Imperial Chemical Industries (ICI)

Background
Regional and Industrial comprises several businesses which are essentially local in their scope, the most significant of which are located in Pakistan and Argentina. The businesses accounted for 7% of the Group’s sales in 2005. In Pakistan, ICI operates through non wholly-owned subsidiary companies, quoted on the local stock exchange.

Strategy
ICI has divested many of the Regional and Industrial businesses in recent years, and further divestments will be made if they enhance value. The strategies of most of the businesses are focused on selective areas of growth, with an emphasis on improving cost and capital effectiveness.

Brief description of activities
ICI Pakistan Limited has interests in a number of different market sectors. The more important of these are the manufacture of polyester staple fibre for the textile industry and soda ash for soaps, detergents, glass and paper. Other businesses of ICI Pakistan Limited include pharmaceuticals and specialty products.

Pakistan PTA Limited, located at Port Qasim near Karachi, manufactures pure terephthalic acid (PTA) for the fibre industry.

ICI Argentina manufactures a range of products of which wine chemicals and sulphur related products are the most important. The wine chemicals business is located near Mendoza, while the sulphur related products are manufactured at San Lorenzo, near Rosario.

Strategic developments in 2005
In December 2005, ICI India transferred the rubber chemicals business to a joint venture company in line with its strategy to divest its interests in bulk chemicals.

Following reviews of all manufacturing operations within Regional and Industrial, a series of continuous improvement programmes are being implemented. This is resulting in increases in productivity, improved raw material efficiencies and reduced energy usage.

Excluding the impact of foreign exchange translation effects and business divestments, as reported sales and trading profit were 5% and 20% ahead, respectively.

Taxation on profit before special items was £45m for the first half, £6m higher than last year. The effective tax rate for the Group was 22% compared with 21% for 2004. The effective tax rate is calculated as taxation (excluding tax on special items) divided by profit before tax and special items.

Special items before tax and minority interests, for the first half amounted to a profit of £27m compared with a profit of £166m in 2004; the prior period included the profit on sale of the Quest Food Ingredients business. Special items in 2005 included a profit of £21m relating to sales of operations, of which £6m related to the sale of National Starch’s Vinamul Polymers business in the first quarter, £9m related to the release of provisions and income of £4m related to prior year divestments.

Under IFRS, the exclusion of goodwill in reserves from the assets in the net investment hedge calculation has introduced volatility to the income statement. This results from the impact of foreign exchange rate movements on that part of the debt that cannot be considered a part of the hedge. The impacts arising in the income statement from this treatment are included within

The trading loss for the year was £26m, compared with a loss of £25m in 2003, and included a charge of £52m in respect of pension costs in relation to the ICI Pension Fund, £10m above 2003. The improvement in underlying results was largely attributable to better performance for Pakistan PTA.