Imperial Chemical Industries (ICI)

ICI is one of the world’s major specialty chemicals and paints businesses with products and ingredients developed for a wide range of markets.

Its specialty products and paints businesses, referred to as the International Businesses, comprise National Starch, Quest, Uniqema and Paints. These businesses serve diverse consumer and industrial markets through some 70 strategic business units with an array of market leadership positions across the world. In addition, a number of Regional and Industrial businesses remain in ICI’s portfolio.

ICI’s headquarters is in the UK, where it also has several significant manufacturing sites. Outside the UK, operations are conducted by locally managed subsidiary companies staffed almost entirely by nationals of the country concerned. Eighty-six per cent of the employees of ICI’s businesses are located outside the UK.

ICI’s portfolio of business units is wide and the Group competes across a diverse range of geographic and product markets. To do so it must continue to develop innovative products and new technology while maintaining a competitive cost base. In addition to market demand, the Group’s results are also subject to the price volatility of some of the raw materials it uses in significant quantities, particularly petrochemical based products. While the Group’s diverse portfolio of value-added products provides some opportunity to pass on higher input prices to its users, this ability is, to a large extent, dependent upon market conditions and there may be periods when this may not be possible due to weakness in demand or the action of competitors. The Group’s customers rely on timely delivery of products and the Group’s results are therefore particularly susceptible to operational problems including equipment and systems failures. The results of operations, cash flow and financial position of the Group have in recent years also been subject to the outcome of a programme of strategic disposals of businesses and these have particularly been affected by the amounts and dates of receipt of sale proceeds, costs associated with closures and the pension liabilities in respect of those formerly employed in the disposed businesses. Information on trends to which operating results and cash flow are subject is shown on pages 25 and 26 of this Annual Report on Form 20-F.

ICI made satisfactory progress in 2005. Despite a more challenging trading environment for most of its businesses, the Group delivered a strong overall financial performance. The cost of many raw materials continued to rise throughout the year, driven by strong demand. This in turn led ICI to seek price increases from its customers and these efforts were generally successful. As a result, and combined with the further benefits of the restructuring programme, ICI reported a robust overall performance. Sales growth of 2% on a constant currency basis helped achieve profit before taxation and special items of £444m, 5% higher than in 2004. With another good year for cash generation, Group net debt reduced further to £745m, down from £989m a year earlier.

ICI also made further progress toward implementing its strategy with a strong focus on profitable growth and a clear set of financial targets covering the four years from 2004 through 2007. These are based around delivering significant cumulative improvements in sales, profitability, asset return and cash flow measures. Overall progress has been good, with performance against all four targets ahead of plan