice, and of the relevant provisions of the Combined Code, but does not at the present time believe it is appropriate to make any further changes.

The Chairman and each of the Non-Executive Directors has a service contract that can be terminated by 12 months' notice or less.

External Non-Executive Directorships The Committee recognises the benefit that the Company may obtain through personal development of Executive Directors as a result of their holding external non-executive directorships of other companies. Such appointments are subject to the approval of the Board and are normally limited to one per Director; it is also normal practice that fees derived from such an appointment may be retained by the Director concerned.

R L Roper

Chairman of the Remuneration Committee

20 February Year 8

Operating and Financial Review

Our continuing businesses achieved significant growth in both operating profits and margins for the first time in five years. Profit before tax and earnings per share have also increased, but at a lower rate due to the effect of disposals. Cash flow from operations was again strong and after the payment of interest, tax and dividends financed most of our major capital expenditure programme. Year-end borrowings increased by 49m to 320m, although interest cover improved to 5.2 times from 4.7 times in Year 6.The comparison and commentary on this year's reported results is significantly affected by the currency movements over the last 12 months, particularly in respect of Coatings & Sealants, and also the disposals completed towards the end of Year 6 and in June Year 7. The following table summarises the results for the continuing businesses (ie excluding disposals) on a comparable basis by using the average exchange rates for Year 7 to translate the results of overseas subsidiaries for both years.

SalesOperating profitReturn on sales

Year 7Year 6Year 7Year 6Year 7Year 6

mmmm%%

Continuing businesses

Coatings & Sealants97992881698.3%7.4%

Polymer Products23723022189.3%7.8%

Fibres & Chemicals87488465577.4%6.4%

Miscellaneous(8)(9)(2)3-

2,0822,0331661478.0%7.2%

Operating Results Sales from continuing operations, on comparable exchange rates, increased by 49m to 2,082m. Coatings & Sealants increased sales by 5.5% to 979m mainly due to further strong growth in the Far East. Sales in Fibres & Chemicals at 874m were in line with last year, with significantly increased sales in Fortel being offset by lower sales in Vestel, where the market has been extremely weak, particularly in Europe, throughout Year 7. Overall, sales in Polymer Products at 237m were slightly ahead of last year despite a number of disposals within Aerospace Composites, none of which were sufficiently material to be treated as discontinued businesses. Sales in the two main businesses within Polymer Products (Performance Films and Packaging) increased by some 10% on a comparable basis.

Operating Profit from continuing operations, on comparable exchange rates, increased by 19m (13%) to 166m, with all business areas reporting significant gains. As a result, margins in all business areas improved significantly, with the Group's overall return on sales increasing to 8.0% from 72% in Year 6.

Coatings & Sealants increased profits by 12m (17%) to 81m, led by excellent results in the Far East and North America. In the Far East the significant investment during the last few years is now being rewarded in terms of profit growth as well as increased sales. North America had a much better second half than has been the case in the last few years. The businesses that led the profit growth were Marine, Protective Coatings, Powder Coatings and Architectural.

Polymer Products increased profits by 4m (22%) to 22m, with growth reported in all businesses. The disposals within Aerospace Composites reduced revenue by 13m but had no effect on profits.

Fibres & Chemicals increased profits by 8m (14%) to 65m. As explained last year, the Year 6 results were depressed by trading difficulties in our acrylic and Vestel businesses. Whilst Acrylics has recovered most of the ground lost last year, the Vestel market, particularly in Europe, has remained weak throughout Year 7 and overall the results for Vestel are below those of last year. As expected, Acetate Yarns results, while still strong, were slightly below last year's record results mainly due to the effect of currency movements and an adverse fashion trend. Chemicals results were in line with the good performance achieved last year. Fortel has moved firmly into profit. Notwithstanding the high levels of market development costs which are being expensed as incurred, Fortel achieved a return on sales this year in excess of 10%. More detailed comments on trading by business area are set out in the Business Review [not reproduced here].

Exchange Rates As noted above, exchange-rate movements during the year have had a significant impact on the reported results. The table on page 18 only identifies the translation effect (that is, translating the results of overseas units from local currency into sterling for inclusion in the Group's consolidated accounts). There is also a transaction effect that is not as immediate as the translation effect and is much more difficult to quantify. The strengthening of sterling towards the end of Year 6, particularly in respect of the US dollar, has had an adverse transaction effect on our results and will continue to do so if current rates continue throughout Year 8. This is particularly the case within Fibres & Chemicals.

Acquisitions & Disposals In June Year 7 we completed the sale of Australian Architectural Coatings to Plascon. The consideration for the sale was 16m. The loss on sale was in line with the provision made at 31 December Year 5 and accordingly there is no additional charge this year.

Profit before Tax and Earnings per Share Profit before tax at 134m is only marginally ahead of last year, notwithstanding the significant improvement in underlying profitability in our continuing operations. As explained above, these gains have been offset by the effect of the movements in exchange rates and the disposals last year.

Despite the higher year-end borrowings this year of 320m compared with 271m last year, average borrowings at 340m were broadly in line with last year. The reason for this is that the disposals made in Year 6 were completed in October Year 6 and, as a result, only had a small impact on last year's average borrowings ( although they significantly reduced last year's year-end borrowings. The net interest charge this year at 32m was slightly below last year (Year 6: 34m) due to lower average interest rates this year compared with last. Interest cover improved to 5.2 times from 4.7 times last year.

The effective tax rate at 28% is above that of Year 6. This mainly reflects an adverse change in the mix of profits overseas.

The charge for non-controlling interests at 12m (Year 6: 15m) is below last year, mainly reflecting the lower profits in Acetate Yarns and European Fibres.

Earnings per share at 20.0p (Year 6: 19.4p) are slightly ahead of last year. The Board recommends a full-year dividend of 16.4p per share. Dividend cover at 1.2 times is in line with last year.

Capital Expenditure Capital Expenditure of 209m was again over twice depreciation and ahead of last year. In the Summary of Financial Data on page 21 there is a comparison of depreciation and capital expenditure for Year 3 to Year 7.

The expenditure on Fortel mainly relates to the third plant being constructed in Yorkshire. The irregular pattern of expenditure in the Far East, which has been a feature over the last few years, reflects the timing of specific projects rather than any inconsistency in our investment plans in this region. Increased capital expenditure in the established businesses includes significant amounts for the modernisation of the London resin plant and the four-year investment programme in our Acetate Flake business. Expenditure plans for Year 8 are similar to Year 7 and will include the completion of the third Fortel plant.

Return on Capital Employed Return on capital employed is a key measure of the Group's performance, particularly at a time of high levels of capital expenditure. However, over the last few years the scale of the investment in Fortel has distorted this ratio for both Fibres & Chemicals and the Group as a whole. This distortion arises partly from the significant level of expenditure on factories under construction that have not yet been completed (and that as a result are not generating income), particularly in respect of Fortel. In addition, the operating profits are stated after significant market development costs, again mainly in respect of Fortel, which are written off as incurred. However, in economic terms most of these development costs create value in the future that is not yet matched by the value created by equivalent expenditure incurred in previous years. Fortel is not unique in this respect, but its size relative to the Group as a whole means that it materially affects the overall Group ratio. The return on capital for the Group over the last two years is set out below:

Year ended 31 Dec

Year 7Year 6

Coatings & Sealants

21%18%

Polymer Products

18%15%

Fibres & Chemicals

12%11%

Group (continuing businesses)15%14%

Return on capital employed for Coatings & Sealants has increased this year as the investments in the Far East move from start-up to full operational performance. In Polymer Products, return on capital has also returned to historic levels; last year the results were depressed by the operational problems associated with the relocation of a plant in the USA. In Fibres & Chemicals, if Fortel is excluded, the return on capital employed in the current year is 18% (Year 6 16%). This level is still below the historic levels, mainly due to the trading difficulties in Vestel and Acrylic fibres.

Cash Flow and Borrowings Cash flow from operations at 246m is ahead of last year. The cash flow impact of the continuation of our major capital expenditure programme was slightly offset by the proceeds on the disposal of the Australian Architectural Coatings business. After payment of tax, interest and dividends, there was a net cash outflow of 23m, to which should be added a further 60m principally for the finance lease relating to our new Fortel plant in Yorkshire. This adjusted cash outflow of 83m compares with a small net cash outflow last year of 13m after the benefit of the disposal proceeds of 98m.

Net borrowings at the year end increased to 320m from 271m, with an accompanying increase in gearing to 43% (35% in Year 6).

Treasury Operations and Controls Craigielaw operates a central Treasury, which provides a service to the Corporate Centre and to operating businesses worldwide; much of this service involves the management and reduction of financial risk. Treasury is not a profit centre. Controls and limits approved by the Board are in place covering counterparties, instruments, dealing and settlement. Regular reports are made to the Board. Transactions are accounted for and settlements monitored by the Group Financial Control Department. Treasury is subject to periodic internal and external audit.

Transaction Exchange Exposure It is Group policy that operating businesses take out forward cover for foreign-exchange exposure in relation to transactions in as risk-averse a way as possible. Speculation on future exchange-rate movements is forbidden.

[Further detail is not reproduced here.]

Management of Net Debt The central Treasury manages borrowing and the components thereof ( in particular source, maturity, interest rate and currency ( on net debt taken as a whole, with the object of minimising risk.

[Further extensive detail is not reproduced here]

Donald Durie Finance Director

20 February Year 8

Summary of financial data Year 3 to Year 7

Year 7Year 6Year 5Year 4Year 3

Summary of statements of financial positionmmmmm

Property, plant and equipment870814765681678

Investments and long-term receivables9485541519

Working capital1061411028486

1,0701,040921780783

Deferred tax(6)(4)(4)55

1,0641,036917785788

Ordinary capital105105104104104

Reserves572589502473446

677694606577550

Non-controlling interests6771632916

744765669606566

Net borrowings320271248179222

1,0641,036917785788

Year 7Year 6Year 5Year 4Year 3

Summary of income statement (profit and loss accounts)mmmmm

Revenue - Continuing operations2,0822,0801,9411,7391,661

- Discontinued operations18180208244334

- Total2,1002,2602,1491,9831,995

Operating profit Continuing operations166150169127187

Associated undertakings--111

Restructuring costs-1-252

Operating profit166151170153190

Finance costs(32)(34)(30)(41)(35)

Profit on ordinary activities before taxation134117140112155

Taxation(38)(35)(36)(34)(45)

Profit for the period from continuing operations968210478110

Discontinued operations-14121026

Profit for the period969611688136

Attributable to:

Equity holders of the parent848110381135

Non-controlling interests12151371

969611688136

Per 25p ordinary shareppppp

Dividends (net) per share*16.416.015.414.814.0

Earnings per share20.019.425.520.233.6

Other informationmmmmm

Profit before taxation before exceptional items134130152146179

Depreciation charged against operating profit8084828572

Capital expenditure including leased assets and excluding acquisitions209175192143105

* This is the dividend for the year which consists of the interim dividend paid plus the final dividend proposed.Independent auditors report to the members of Craigielaw plc

[Note that there would also be financial statements for the parent company, not reproduced here but noted in the audit report to indicate the scope of the full audit.]

We have audited the Group and parent company financial statements (the financial statements) of Craigielaw plc for the 12 months ended 31 December Year 7 which comprise the Consolidated and Company income statement, Consolidated statement of comprehensive income, Consolidated and Company statement of financial position, Consolidated statement of changes in equity and Company statement of change in shareholders equity, Consolidated and Company statements of cash flows, and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Respective responsibilities of directors and auditors

As explained more fully in the Directors responsibilities statement set out on pages 14-15, the directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Boards Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Companys members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Groups and the parent companys circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.

Opinion on financial statements

In our opinion the financial statements:

give a true and fair view of the state of the Groups and of the parent companys affairs as at 31 December year 7 and of the Groups and the parent companys profit and cash flows for the 12 months then ended;

have been properly prepared in accordance with IFRSs as adopted by the European Union; and

have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the lAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

the part of the Remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006;

the information given in the Directors report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

the parent company financial statements and the part of the Remuneration report to be audited are not in agreement with the accounting records and returns; or certain disclosures of directors remuneration specified by law are not made; or

we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

the directors statement, set out on page 15, in relation to going concern; and

the part of the Corporate Governance statement relating to the Companys compliance with the nine provisions of the June 2008 Combined Code specified for our review.

Robin Lee (Senior Statutory Auditor)

for and on behalf of A B, Chartered Accountants and Statutory Auditors London 20 February, Year 8.

Consolidated income statement

Year ended 31 DecemberNoteYear 7

mYear 6

m

Continuing operations

Revenue1,22,081.52,080.3

Cost of sales3(1,456.7)(1,451.2)

Gross profit624.8629.1

Net operating expenses3(458.8)(479.6)

Share of (losses)/profits of associated undertakings(0.3)0.1

Restructuring costs4-1.4

Operating profit165.7151.0

Finance costs net of investment income6(32.0)(34.5)

Profit on ordinary activities before taxation5133.7116.5

Taxation7(38.0)(34.4)

Profit for the period from continuing operations95.782.1

Discontinued operations

(Loss)/profit from discontinued operations(0.1)14.4

Profit for the period95.696.5

Attributable to:

Equity holders of the parent84.181.4

Non-controlling interest11.515.1

95.696.5

Earnings per ordinary share1020.0p19.4p

Consolidated Statement of comprehensive income

Year 7Year 6

mm

Profit for the year84.181.4

Other comprehensive income:

Unrealised loss on revaluation of properties-(2.8)

Exchange movements(40.2)19.0

Total comprehensive income for the year43.997.6

Consolidated Statement of changes in equity

Share capitalShare premiumRevaluationreserveRetained earningsTotal

mmmmm

Balance at 31 December Year 5 104.4143.910.4383.3652.0

Comprehensive income for the year97.697.6

Ordinary dividends(63.1)(63.1)

New share capital subscribed0.57.47.9

Transfer(5.0)5.0

Balance at 31 December Year 6 104.9151.315.4422.8694.4

Comprehensive income for the year43.943.9

Ordinary dividends(65.1)(65.1)

New share capital subscribed0.33.74.0

Transfer(4.1)4.1

Balance at 31 December Year 7105.2155.011.3405.7677.2

Consolidated statement of financial positionGROUP

Year 7Year 6

31 DecemberNotemm

Non-current assets

Property, plant and equipment12869.5813.8

Receivables (debtors) due after more than one year1686.978.8

Investments137.56.0

Total non-current assets963.9898.6

Current assets

Inventories (stocks)15258.7287.7

Amounts receivable (debtors) 16378.0417.7

Twelve-month deposits 1734.528.7

Cash and cash equivalents1745.960.2

Total current assets717.1794.3

Total assets1,681.01,692.9

Current liabilities

Amounts payable (creditors)18(472.6)(501.0)

Loans and overdrafts20(173.7)(187.3)

Total current liabilities(646.3)(688.3)

Non-current liabilities

Loans21(227.2)(172.6)

Other19(33.3)(36.3)

Provisions for liabilities and charges24(30.1)(30.2)

Total non-current liabilities(290.6)(239,.1)

Total liabilities(936.9)(927.4)

Net assets744.1765.5

Capital and reserves

Equity share capital26105.2104.9

Share premium account155.0151.3

Revaluation reserve11.315.4

Retained earnings405.7422.8

Equity holders' funds677.2694.4

Non-controlling interests66.971.1

Total ownership interest744.1765.5

Approved by the Board on 20 February Year 8

[Signed by chairman, chief executive and finance director]

Consolidated statement of cash flowsYear ended 31 DecemberNoteYear 7Year 6

mmm

Cash flows from operating activities 27

Cash generated from operations246.4213.1

Interest paid(38.2)(42.4)

Interest element of finance lease payments(0.5)(0.3)

Taxation paid(40.7)(30.3)

Net cash generated from operating activities167.0140.1

Cash flows from investing activities

Gross purchase of property, plant and equipment(200.6)(175.0)

Inception of finance leases59.64.1

Purchase of property, plant and equipment(141.0)(170.9)

Purchase of trade investments(0.2)(4.4)

Sale of property, plant and equipment7.314.1

Sale of trade investments2.2-

Purchase of businesses14(2.6)(31.5)

Net overdraft acquired with businesses14-(1.4)

Sale of businesses1411.697.6

Net overdraft of businesses sold or reclassified140.52.9

Amounts received from non-controlling interests in subsidiaries0.23.1

Interest received8.05.9

Dividends received from associated undertakings0.1-

Net cash used in investing activities(113.9)(84.6)

Cash flows from financing activities

Issue of ordinary share capital4.07.9

New loans24.736.8

Loans repaid(25.7)(16.8)

Capital element of finance lease payment(0.7)(0.6)

Equity dividends paid to group shareholders(65.1)(63.1)

Dividends paid to non-controlling interests(11.4)(1.0)

Net cash used in financing activities(74.2)(36.8)

(Decrease)/increase in cash and cash equivalents in the year(21.1)18.7

Reconciliation of net cash flow to movement in net debt

(Decrease)/increase in cash and cash equivalents in the year(21.1)18.7

Decrease/(increase) in debt1.7(19.4)

Change in net debt resulting from cash flows(19.4)(0.7)

Loans and finance leases acquired with businesses-(2.6)

Loans and finance leases of businesses sold or reclassified5.02.1

New finance leases including accrued interest(60.8)(4.1)

Translation difference26.0(17.6)

Movement in net debt in the year(49.2)(22.9)

Opening net debt(271.0)(248.1)

Closing net debt23(320.2)(271.0)

Statement of accounting policies

Basis of accountingThe financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, International Financial Reporting Interpretations Committee (IFRIC) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.Period of accountThe period of account referred to in the Group income statement as the year is the year ended 31 December Year 7. The accounts of companies recently formed or acquired cover periods of one year or less ended on 31 December Year 7.

Foreign currenciesThe results of overseas subsidiaries are translated into sterling at the average of exchange rates during the year. The statements of financial position of overseas subsidiaries are translated into sterling at the rates at which the currencies could have been sold at the date of the Group statement of financial position. Exchange differences arising on consolidation are taken directly to reserves. Other exchange differences are taken to the profit and loss account where they relate to trading transactions and directly to reserves where they relate to investments. The results of subsidiaries in hyperinflationary economies are dealt with in accordance with IAS 29.Property, plant and equipment and deprecation

Property, plant and equipment are stated at cost to the Group or at revalued amount on an open-market existing-use basis. Depreciation is calculated on a straight-line basis so as to write off the cost or revalued amount of the various assets over the period of their expected useful lives. The rates of depreciation vary generally between 2% and 6% on buildings and 5% and 20% on plant and equipment.

Inventory (stock) valuationInventories (stocks) are stated at cost or net realisable value, whichever is lower. Cost includes factory overheads.

Research expenditure Expenditure on research is written off to administrative expenses in the year in which it is incurred.

Acquisitions, disposals and goodwillThe results of companies acquired and disposed of during the year are dealt with from/to the effective date of acquisition/disposal. The net assets of companies acquired are incorporated in the consolidated accounts at their fair values to the Group after making adjustments to reflect the alignment of accounting policies where the accounting policies of acquired companies would otherwise be inconsistent with those of the Group. Goodwill is subject to an annual impairment test.LeasesAssets acquired under finance leases have been recorded in the statement of financial position as property, plant and equipment at their equivalent capital value and are depreciated over the useful life of the asset. The corresponding liability has been recorded as a loan creditor and the interest element of the finance charge is charged to the profit and loss account over the lease period. Rentals payable under operating leases are charged to the profit and loss account as incurred.

Pensions and other post retirement benefitsThe expected cost of pensions in respect of the Groups defined benefit pension schemes is charged to the profit and loss account so as to spread the cost of pensions over the service life of employees in the schemes. Variations from the regular cost are spread over the expected remaining service lives of current employees in the schemes. Unfunded non-pension post retirement benefits are accounted for in a similar manner. The costs of post-retirement benefits are assessed in accordance with the advice of qualified actuaries.

Deferred taxationDeferred taxation is provided in respect of timing differences between profits as computed for taxation purposes and profits as stated in the accounts. Deferred taxation is provided in relation to pensions and post retirement benefits.

Notes to accounts1. RevenueRevenue represents the amount receivable for goods sold and services provided, after deducting sales taxes and revenue within the Group.2. Operating segments[The following is an extract from the full segmental analysis, which complies with IFRS 8 but is too lengthy to reproduce in full]For the purposes of reporting to the chief operating decision-maker, the Group is currently organised into three main business sectors.

Business sector analysis

Coatings & SealantsPolymer ProductsFibres & ChemicalsMiscellaneousTotal

Year ended 31 DecYear 7Year

6Year 7Year

6Year 7Year 6Year 7Year

6Year 7Year

6

mmmmmmmmmm

Revenues

Continuing979954237233874904(8)(11)2,0822,080

Discontinued--18180-18

Operating profit

Continuing817222186557(2)3166150

Discontinued-1414

Total assets600625185188818816786416811693

Total liabilities3343431031034564474335936.9927

Geographical areas

RevenuesNon-current assets

Year

7Year

6Year

7Year

6

mmmm

United Kingdom655666425350

Rest of Europe548560108135

Americas575579312308

Far East2053428571

Rest of World1171133436

21002260964899

[The full note on segmental information continues with depreciation and amortisation charges for each segment. Interest revenue and interest expense are also allocated to segments.]]

[A note on Discontinued Operations sets out the revenues, cost of sales and profit of the activities discontinued during the year.]

Notes to accounts continued

Analysis of operations (continued)Year 7Year 6

External revenue by destinationmm

United Kingdom306303

Rest of Europe683746

Total Europe9891,049

Americas598592

Far East271236

Rest of World224203

Continuing operations2,0822,080

Discontinued operations18180

2,1002,260

3. Analysis of expensesContinuing

operations

mDiscontinued

operations

mYear 7

Total

mContinuing

operations

mDiscontinued

operations

mYear 6

Total

m

Cost of sales1,456.710.01,464.71,421.2124.11,545.3

Distribution costs300.96.9307.8323.534.7358.2

Administrative expenses157.91.3159.2156.16.8162.9

Net operating expenses458.88.2467.0479.641.5521.1

Depreciation included above79.30.379.677.06.783.7

Employees

A breakdown, by Business Activity, of numbers employed is shown on page 8.

Year 7Year 6

4. Restructuring costsmm

Disposals treated as discontinued operations

Net loss on sale of Australian Architectural Coatings(11.4)-

Application of provision/(provision) for loss on sale of Australian subsidiary11.4(11.4)

Net profit on sale of operations-12.8

-1.4

Taxation

The tax effect of the items detailed above was nil (Year 6 0.3m credit).

5. Profit on ordinary activities before taxation

is stated after charging the following amounts:

Directors remuneration (see pages 16 to 17)2.32.0

Wages and salaries390.8417.4

Social security costs43.846.4

Pension costs (note 30)3.15.3

Depreciation (including leased assets 0.3m (Year 6 0.1m))79.683.7

Operating lease rentals plant and machinery13.814.9

- other14.115.4

Research expenditure41.039.6

Auditors fees and expenses (including Company 0.4m (Year 6 0.5m))1.82.0

6. Finance costs net of investment income

Interest element of finance lease payments1.80.3

Interest on bank and other borrowings fully repayable within five years31.729.8

Interest payable on long-term borrowings5.510.9

Interest payable39.041.0

Preference dividends0.10.1

Other interest receivable(7.0)(6.5)

32.134.6

A further analysis of interest payable net of investment income by principal currencies is shown in note 22.

7. Taxation charge on profits

[A note, not reproduced here, explains details of the components of the tax charge]

8. Craigielaw plc

The profit and loss account includes the results of the Company and its subsidiary undertakings. Under the provisions of the Companies Act 2006, the Company is not required to publish its own profit and loss account. The profit attributable to ordinary shareholders of the holding company, dealt with in the accounts of the Company, is 13.8m (Year 6 84.6m).

9. Ordinary dividends

The total dividend paid and proposed for Year 7 amounts to 68.9m (Year 6 -67m) or 16.4 pence per share (Year 6 -16.0 pence).10. Earnings per share

Earnings per share are calculated by dividing the profit attributable to ordinary shareholders by the weighted average of the number of shares in issue during the year 420.1m shares (Year 6: 418.8m shares).

11. Other payments to auditors

Amounts paid to the Groupss auditors, in respect of non-audit services to the Group amounted to 1.1m (Year 6: 1.8m) of which 0.4m (Year 6: 0.7m) related to the Company and its UK subsidiary undertakings. These principally related to advice on taxation, acquisitions and disposals.

12. Property, plant and equipment GroupLand and

buildings

mPlant and

equipment

mFactories under development

mTotal

m

Cost or valuation

At 31 December Year 6185.91,041.9165.61,393.4

Exchange adjustments(15.1)(56.8)(6.8)(78.7)

Additions9.438.3160.8208.5

Disposals(11.8)(60.6)-(72.4)

Reclassification18.9126.4(145.3)-

At 31 December Year 7187.31,089.2174.31,450.8

Depreciation

At 31 December Year 64.5575.1-579.6

Exchange adjustments(0.6)(31.0)-(31.6)

Charge for year7.871.8-79.6

Disposals(2.1)(44.2)-(46.3)

At 31 December Year 79.6571.7-581.3

Net book amount

At 31 December Year 7177.7517.5174.3869.5

At 31 December Year 6181.4466.8165.6813.8

Net book amount includes assets leased under finance leases for Group 76.6m (Year 6: 4.6m) and includes expenditure of 9.9m which had not been received under the finance lease arrangements at the date of the financial year end.

During the year the Company acquired a business previously carried on by a subsidiary undertaking.

GROUP

Land and buildings at net book amountYear 7

mYear 6

m

Freehold154.7155.8

Long leasehold10.08.1

Short leasehold13.017.5

Net book amount177.7181.4

12. Property, plant and equipment (continued)

At 30 June Year 6, land and buildings were revalued by the Directors on an open-market existing-use basis. This valuation was supported by external professional valuations of a large sample of properties. If the total amounts of land and buildings had been determined in accordance with the historical cost convention, they would have been included at:

GROUP

Year 7

mYear 6

m

Cost238.7241.3

Depreciation(75.3)(76.6)

163.4164.7

Land and buildings at cost or valuation

At cost43.515.2

At valuation Year 6143.8170.7

187.3185.9

13. Investments held as fixed assets

[This note explains various categories of investment held]14. Acqu