Imperial Chemical Industries (ICI)

The following comprises a summary of what ICI believes are the main risks to which the Group is exposed, which could adversely affect the business, results of operations, cash flow, financial condition, turnover, profits, assets, liquidity, and capital resources of the Group.

The Group operates in competitive markets. If the Group does not continue to compete in its markets effectively by developing innovative products and responding effectively to the activities of its competitors, it could lose customers and its results of operations, cash flow and/or financial condition could be adversely affected.

The Group has a wide portfolio of business units competing across a diverse range of geographic and product markets. The Group’s business may be adversely affected if it does not:

As the Group is subject to price competition, it must also continue to satisfy these objectives while maintaining a competitive cost base. In addition, some of the Group’s competitors in certain markets are larger and have greater financial resources than the Group. This may enable them to deliver products on more attractive terms or to invest larger amounts of capital into their businesses, including expenditure for research and development. If any of the Group’s current or future competitors develops proprietary technology that enables them to produce new products or services or to deliver existing products or services at a significantly lower cost, the Group’s products and services could be rendered uneconomical or obsolete.

While some of the Group’s product range comprises products and services that are protected by proprietary knowledge or patents, some of its businesses use technology that is widely available. Accordingly, certain product segments of the Group’s business may be vulnerable to new competitors and may be adversely affected by increased price competition. Any of these developments could lead to a loss of customers and could adversely affect the Group’s results of operations, cash flow and/or financial condition.

The price volatility of some of the raw materials the Group uses could adversely affect its results of operations, cash flow and/or financial condition.

The Group uses significant amounts of various chemicals and other materials as raw materials in manufacturing its products. Prices for some of these raw materials are volatile and are affected by cyclical movements in commodity prices, availability of such raw materials, demand for a variety of products which are produced using these raw materials, levels of price competition among local and global suppliers and general economic conditions. The Group’s diverse portfolio of value-added products provides some ability to pass on higher input prices to its customers, but this ability is, to a large extent, dependent on market conditions. There may be times when the Group is not able to recover increases in the cost of raw materials for some products due to weakness in demand for such products or the actions of its competitors. This could adversely affect the Group’s results of operations, cash flow and/or financial condition.

The occurrence of major operational problems could have an adverse effect on the Group’s results of operations, cash flow and/or financial condition.

The Group’s revenues are dependent on the continued operation of its various manufacturing facilities. Operational risks include:

While the Group maintains insurance at levels that it believes are appropriate for its industry, some of these operational risks could result in losses and liabilities in excess of its insurance coverage or in uninsured losses or liabilities. The occurrence of major operational problems resulting from the above or other events may have an adverse effect on the results of operations, cash flow and/or financial condition of a particular manufacturing facility or, with respect to certain of these risks, the results of operations, cash flow and/or financial condition of the Group as a whole.

The Group undertakes a number of significant projects each year and poor execution of, or failure to complete, such projects could have an adverse effect on the Group’s results of operations, cash flow and/or financial condition.

The Group, or any of the Group’s business units, may undertake significant projects including restructuring, capital expenditure, disposals, acquisitions and outsourcing, all of which require significant project management from initiation through to implementation. Failure to manage such projects appropriately or to implement such projects may have an adverse effect on the results of operations, cash flow and/or financial condition of a particular business unit and/or the Group as a whole.

Loss of a significant number of key personnel could adversely affect the Group’s results of operations, cash flow and/or financial condition.

The Group relies on key personnel such as business leaders and technical experts whose knowledge is important to the success of the Group. Although the Group has procedures in place to identify and retain key personnel, events beyond its control may lead to loss of such personnel. Where this happens, there are processes designed to enable the transfer of know-how from key personnel. However, failure to transfer such know-how prior to the loss of key personnel and an inability to replace such key personnel in a timely fashion could have an adverse effect on the Group’s results of operations, cash flow and/or financial condition.

The Group derives a significant percentage of its revenue in some of its businesses from sales to major customers and, if it is unable to retain these customers, its results of operations, cash flow and/or financial condition could be adversely affected.

While no single customer accounted for more than 10% of Group sales in 2006, sales to major customers in some of its businesses, particularly Paints, are significant. The Group believes that the wide selling range and nature of the specialty products it supplies reduce the potential adverse consequences of the loss of business from any one customer for any one of its products or in any one of its businesses. Nevertheless, the loss of major customers, without replacement, could have an adverse effect on the Group’s results of operations, cash flow and/or financial condition.