|
|
|
|

|                                  
|----------------------------------
|                                  
|SECURITIES AND EXCHANGE COMMISSION

|WASHINGTON, D.C. 20549
|----------------------
|                      

---

FORM 20-F

| | REGISTRATION STATEMENT PURSUANT
    TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
| | ----------------------------------------------------------------------------------------------------

| |   
| | --
| | OR

| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | ANNUAL REPORT PURSUANT TO SECTION
    13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934

| | For
    the fiscal year ended: December 31, 2004
| | ------------------------------------------------

| | 
| | 

| | OR
| | --

| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | TRANSITION REPORT PURSUANT TO SECTION
    13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 2-52441

|IMPERIAL
    CHEMICAL INDUSTRIES PLC                      
|----------------------------------------------------------
|(Exact name of Registrant
    as specified in its charter)

ENGLAND AND WALES(Jurisdiction of incorporation or organization)

20 Manchester Square, London W1U 3AN, England(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

|Title
    of each class                                                                                                                                                                                          |  | Name of each exchange
    on which registered
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------
|                                                                                                                                                                                                                 |  |                                              
|American Depositary Shares, each representing                                                                                                                                                                    |  |                                              
|four Ordinary Shares of £1 each                                                                                                                                                                                  |  | New York Stock Exchange                      
|                                                                                                                                                                                                                 |  |                                              
|Ordinary Shares of £1 each                                                                                                                                                                                       |  | New York Stock Exchange*                     
|                                                                                                                                                                                                                 |  |                                              
|*Not for trading, but only in connection with
      the registration of American Depositary Shares representing such Ordinary
    Shares pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act.None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.None

|The number of outstanding shares
    in the capital of Imperial Chemical Industries PLC as of March 31, 2005
|------------------------------------------------------------------------------------------------------------

Ordinary Shares of £1
each 1,191,406,484

---

|                                                                                                                                                                                                                                                                                                                                                          |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

|           
|-----------
|Yes      No

|                                                                                                                
|----------------------------------------------------------------------------------------------------------------
|Indicate by check mark which financial statement item the registrant has elected to follow.  Item 17     Item 18



|
|
|
|



Pursuant to Rule 12b-23(a) of the Securities Exchange Act of 1934, as amended, certain information for the Annual Report on Form 20-F of Imperial Chemical Industries PLC, or the Company, for the fiscal year ended December 31, 2004, referred to herein as this Annual Report on Form 20-F, as set out below, is being incorporated by reference from the Company’s Annual Report and Accounts 2004, which was furnished to the Securities and Exchange Commission as a report on Form 6-K on March 16, 2005.

References below to major headings include all information under such major headings, including subheadings, unless such reference is part of a reference to a subheading, in which case such references include only the information contained under the subheading.  Graphs are not included unless specifically identified below.

The information set forth under the heading “Forward-looking statements”, which appears on page 133 of the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005, is incorporated herein by reference.

Certain words and expressions used in this document shall, unless the context otherwise requires, have the meanings ascribed to them in the section entitled “Definitions”, which appears on pages 130 and 131 of the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005 and is incorporated herein by reference.

Words within single quotation marks, the letters ICI, the Roundel Device, The Vital Ingredient, Dulux, Cuprinol, Glidden, Hammerite, National Starch, Quest, Uniqema, Alco, Ablestik, Acheson, Emerson & Cuming, Purbond, Tra-con, Elotex, Vinamul (until February 4, 2005), Polycell, Polyfilla, Devoe, Valentine, Coral, Alba, Xyladecor, Alabastine and Cuprinol Rollable are all trademarks of the ICI Group.

Beyond Paradise Men, Truestar, Curious, Echo Women are non-ICI trademarks.



PART I

ITEM 1  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not  applicable.

ITEM 2  OFFER STATISTICS AND EXPECTED TIMETABLE

Not  applicable.

ITEM 3  KEY INFORMATION

A.      Selected financial data.

The Group’s historical consolidated financial data presented in the table below has been derived from the Group’s audited consolidated financial statements for the five years ended December 31, 2004.  The following selected historical consolidated financial data should be read in conjunction with Item 5 “Operating and Financial Review and Prospects” and the Group’s Audited Consolidated Financial Statements and the Notes relating thereto under Item 18 “Financial Statements” of this Annual Report on Form 20-F.

1

---



|                                                                                  |   |  | Year ended  December 31, |    
|--------------------------------------------------------------------------------- | - |  | ------------------------ | ---
|                                                                                  |   |  | notes                    |    
|                                                                                  |   |  |                          |    
|Summary of Group profit and loss accounts                                         |   |  |                          |    
|Turnover                                                                          |   |  |                          |    
|Continuing operations                                                             |   |  |                          |    
|International
    Businesses                                                      |   |  | 1                        |    
|Regional
    and Industrial                                                       |   |  |                          |    
|                                                                                 
|                                                                                  |   |  |                          |    
|Discontinued operations                                                           |   |  | 2                        |    
|                                                                                 
|Total                                                                             |   |  | 1                        |    
|                                                                                 
|Operating
    profit before exceptional items and goodwill amortisation           | 3 |  |                          |    
|Continuing operations                                                             |   |  |                          |    
|Discontinued operations                                                           |   |  | 2                        |    
|                                                                                 
|Total                                                                             |   |  |                          |    
|                                                                                 
|Operating profit before exceptional items                                         |   |  | 1                        |    
|Continuing operations                                                             |   |  |                          |    
|International
    Businesses                                                      |   |  | 1                        |    
|Regional
    and Industrial                                                       |   |  |                          |    
|                                                                                 
|                                                                                  |   |  |                          |    
|Discontinued operations                                                           |   |  | 2                        |    
|                                                                                 
|Total                                                                             |   |  | 1                        |    
|Exceptional items charged to operating profit                                     |   |  |                          |    
|                                                                                 
|Operating profit after exceptional items                                          |   |  |                          |    
|Share
    of operating profits less losses of associates before exceptional items |   |  | 4                        |    
|Share of exceptional items of associates                                          |   |  |                          |    
|Amounts written off investments                                                   |   |  |                          |    
|Fundamental re-organisation costs                                                 |   |  |                          |    
|Profits less losses on sale or closure of operations                              |   |  |                          |    
|Profits less losses on disposal of fixed assets                                   |   |  |                          |    
|Net interest payable                                                              |   |  |                          |    
|                                                                                 
|Group                                                                             |   |  | 4                        |    
|Associates                                                                        |   |  |                          |    
|                                                                                 
|Total                                                                             |   |  |                          |    
|                                                                                 
|Profit before taxation                                                            |   |  |                          |    
|Taxation                                                                          |   |  | 4                        |    
|Attributable to minorities                                                        |   |  |                          |    
|                                                                                 
|Net profit (loss) for the financial period                                        |   |  |                          |    
|                                                                                 
|Continuing operations                                                             |   |  |                          |    
|Discontinued operations                                                           |   |  | 2, 4                     |    
|                                                                                 
|Total                                                                             |   |  |                          |    
|                                                                                 
|Profit
    before exceptional items, taxation and goodwill amortisation           | 5 |  |                          | 397
|                                                                                 
|Earnings per £1 Ordinary Share                                                    |   |  | 7                        |    
|                                                                                 
|Basic earnings (loss) per £1 Ordinary Share                                       |   |  |                          |    
|Continuing operations                                                             |   |  |                          |    
|Discontinued operations                                                           |   |  | 2                        |    
|                                                                                 
|Total basic earnings (loss) per £1 Ordinary Share                                 |   |  |                          |    
|                                                                                 
|Diluted earnings (loss) per £1 Ordinary Share                                     |   |  |                          |    
|Continuing operations                                                             |   |  |                          |    
|Discontinued operations                                                           |   |  | 2                        |    
|                                                                                 
|Total diluted earnings (loss) per £1 Ordinary Share                               |   |  |                          |    
|                                                                                 
|Dividends per £1 Ordinary Share                                                   |   |  |                          |    
|                                                                                 

2

---



|                                                     |  | As at December
    31, |  
|---------------------------------------------------- |  | ---------------------- | -
|                                                     |  | 2004                   |  
|                                                     |  | £m                     |  
|Summary of Group balance sheets                      |  |                        |  
|Fixed assets                                         |  |                        |  
|Intangible
    assets  goodwill                     |  | 480                    |  
|Tangible
    assets                                  |  | 1,659                  |  
|Investments
    in participating and other interests |  | 61                     |  
|Current assets                                       |  | 2,736                  |  
|                                                    
|Total assets                                         |  | 4,936                  |  
|                                                    
|Creditors due within one year                        |  | (2,077                 | )
|                                                    
|Total assets less current liabilities                |  | 2,859                  |  
|                                                    
|Creditors due after more than one year               |  | 1,137                  |  
|Provisions for liabilities and charges               |  | 914                    |  
|Minority interests                                   |  | 87                     |  
|Shareholders’ funds  equity                         |  | 721                    |  
|                                                    
|                                                     |  | 2,859                  |  
|                                                    

|                                                                      |  |                             |   |  |      |   |  |      |   |  |      |   |  |      |  
|--------------------------------------------------------------------- |  | --------------------------- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | -
|                                                                      |  | Year ended December
    31, |  
|                                                                      |  | 2004                        |   |  | 2003 |   |  | 2002 |   |  | 2001 |   |  | 2000 |  
|                                                                      |  | £m                          |   |  | £m   |   |  | £m   |   |  | £m   |   |  | £m   |  
|Summary of statements of Group cash flow                              |  |                             |   |  |      |   |  |      |   |  |      |   |  |      |  
|Net cash inflow from operating activities                             |  | 531                         |   |  | 539  |   |  | 623  |   |  | 637  |   |  | 586  |  
|Dividends received from equity accounted associates                   |  |                            |   |  |     |   |  |     |   |  |     |   |  | 5    |  
|Net cash outflow from returns on investments and servicing of finance |  | (79                         | ) |  | (96  | ) |  | (185 | ) |  | (207 | ) |  | (230 | )
|Taxation                                                              |  | (44                         | ) |  | (37  | ) |  | (35  | ) |  | (58  | ) |  | (104 | )
|Capital expenditure and financial investment                          |  | (150                        | ) |  | (138 | ) |  | (184 | ) |  | (206 | ) |  | (226 | )
|Acquisitions and disposals                                            |  | 180                         |   |  | 84   |   |  | 236  |   |  | (92  | ) |  | (138 | )
|Equity dividends paid                                                 |  | (82                         | ) |  | (86  | ) |  | (106 | ) |  | (185 | ) |  | (231 | )
|                                                                     
|Cash inflow (outflow) before use of liquid resources and financing    |  | 356                         |   |  | 266  |   |  | 349  |   |  | (111 | ) |  | (338 | )
|Management of liquid resources                                        |  | 225                         |   |  | (194 | ) |  | (13  | ) |  | 253  |   |  | (12  | )
|Financing                                                             |  | (426                        | ) |  | (84  | ) |  | (344 | ) |  | (77  | ) |  | 336  |  
|                                                                     
|Increase (decrease) in cash                                           |  | 155                         |   |  | (12  | ) |  | (8   | ) |  | 65   |   |  | (14  | )
|                                                                     

The financial data on pages 2 to
    8 of this Annual Report on Form 20-F has been selected from the financial
    statements of the ICI Group for the last five years, or where certain items
    are not shown in those annual audited financial statements, has been prepared
    for the purposes of this Annual Report on Form 20-F. This data should be
    read in conjunction with, and is qualified in its entirety by reference to
    the financial statements and the Notes relating thereto included elsewhere
    in this Annual Report on Form 20-F. The data has been restated where appropriate
    to accord with the Group’s current accounting policies (which precede
    and form part of the Group’s financial statements) and the basis of
    presentation of financial information
(described in “Notes relating to the accounts  Note 1  Basis
of presentation of financial information”, which appears on page 64 under
Item 18 “Financial Statements” of this Annual Report on Form 20-F).
The net profit (loss) for the financial periods in the Summary of Group profit
and loss accounts and Shareholders’ funds  equity in the Summary
of Group balance sheets above, are stated in accordance with generally accepted
accounting principles in the UK, or UK GAAP. Refer to “Notes relating to
the accounts  Note 42  Differences between UK and US accounting principles”,
which appears on pages 109 to 117 under Item 18 “Financial Statements” of
this Annual Report on Form 20-F, for a discussion of the main differences between
UK GAAP and generally accepted accounting principles in the US, or US GAAP.

3

---



Notes to selected consolidated historical financial information

(1)      International Businesses

ICI management refers to National Starch, Quest, Uniqema and Paints collectively as “International Businesses”.  The use of this term is a non-UK GAAP measure.  A detailed explanation of management’s reasons for finding this non-UK GAAP financial measure to be useful is provided in the Basis of Presentation section of Item 5 “Operating and Financial Review and Prospects” under the heading “International Businesses” on page 14 of this Annual Report on Form 20-F.

Analyses of turnover and operating profit before exceptional items for the International Businesses and a reconciliation of this sub-total to the respective totals for the Group are shown in the tables below.

|Turnover                                |  | Year ended December 31, |  
|--------------------------------------- |  | ----------------------- | -
|                                        |  | 2004                    |  
|                                        |  | £m                      |  
|Continuing operations                   |  |                         |  
|National
    Starch                     |  | 1,870                   |  
|Quest                                   |  | 584                     |  
|Uniqema/Performance
    Specialties (1) |  | 629                     |  
|Paints                                  |  | 2,161                   |  
|                                       
|International
    Businesses            |  | 5,244                   |  
|Regional
    and Industrial             |  | 375                     |  
|Inter-class eliminations                |  | (18                     | )
|Discontinued operations                 |  |                        |  
|                                       
|Total Group                             |  | 5,601                   |  
|                                       

|    |                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Performance Specialties turnover for 2002 and earlier years includes the results for the Synetix and Security Systems businesses, which were sold in 2002.  The turnover of the business for 2004 and 2003 comprises only Uniqema.

|                                             |                         | 
|-------------------------------------------- | ----------------------- | 
|                                             |                         | 
|                                             |                         | 
|Operating profit before exceptional items(1) | Year ended December 31, | 
|                                             |                         | 
|                                             |                         | 
|Continuing operations                        |                         | 
|National
    Starch                          |                         | 
|Quest                                        |                         | 
|Uniqema/Performance
    Specialties (2)      |                         | 
|Paints                                       |                         | 
|                                            
|International
    Businesses                 |                         | 
|Regional
    and Industrial                  |                         | 
|Discontinued operations                      |                         | 
|                                            
|Total Group                                  |                         | 

|
|

| | 
| | 

|(1) | Operating profit consists of turnover,
    royalties and other income, less related costs of sales, distribution, research
    and development, administration and other expenses. Depreciation is included
    in each category, as appropriate, in the Group profit and loss account.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|    |                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Performance Specialties operating profit for 2002 and earlier years includes the results for the Synetix and Security Systems businesses, which were sold in 2002.  The operating profit before exceptional items of the business for 2004 and 2003 comprises only Uniqema.

4

---



(2)      Discontinued operations

The basis on which operations have been included under the heading of “Discontinued operations” is explained in “Notes relating to the accounts  Note 1  Basis of presentation of financial information”, which appears on page 64 under Item 18 “Financial Statements” of this Annual Report on Form 20-F, together with a list of these operations sold or terminated in 2001 or before.  Discontinued operations for 2000 comprised the Polyurethanes business, the Tioxide business, selected petrochemicals businesses (Olefines and Aromatics), the Acrylics business, the Fluoropolymers business, the Chlor-Chemicals, Klea and Crosfield businesses and Methanol businesses.

(3)      Operating profit before exceptional items and goodwill amortisation

Operating profit before exceptional items and goodwill amortisation is presented before the charge for goodwill amortisation.  This is a non-UK GAAP measure for which the most directly comparable UK GAAP financial measure is operating profit before exceptional items.  A detailed explanation of management’s reasons for believing this non-UK GAAP financial measure to be useful is provided in the Basis of Presentation section of Item 5 “Operating and Financial Review and Prospects” under the heading “Trading profit” on page 12 of this Annual Report on Form 20-F.

A reconciliation between the UK GAAP financial measure of operating profit before exceptional items and operating profit before exceptional items and goodwill amortisation for each of the five years ended December 31, 2004, inclusive, is shown in the table below:

|                                                                    | Year ended December 31, | 
|------------------------------------------------------------------- | ----------------------- | 
|                                                                    |                         | 
|                                                                    |                         | 
|Operating profit before exceptional items (1)                       |                         | 
|Goodwill amortisation (2)                                           |                         | 
|                                                                   
|Operating profit before exceptional items and goodwill amortisation |                         | 
|                                                                   

| | 
| | 

|(1) | Operating profit consists of turnover,
    royalties and other income, less related costs of sales, distribution, research
    and development, administration and other expenses. Depreciation is included
    in each category, as appropriate, in the Group profit and loss account.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|    |                                                               
|--- | --------------------------------------------------------------
|(2) | Goodwill amortisation relates solely to continuing operations.



(4)      Net interest payable and taxation

Net interest payable and taxation have been allocated to Discontinued operations to reflect the legal entity incidence of these items within the business divested.

Net interest in 2000 includes exceptional interest income of £16m.

(5)      Profit before exceptional items, taxation and goodwill amortisation

Profit before exceptional items,
    taxation and goodwill amortisation is presented before the charge for goodwill
    amortisation. This is a non-UK GAAP measure for which the most directly comparable
    UK GAAP financial measure is profit before exceptional items and taxation.
    A detailed explanation of management’s reasons for believing this non-UK
    GAAP financial measure to be useful is provided in the Basis of Presentation
    section of Item 5 “Operating and Financial Review and Prospects” under
    the heading “Profit before exceptional items, taxation and goodwill
    amortisation” on pages 12 and 13 of this Annual Report on Form 20-F.

5

---



A reconciliation between the UK GAAP financial measure of profit before exceptional items and taxation and profit before exceptional items, taxation and goodwill amortisation for the years ended  December 31, 2000 to 2004, inclusive, is shown in the table below:

|                                                                    | Year ended  December 31, | 
|------------------------------------------------------------------- | ------------------------ | 
|                                                                    |                          | 
|                                                                    |                          | 
|Profit before exceptional items and taxation                        |                          | 
|Goodwill amortisation                                               |                          | 
|                                                                   
|Profit before exceptional items, taxation and goodwill amortisation |                          | 
|                                                                   

(6)      Exceptional items  Continuing operations

Exceptional items relating to “Continuing operations” included in the Group profit and loss account were as follows:

|                                             | Year ended  December 31, | 
|-------------------------------------------- | ------------------------ | 
|                                             |                          | 
|                                             |                          | 
|Continuing operations                        |                          | 
|Exceptional items before taxation            |                          | 
|Taxation on exceptional items                |                          | 
|Exceptional items attributable to minorities |                          | 
|                                            
|Exceptional net profit (loss)                |                          | 
|                                            

“Notes relating to the accounts  Note 3  Exceptional items before tax”, which appears on pages 66 and 67 under Item 18 “Financial Statements” of this Annual Report on Form 20-F, gives details of exceptional items before taxation from 2002 to 2004.

Exceptional items disclosed separately in the UK GAAP Group profit and loss account would be incorporated in individual line items under US GAAP. Exceptional items under UK GAAP do not represent extraordinary items under US GAAP.

(7)      Earnings per £1 Ordinary Share

|                                                                      |  | Year ended  December 31, |  
|--------------------------------------------------------------------- |  | ------------------------ | -
|                                                                      |  | 2004                     |  
|                                                                      |  | million                  |  
|Average Ordinary Shares                                               |  |                          |  
|Weighted average Ordinary Shares in issue during the year             |  | 1,191                    |  
|Weighted average shares held by Group’s employee share ownership plan |  | (8                       | )
|                                                                     
|Basic weighted average Ordinary Shares in issue during the year       |  | 1,183                    |  
|Dilutive effect of share options                                      |  | 1                        |  
|                                                                     
|Diluted weighted average Ordinary Shares                              |  | 1,184                    |  
|                                                                     

Basic earnings per £1 Ordinary Share (after exceptional items) and diluted earnings per £1 Ordinary Share (after exceptional items) for a period are calculated by dividing the appropriate value (continuing, discontinued or total) of net profit (loss) for the financial year (see table on page 2 of this Annual Report on Form 20-F) by, respectively, basic weighted average Ordinary Shares in issue during the period or diluted weighted average Ordinary Shares in issue during the period.

6

---



Basic and diluted earnings per £1 Ordinary Share

|                                              |  |       |  | Year ended December 31, |  
|--------------------------------------------- |  | ----- |  | ----------------------- | -
|                                              |  |       |  | 2004                    |  
|                                             
|Net profit (loss) for the financial year      |  | £m    |  | 210                     |  
|                                             
|Basic earnings (loss) per £1 Ordinary Share   |  | pence |  | 17.8                    | p
|                                             
|Diluted earnings (loss) per £1 Ordinary Share |  | pence |  | 17.7                    | p
|                                             

US GAAP results

The financial statements of the ICI Group are prepared in accordance with UK GAAP. UK GAAP differs in certain respects from US GAAP. Net income from continuing and discontinued operations and shareholders’ equity calculated in accordance with US GAAP are set out in the table below.  “Notes relating to the accounts  Note 42  Differences between UK and US accounting principles”, which appears on pages 109 to 117 under Item 18 “Financial Statements” of this Annual Report on Form 20-F, describes the significant differences between UK GAAP and US GAAP affecting the ICI Group’s net income and shareholders’ equity for the three years ended December 31, 2004.

|                                                        |  | Year ended December
    31, |   
|------------------------------------------------------- |  | --------------------------- | --
|                                                        |  | 2004                        |   
|                                                        |  | £m                          |   
|Net income (loss)                                       |  |                             |   
|Continuing
    operations                               |  | 129                         |   
|Discontinued
    operations                             |  | (24                         | ) 
|                                                       
|Net income (loss)                                       |  | 105                         |   
|                                                       
|Basic and diluted earnings (loss) per £1 Ordinary Share |  |                             |   
|Continuing
    operations                               |  | 10.9                        | p 
|Discontinued
    operations                             |  | (2.0                        | )p
|                                                       
|Net earnings (loss) per £1 Ordinary Share               |  | 8.9                         | p 
|                                                       
|                                                        |  | As at December 31,          |   
|                                                        |  | 2004                        |   
|                                                        |  | £m                          |   
|Shareholders’ equity                                    |  | 2,279                       |   
|                                                       
|Total assets                                            |  | 7,357                       |   
|                                                       

Under US GAAP, the net income in
    2004 was £105m (2003 £166m net expense; 2002 £9m net income)
    compared with net income of £210m (2003 £20m net income; 2002 £179m
    net income) under UK GAAP. Under US GAAP, shareholders’ equity at December
    31, 2004 was £2,279m (December 31, 2003 was £2,359m; December
    31, 2002 £2,805m) compared with £721m at December 31, 2004 (December
    31, 2003 £450m surplus; December 31, 2002 £463m surplus) under
    UK GAAP. These differences primarily result from the differing accounting
    treatment of purchase accounting adjustments, pensions, disposal accounting,
    capitalisation of interest, deferred tax, derivative instruments, and restructuring
    costs under US GAAP
compared with UK GAAP.

|Dividends
|---------

Dividends paid (including the related UK tax credit) on each American Depositary Share, or ADS, translated into US dollars at the rates of exchange on the respective dividend payment dates (or, in the case of the second interim dividend for the year 2004 to be paid on April 15, 2005, the rate on February 9, 2005), were:

|                               |  |  | Year ended  December 31, | 
|------------------------------ |  |  | ------------------------ | 
|                               |  |  | 2004                     | 
|                               |  |  | $ per ADS                | 
|Dividends declared per ADS (1) |  |  | 0.53                     | 
|                              
|Dividends paid per ADS (1)     |  |  | 0.49                     | 
|                              

(1)   Each ADS represents four underlying Ordinary Shares of the Company.

7

---



|Ratio of earnings to fixed charges  Continuing operations
|----------------------------------------------------------

For the purpose of computing this ratio, earnings consist of the income from Continuing operations before taxation of Group companies and income received from companies owned 50% or less, plus fixed charges excluding capitalised interest. Fixed charges consist of interest (including capitalised interest) on all indebtedness, amortisation of debt discount and expense and that portion of rental expense representative of the interest factor.

|                                                               |  | Year ended  December 31, | 
|-------------------------------------------------------------- |  | ------------------------ | 
|                                                               |  | 2004                     | 
|Ratio of earnings to fixed charges                             |  |                          | 
|For the Group (under UK GAAP)                                  |  | 3.3                      | 
|                                                              
|For the Group with material adjustments to accord with US GAAP |  | 2.4                      | 
|                                                              

The deficiency of earnings to fixed charges under US GAAP for the years ended December 31, 2003,  2002, and 2000 was £73m, £47m and £422m respectively.

Exchange ratesThe information set forth under the heading “Shareholder information  Exchange rates”, which appears on page 129 of the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005, is incorporated herein by reference. The highest and lowest exchange rates for each period since February 2005 based on the noon buying rate in New York City for cable transfers in pounds sterling as certified by the Federal Reserve Bank of New York for customs purposes, referred to herein as the noon buying rate, are set out below:

|US$ to pound sterling (£)
  2005 |  |  | Highest rate 
  during period |  |  | Lowest rate 
  during period | 
|-------------------------------- |  |  | ----------------------------- |  |  | ---------------------------- | 
|                                 |  |  | $                             |  |  | $                            | 
|                                
|February                         |  |  | 1.92                          |  |  | 1.86                         | 
|March (as of March 30)           |  |  | 1.93                          |  |  | 1.87                         | 

The noon buying rate on March 30, 2005 was $ 1.88  = £1.

|B. | Capitalization and indebtedness.              
|-- | ----------------------------------------------
|   |                                               
|   | Not applicable.                               
|   |                                               
|C. | Reasons for the offer and
    use of proceeds.
|   |                                               
|   | Not applicable.                               
|   |                                               
|D. | Risk factors.                                 
|   |                                               

The information set forth under the heading “Risk factors”, which appears on pages 123 to 125 of the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005, is incorporated herein by reference.



| | 
| | 

ITEM 4  INFORMATION ON THE COMPANY

A.      History and development of the company.

The following information which appears under Item 18 “Financial Statements” of this Annual Report on Form 20-F is incorporated herein by reference: the information set forth under the heading “Notes relating to the accounts  Note 22  Disposal and legacy, and restructuring provisions  Disposal and legacy provisions”, which appears on pages 87 and 88; and the information set forth under the heading “Notes relating to the accounts  Note 30  Disposals”, which appears on page 94 and the information set forth in the table addressing commitments for capital expenditure under the heading “Notes relating to the accounts  Note 39  Commitments and contingent
liabilities”, which appears on page 107.

8

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In addition, the following information which appears in the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005 is incorporated herein by reference: the information set forth under the heading “Highlights  ICI Group”, which appears on page 4 thereof; the information set forth under the headings “Group Strategy  History”, “Group Strategy  Balance of activities” and “Group Strategy  Strategy  ICI strategic matrix”, which appears on pages 6 and 7 thereof; the information set forth under the heading “Operating and financial review  Capital expenditure”, including the table
entitled “Group expenditure on tangible fixed assets”, which appears on page 29 thereof; and the information set forth under the headings “Shareholder information  Incorporation of the Company” and “Shareholder information  Registered Office”, which appears on page 128 thereof.

B.   Business overview.

The information set forth in the tables entitled “Classes of business” and “Geographical areas” under the heading “Notes relating to the accounts  Note 4  Segment information”, which appears on pages 68 and 69 of Item 18 “Financial Statements” of this Annual Report on Form 20-F, is incorporated herein by reference.

In
    addition, the following information which appears in the Company’s
    Annual Report and Accounts 2004 contained in its report on Form 6-K dated
    March 16, 2005 is incorporated herein by reference: the information set forth
    under the headings “Description of business  National Starch”, “Description
    of business  Quest”, “Description of business  Uniqema”, “Description
    of business  ICI Paints” and “Description of business  Regional
    and Industrial”, which appears on pages 9 to 19 thereof; and the information
    under the headings “Operating
    and financial review  Sources and availability of raw materials”,
“Operating and financial review  Intellectual property” and “Operating
and financial review  Regulation, safety, health and the environment”,
which appears on pages 29 to 31 thereof.

Markets and distributionICI sells its products through an extensive network of subsidiaries, associates and distributors.

Specialty products manufactured by National Starch, Quest and Uniqema are sold mainly by direct sales forces, alliances and distributors. Customers are primarily other manufacturers, in a range of markets from consumer-oriented manufacturers of branded goods in the food, perfume and personal-care sectors to those involved in surfactants, lubricants, papermaking and chemicals.

Paints are sold through a range of distribution channels. Branded architectural paints are sold through a combination of both independent retailers and stores and the Group’s own retail concerns, particularly in North America. Can coatings are supplied directly to beverage and food manufacturers in Europe, the Americas and Asia.

The Group’s Regional and Industrial businesses sell into a wide range of industries including engineering, textiles, pharmaceuticals, aerospace, electronics and the extractive industries. These products are either marketed directly or through independent merchants, wholesalers and distributors who resell to small users. Commodity products are sold through a direct sales force or through distributors primarily to other operators in the chemical industry.

SeasonalityDue to the diversity of their product portfolios and broad international coverage, seasonality in the National Starch, Quest and Uniqema businesses is not significant. Paints, however, is affected, with higher sales of products used on the exterior of buildings normally during better weather conditions. With the geographic profile of Paints, this results in higher activity levels in the second and third quarters of the year.

CompetitionOwing to the breadth and variety of the products and end markets served, the Group encounters a wide range of competitors, from multinational companies to many small local and independent firms. National Starch does not compete with any one competitor in all of its markets. However, multinational competitors in specific markets include H B Fuller, Rohm & Haas, Henkel, Air Products and A E Staley. Similarly, Uniqema does not compete with any one competitor in all of its markets, but competitors in particular markets include BASF, Cognis, Croda, Degussa and Rhodia.

Quest is a leader in the development application and production of fragrances, flavours and food ingredients. Quest’s main competitors are multinational flavour and fragrance houses, including International Flavors & Fragrances and Givaudan.

9

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Paints’ competition is mainly national in character. However, international competitors include Sherwin Williams, Akzo Nobel and Nippon Paints.

C.  Organizational structure.

The
    information set forth under the heading “Principal subsidiary undertakings”,
    which appears on page 118 under Item 18 “Financial Statements” of
    this Annual Report on Form 20-F, is incorporated herein by reference.

D. Property, plants and equipment.

ICI
    operates production, marketing and research and development facilities worldwide.
    The following information setting forth individual business descriptions
    which appears in the Company’s
    Annual Report and Accounts 2004 contained in its report on Form 6-K dated
    March 16, 2005 is incorporated herein by reference: the information set forth
    in the second and third paragraphs under the heading “Description of
    business  National
    Starch  Background”, which appears on page 9 thereof; the information
    set forth in the first paragraph under the heading “Description
    of business  National Starch  Developments in 2004”, which
appears on page 11 thereof; the information set forth in the second
    and third paragraphs under the heading “Description of business  Quest  Background”,
    which appears on page 12 thereof; the information set forth in the third
    full paragraph under the heading “Description of business  Quest  Developments
    in 2004”, which appears on page 14 thereof; the information set forth
    in the fourth paragraph under the heading “Description of business  Uniqema  Brief
    description of activities”, which appears on page 15 thereof; the information
    set forth in the second paragraph under the heading “Description of
    business  Uniqema  Developments in 2004”, which appears
    on page 15 thereof; the information set forth in the first paragraph under
    the heading “Description of business  ICI Paints  Background”,
    which appears on page 16 thereof; and the information set forth in the first,
    second and third paragraphs under the heading “Description of business  Regional
    and Industrial  Brief description of activities”, which appears
    on page 19 thereof. ICI owns substantially all of its properties, free of
    material encumbrances, and it believes such properties are adequate for their
    purposes and suitably utilised according to the individual nature and requirements
    of the relevant properties.

ITEM 5  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Executive SummaryICI is one of the world’s major specialty chemicals and paints businesses with products and ingredients developed for a wide range of consumer and industrial 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, comprising around some 180 operating 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 such as vinyl acetate monomer.
    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
    of those formerly employed in the discontinued businesses. Information on
    trends to which operating results and cash flow are subject is shown on
    pages 31 and 32 of this Annual Report on Form 20-F.

10

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2004 was a good year for ICI, aided by a favourable external trading environment  a year in which the Group met or exceeded its strategic plan financial targets. Profit before exceptional items, taxation and goodwill amortisation Ø was 16% higher than 2003, and net debt was reduced below £1bn for the first time since 1996.

2004 was the first full year in which the Group has been executing its revised strategy.  Many objectives were achieved.  The Group strengthened its business in growth markets in Asia and in the global electronics industry; on a constant currency basis, National Starch and Paints both delivered significant sales and trading profit* growth, and Uniqema’s trading profit* improved markedly despite lower sales.  Quest, which had under-performed for the previous two years, made progress and significantly improved its financial performance on a constant currency basis.

The sale of Quest’s Food Ingredients
    business was completed in April 2004, an important step which enables the
    business to concentrate its efforts on developing its core activities in
flavours and fragrances. In November 2004, the sale was announced of National
    Starch’s
Vinamul Polymers business, a manufacturer of emulsion polymers. The sale, completed
in February 2005, reflects the Group’s view that resources can be better
utilised in businesses with greater potential for profitable growth.

Together, these actions continued to reposition the Group towards market segments where the Group believes it can maximise value creation for its shareholders.

Asia remained the most significant growth market for ICI and it continued to invest in the region to capitalise on its strong market positions. In particular, Paints expanded sales and marketing activities into new locations in China, while National Starch continued to develop its adhesives activities in the region and opened a new starch manufacturing and technical service facility near Shanghai.

The Group also invested in other high growth markets, at the same time continuing to develop leading edge technology platforms which allow it to design products that provide superior performance for its customers.  The Group continued to support new product innovation within National Starch for bonding agents and adhesives for semi-conductor markets, and developed new fragrance and flavour ingredients to help rebuild Quest’s reputation as one of the creative leaders in its sector.  Innovative new paint products are being rolled out around the world, and Uniqema is introducing advanced performance additives that improve the performance of a range of skin care products.

The increased focus on cost and capital effectiveness, and a more selective approach to investment, helped improve operating performance across the Group.  The major restructuring programme announced in 2003 delivered planned savings during the year.  Milestones included the closure of two starch plants in the UK and Canada, and major manufacturing efficiency initiatives at key facilities in the US to absorb the transferred production. Other profit improvement projects included supply chain and manufacturing initiatives in Paints and Uniqema, which resulted in major savings.

In late 2003, ICI introduced group-wide
    Executive Boards, covering a variety of functional disciplines, such as procurement;
    manufacturing; safety, health and the environment; human resources; and technology.
    Their role is to ensure that improvement strategies related to each discipline
    are effectively implemented across ICI. In 2004, against a backdrop of significant
    raw material cost inflation in the second half of the year, effective procurement
    reduced the impact of increases, to the benefit of the businesses and their
customers. The Group also benefited from leveraging shared experiences of manufacturing
    improvement programmes to accelerate the implementation of new projects.
    With many initiatives now underway, the positive effect of these functional
boards continues to be seen across ICI.

|Ø | See discussion relating to profit before exceptional items, taxation and goodwill amortisation in Basis of Presentation on pages 12 and 13 of this Annual Report on Form 20-F.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | See discussion relating to constant currency performance in “Basis of Presentation” on pages 13 and 14 of this Annual Report on Form 20-F.
|- | ------------------------------------------------------------------------------------------------------------------------------------------

|* | See discussion relating to trading profit on page 12 of this Annual Report on Form 20-F.
|- | ----------------------------------------------------------------------------------------



11

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In 2004, the Group also made progress with legacy issues.  In particular, in October it announced its exit from the Ineos Chlor business, marking the end of a significant chapter in the history of ICI.

Basis of Presentation

Non-UK Generally Accepted Accounting Principles financial measures

UK GAAP and non-UK GAAP financial measures: generallyInvestors should consider non-UK Generally Accepted Accounting Principles, or GAAP, financial measures in addition to, and not as a substitute for or as superior to, measures of financial performance reported in accordance with UK GAAP. The UK GAAP results reflect all items that affect reported performance and therefore it is important to consider the UK GAAP measures alongside the non-UK GAAP measures. In accordance with recent guidance from the UK Auditing Practices Board, the UK Listing Authority and the US Securities and Exchange Commission, where non-UK GAAP figures are discussed, the most directly comparable UK GAAP figures must also be presented and reconciled to the non-UK GAAP figures.  The full statutory results are presented in the
“Group profit and loss account”, which appears on pages 60, 61a and 61b under Item 18 “Financial Statements” of this Annual Report on Form 20-F and the UK GAAP segmental information is presented in the “Notes relating to the accounts  Note 4  Segment information”, which appears on pages 67 to 71 under Item 18 “Financial Statements” of this Annual Report on Form 20-F.

Trading profitICI defines “trading profit” as operating profit before exceptional items and goodwill amortisation. This is a non-UK GAAP financial measure for which the most directly comparable UK GAAP financial measure is operating profit before exceptional items. Due in particular to the timing of acquisitions made by ICI between 1997 and 2002 and a change in the accounting treatment under UK GAAP for goodwill on acquisitions made after December 31, 1997, management has chosen to present the results of the Group after excluding goodwill amortisation, which it considers to be a non-operational item, in its discussion of Group and business performance.  Management believes that the exclusion of goodwill amortisation is useful to investors because
it provides a more meaningful comparison of underlying performance both between the results of individual ICI businesses and between the results of ICI and its businesses and of businesses and groups external to the ICI Group.

During 1997, ICI acquired businesses with related goodwill of £3.6 billion, at which time the Group adopted the permitted treatment under the then UK GAAP Accounting Standard of setting goodwill directly against reserves. In periods subsequent to the end of that year goodwill arising on acquisitions has totalled £0.7 billion and, in accordance with a revised UK GAAP Accounting Standard ICI has capitalised this goodwill and amortised it over its anticipated life, which is generally 20 years.

Goodwill amortisation excluded from operating profit in management’s discussion of business operating performance totalled £35m for 2004 (2003 £36m; 2002 £37m).

ICI management believes that the presentation of trading profit as a financial measure provides useful information to investors regarding the underlying performance of the businesses, in total and individually, excluding the inconsistent impact of goodwill on profit which may or may not be amortised based on the timing of the acquisition. Trading profit is also one of the key financial measures reported to ICI’s Chief Executive for purposes of assessing segmental performance and making decisions about allocating resources to segments.

Reconciliations between the UK GAAP
    financial measures of operating profit before exceptional items and trading
    profit for 2004, 2003 and 2002 are shown in the tables on pages 19 and 23
of this Annual Report on Form 20-F.

Profit before exceptional items, taxation and goodwill amortisation“Profit before exceptional items, taxation and goodwill amortisation” is presented before the charge for goodwill amortisation. This is a non-UK GAAP financial measure and is one of the key financial measures reported to ICI’s Chief Executive for purposes of assessing the underlying performance of the Group.

12

---



Management believes that the exclusion of goodwill amortisation is helpful for decision-making as management considers this to be a non-operational item. Management also believes that “profit before exceptional items, taxation and goodwill amortisation” is used by investors in their assessment of the underlying performance of the Group, as the exclusion of goodwill amortisation may facilitate comparison with other companies due to the changed treatment of goodwill under UK GAAP at December 31, 1997 explained in the definition of trading profit on page 12 of this Annual Report on Form 20-F. “Profit before exceptional items, taxation and goodwill amortisation” is a key performance target for some senior members of the
Group’s corporate executive management team and all of the Group’s incentive plans are based on “before goodwill amortisation” financial measures. Consequently, “profit before exceptional items, taxation and goodwill amortisation” is of interest to investors.

Reconciliation between the UK GAAP financial measure of “profit before exceptional items and taxation” and the non-UK GAAP financial measure of “profit before exceptional items, taxation and goodwill amortisation” is shown in the table below.

| |      |  |  | Profit before exceptional items and taxation |  |  | Goodwill amortisation |  |  | Profit before exceptional items, taxation and goodwill amortisation | 
| | ---- |  |  | -------------------------------------------- |  |  | --------------------- |  |  | ------------------------------------------------------------------- | 
| |      |  |  | £m                                           |  |  | £m                    |  |  | £m                                                                  | 
| |      |  |  |                                              |  |  |                       |  |  |                                                                     | 
| | 2004 |  |  | 362                                          |  |  | 35                    |  |  | 397                                                                 | 
| | 2003 |  |  | 305                                          |  |  | 36                    |  |  | 341                                                                 | 
| | 2002 |  |  | 363                                          |  |  | 37                    |  |  | 400                                                                 | 

Net profit before exceptional items and goodwill amortisation“Net profit before exceptional items and goodwill amortisation” is presented before the charge for goodwill amortisation.  This is a non-UK GAAP financial measure and is one of the key financial measures reported to ICI’s Chief Executive for purposes of assessing the underlying performance of the Group.

Management believes that the exclusion of goodwill amortisation from the most directly comparable UK GAAP measure is helpful for decision-making as management considers goodwill amortisation to be a non-operational item.  Management believes that “net profit before exceptional items and goodwill amortisation” is used by investors in their assessment of the underlying performance of the Group, as the exclusion of goodwill amortisation may facilitate comparison with other companies due to the changed treatment of goodwill under UK GAAP at December 31, 1997, explained in the definition of trading profit on page 12 of this Annual Report on Form 20-F.  The Group’s publicly announced dividend policy is also based on “net profit
before exceptional items and goodwill amortisation” and is therefore of particular interest to both management and investors.  “Net profit before exceptional items and goodwill amortisation” also forms the basis of long-term performance targets set for the Executive Directors and so is also of interest to both investors and management.

A reconciliation between the UK GAAP financial measure of “net profit before exceptional items” and the non-UK GAAP financial measure of “net profit before exceptional items and goodwill amortisation” is shown in the table below.

| |      |  |  | Net profit before exceptional items |  |  | Goodwill amortisation |  |  | Net profit before exceptional items and goodwill amortisation | 
| | ---- |  |  | ----------------------------------- |  |  | --------------------- |  |  | ------------------------------------------------------------- | 
| |      |  |  | £m                                  |  |  | £m                    |  |  | £m                                                            | 
| | 2004 |  |  | 224                                 |  |  | 35                    |  |  | 259                                                           | 
| | 2003 |  |  | 183                                 |  |  | 36                    |  |  | 219                                                           | 
| | 2002 |  |  | 227                                 |  |  | 37                    |  |  | 264                                                           | 

13

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Constant currency performanceIn addition to the non-UK GAAP financial measures discussed above which adjust UK GAAP results for goodwill amortisation, ICI’s management also assesses the underlying performance of its individual businesses by adjusting turnover and trading profit (as defined above) so as to exclude certain other items which would otherwise mask the underlying trend of the business performance. These adjustments relate to the impact of fluctuations in exchange rates used in translating results reported by subsidiaries in foreign currencies into pounds sterling.

Management’s discussion of the performance of National Starch, Quest, Uniqema, Paints and Regional and Industrial includes data referred to as “constant currency” which excludes the effect of currency translation differences in each of the relevant periods. Management believes that the exclusion of these items provides a better understanding of the underlying operational performance of the Group’s businesses during such periods. Fluctuations in exchange rates are outside of the control of management and may distort the underlying operating performance of the Group’s businesses.

Constant currency performance is one of the key financial measures reported to ICI’s Chief Executive for purposes of assessing segment performance and making decisions about allocating resources to the businesses comprising each segment.

Calculation of constant currency resultsIn the Operating and Financial Review and Prospects for 2004 compared with 2003, and 2003 compared with 2002, constant currency results are derived by translating results of those subsidiaries which report in currencies other than sterling for both periods at a single average exchange rate for each currency. For this purpose, ICI has used the average of the daily exchange rates for each particular currency for the first year included in the comparison (e.g. for the 2004 business review compared to 2003, both the 2004 and 2003 results are translated using the average of the daily exchange rates in 2003, whereas for the 2003 business review compared to 2002, both the 2003 and 2002 results are translated using the average of the daily exchange rates
in 2002).

The tables on pages 18, 19, 22 and
    23 of this Annual Report on Form 20-F provide reconciliations between the
UK GAAP performance measures of movements in “turnover” and “operating
profit before exceptional items” and the non-UK GAAP performance measures
that ICI uses of movements in “constant currency sales” and “constant
currency trading profit”.

International BusinessesICI management refers to National Starch, Quest, Uniqema and Paints collectively as the  “International Businesses”. The use of this term is a non-UK GAAP measure. Since ICI’s transformation process began in 1997, ICI’s management has found it useful to track the performance of the “International Businesses”, as most other parts of the ICI group were intended for divestment and have since been divested, with many of the remaining Regional and Industrial Businesses expected to be divested in the future. Consequently, management believes it is useful to provide investors with information regarding the collective performance of National Starch, Quest, Uniqema and Paints as these are the businesses that are planned
to remain within ICI in the future and so management believes it is important that investors understand the performance of those businesses. ICI uses the financial measure “International Businesses” in Group reports that are used by management and ICI’s Chief Executive to assess the underlying performance, both past, present and future, of the parts of the Group which are not intended for divestment, and consequently, for making decisions about allocating resources to segments.

Investors should consider this non-UK
    GAAP financial measure “International Businesses” in addition
    to, and not as a substitute for or as superior to, measure of financial performance
    reported in accordance with UK GAAP. The UK GAAP results for the Group include
    the results from the Regional and Industrial businesses and therefore it
    is important to consider the results of the Group, which is a UK GAAP measure
    alongside the non-GAAP measure of “International Businesses” that
    excludes the Regional and Industrial businesses. The tables on pages 18,
    19, 22 and 23 of this Annual Report on Form 20-F present the reconciliation
    of Group turnover, operating profit before exceptional items and trading
    profit to International Businesses turnover, operating profit before exceptional
items and trading profit.

14

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A.      Operating Results.

Group overview

In the following commentary, the
    financial results and performance compared to the prior year is described
    as “reported” or “constant currency”. “Reported” relates
    to the figures included in the financial statements prepared under UK GAAP.  “Constant
    currency” excludes the effect of currency translation differences and
    is a non-UK GAAP measure. “Constant currency” performance is
    one of the financial measures reported to ICI’s Chief Executive for
    purposes of assessing segment performance and making decisions about allocating
    resources to the businesses comprising each segment. A more detailed description
    of “constant currency” performance,
    how it is calculated, why it is considered useful for investors and the limitations
    of non-UK GAAP measures is set out on page 14 of this Annual Report on Form
    20-F. Reconciliations detailing the amounts excluded from the most directly
    comparable UK GAAP measures are presented on pages 18, 19, 22 and 23 of this
Annual Report on Form 20-F.

Turnover

Group sales as reported were £5,601m for 2004, 4% lower than 2003 (2003 £5,849m;  2002 £6,125m). The lower sales in 2004 were the consequence of business divestments, principally the Food Ingredients business of Quest, which was sold in 2004, and adverse impacts from foreign currency translation.

International Businesses’ sales
    as reported were £5,244m for 2004 which, despite a favourable external
    trading environment, was 3% lower than 2003 due to the impact of foreign
    currency translation and divestments (2003 £5,389m; 2002 £5,543m).
    On an as reported basis sales for National Starch and Paints were in line
    with last year but Quest and Uniqema sales were lower than for 2003.

Excluding the effects of foreign currency translation, constant currency sales for the International Businesses were 4% above 2003, with growth for National Starch (+8%) and Paints (+7%) offset by lower sales for Quest (-11%). Quest sales for 2003 included £148m of sales by the Food Ingredients business sold in 2004. Quest sales for 2004 included Food Ingredients sales of £51m.  Sales for Uniqema were similar to 2003.

Operating profit

Group operating profit before exceptional items, as reported, was £444m for 2004, 13% above 2003 (2003 £394m; 2002 £496m). Group trading profit was £479m for 2004, 11% above 2003 (2003 £430m; 2002 £533m). Good constant currency sales growth and the benefits of restructuring more than offset the impact of generally rising raw material costs and the adverse impact of currency translation.

Trading profit for the International Businesses was £505m for 2004, 11% higher than 2003 (2003 £455m; 2002 £543m). Excluding the effects of foreign currency translation (adverse £33m), trading profit for the International Businesses was 18% higher than 2003 on a constant currency basis, despite a reduction of £13m in trading profit due to the divestment of Quest’s Food Ingredients business.

Regional and Industrial reported
    a £26m operating loss before exceptional items for the year, in comparison
    with a £25m loss for 2003 (2002 £10m loss). This included a £52m
    charge in 2004 in relation to the deficit for the ICI UK Pension Fund, an
    increase
    of £10m
    compared with 2003.

Associates

The Group’s share of profits from associates was £4m for 2004 (2003 £3m profit; 2002 £10m loss).  This comprised the Group’s share of operating profit before exceptional items from associates of £4m (2003 £2m; 2002 £18m) together with net interest receivable by associates, which was less than £1m for the year (2003 £1m receivable; 2002 £28m payable).

15

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Interest

The net interest charge for the Group was £86m for 2004, compared with £92m in 2003 (2002 £123m). Both 2004 and 2003 benefited from lower average levels of net debt, while the 2003 result also reflected the benefit of lower interest rates than in 2002.

Profit before tax

Profit before tax, but after exceptional items and goodwill amortisation was £359m for 2004, compared with £85m for 2003 (2002 £317m), due mainly to lower charges for exceptional items.

Profit before exceptional items and tax was £362m for 2004 compared with £305m for 2003 (2002 £363m). Profit before exceptional items, tax and goodwill amortisation was £397m for 2004, compared with £341m for 2003 (2002 £400m).

The adverse currency translation effect on the Group’s profit before tax, goodwill amortisation and exceptional items in 2004 compared with 2003 was £34m.

Taxation

Taxation on profit before exceptional items was £111m, £12m higher than 2003 (2003 £99m; 2002 £115m), reflecting the increase in trading profit.

Exceptional items

Exceptional items are material items which derive from events or transactions that fall within the ordinary activities of the Group and which individually, or if of a similar type, in aggregate, need to be disclosed by virtue of their size or incidence if the financial statements are to give a true and fair view.

The Group’s presentation of the “Group profit and loss account” for the three years ended December 31, 2004, which appears on pages 60, 61a and 61b under Item 18 “Financial Statements” of this Annual Report on Form 20-F, separately disclosing exceptional items, has been prepared in accordance with FRS No. 3.  This presentation provides a sufficient degree of prominence in respect to the exceptional items necessary, under UK GAAP, to give a true and fair view of the results of the Group in the three years ended December 31, 2004.

Net exceptional items charged against operating profit before exceptional items for the year were £5m (2003 £200m; 2002 nil) and mainly related to the restructuring programme first announced in 2003.

The Group’s restructuring programme announced in 2003 was extended following the divestment of Quest’s Food Ingredients business to deliver further reductions in costs below gross margin for Quest.  The total cost for the extended programme is now expected to be £228m, comprising £168m exceptional cash expenditure and non-cash asset write-downs of £60m.

The cumulative profit and loss charge for the programme to the end of 2004 was £209m; a further £19m is expected to be charged in 2005. The cash expenditure on the programme in 2004 was £71m, bringing the cumulative spend to £93m.  The remaining cash spend of £75m is expected to be incurred primarily in 2005.  The extended programme is expected to deliver £124m of cost benefit in 2006 and reduce headcount across the Group by around 2,300.

During the second quarter of 2004, the Group announced the completion of the sale of Quest’s Food Ingredients business to Kerry Group plc for £249m in cash, resulting in a loss on disposal before tax of £9m.  The loss included attribution of goodwill, which was previously written off directly to reserves, of £154m.  After tax, the exceptional loss on the transaction was £27m.

Loss on sale or closure of operations also included an increased provision in relation to costs for the divestment of the Polyurethanes, Tioxide and selected Petrochemicals businesses and a loss on closure of the polyethylene business in Argentina.  These were offset by profits on the sale of 18.9% of the issued shares of Pakistan PTA Ltd, on the sale of the nitrocellulose and trading businesses in India, and provision releases and income in relation to prior year divestments.

16

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In total, exceptional items before tax and minority interests for 2004 amounted to a loss of £3m (2003 £220m loss; 2002 £46m loss). Exceptional items after tax and minorities were a loss of £14m (2003 £163m loss; 2002 £48m loss).

Exceptional items under UK GAAP do not represent extraordinary items under US GAAP.

Net profit

Net profit before exceptional items for 2004 was £224m (2003 £183m; 2002 £227m). Net profit before exceptional items and goodwill amortisation was £259m (2003 £219m; 2002 £264m). Net profit after exceptional items and goodwill amortisation was £210m, compared with £20m for 2003 and £179m for 2002.

Earnings per share

Basic earnings per share before exceptional items was 18.9p for 2004, compared to 15.5p for 2003 (2002 20.4p). Diluted earnings per share before exceptional items was 18.8p for 2004, compared with 15.5p for 2003 (2002 20.3p). Basic earnings per share was 17.8p, compared with 1.7p for 2003 (2002 16.1p).  Diluted earnings per share was 17.7p, compared with 1.7p for 2003 (2002 16.0p).

Dividend and dividend policy

The Group’s dividend policy, announced in November 2000, is that dividends should represent about one third of net profit before exceptional items and goodwill amortisation. In line with this policy, the Board has recommended a second interim dividend of 3.9p, to bring the total dividend for 2004 to 7.3p (2003 6.25p; 2002 7.5p).

Shareholders’ funds

The net profit for the year of £210m was reduced by dividends of £86m and a movement of £8m through reserves due to foreign currency translation but increased by a movement in respect of own shares of £1m and goodwill items of £154m to give an overall net increase in shareholders’ funds in 2004 of £271m. At the end of 2004, shareholders’ funds were in surplus of £721m (2003 surplus £450m; 2002 surplus £463m).

Cash flow

This commentary relates to the “Statement of Group cash flow”, which appears on page 63 under Item 18 “Financial Statements” of this Annual Report on Form 20-F.

Net cash inflow from operating activities for 2004 was £531m, £8m lower than 2003, with higher  operating profit before exceptional items and goodwill amortisation for the Group offset by higher cash outflows in support of the restructuring programme.  Returns on investments and servicing of finance resulted in a cash outflow of £79m, which was lower than 2003 by £17m, due to reduced interest payments. Capital expenditure and financial investment for 2004, of £150m, was £12m higher than the £138m outflow in 2003, with higher spend on tangible fixed assets. Acquisitions expenditure was £29m, compared with £20m in 2003 and included £25m of loans to Ineos Chlor.

Net proceeds from disposals were £209m in 2004, compared with £104m in 2003, and comprised £291m gross disposal proceeds (2003 £215m) less costs and expenditure against divestment provisions of £82m (2003 £111m). The sale of Quest’s Food Ingredients business, with gross proceeds of £249m received in the second quarter, and the proceeds from the sale of 18.9% of the issued shares of Pakistan PTA Ltd. and from the sale of the nitrocellulose and trading businesses in India, were the major contributors to disposal proceeds.

Dividend payments of £82m (2003 £86m) comprised the 2003 second interim dividend and the 2004 first interim dividend. These payments were consistent with the policy announced in November 2000 whereby annual dividends are equivalent to one third of net profit before exceptional items and goodwill amortisation.

17

---



Consequently, the Group’s cash inflow for 2004 before the use of liquid resources and financing  was £356m, £90m higher than the cash inflow of £266m in 2003. The improvement in Group cash flow resulted from higher operating profit, improved capital effectiveness, reduced interest payments and higher proceeds from disposals.

Review of 2004 business results

Basis of presentation

The tables on pages 18, 19, 22 and
    23 of this Annual Report on Form 20-F provide reconciliations between the
    UK GAAP performance measures of movements in “turnover” and “operating
    profit before exceptional items” and the non-UK GAAP performance measures
    that ICI uses of movements in “constant currency turnover” and “constant
    currency trading profit”. The tables detail the amounts excluded from
    the most directly comparable UK GAAP financial measure. “Reported” relates
    to the figures included in the financial statements prepared under UK GAAP.  “Constant
    currency ” excludes the effect of currency translation differences
    and is a non-UK GAAP financial measure. ICI management
use the “constant currency ” financial measure for purposes of making
decisions about allocating resources across the business and assessing its underlying
performance. A more detailed description of “constant currency” performance,
how it is calculated, why it is considered useful for investors and the limitations
of non-UK GAAP financial measures are set out on pages 12 to 14 of this Annual
Report on Form 20-F.

Reconciliation table  UK GAAP “As reported” turnover performance to non-UK GAAP “Constant currency sales” performance  2004 vs. 2003

|                                     |  |  | Turnover |   |  | “As reported” changeIncrease/ (decrease) |   |  | Foreign exchange
translation effectsAdverse/
(favourable) |   |  | “Constant currency” changeIncrease/
    (decrease) |  
|------------------------------------ |  |  | -------- | - |  | ---------------------------------------- | - |  | --------------------------------------------------------- | - |  | -------------------------------------------------- | -
|                                     |  |  | 2004     |   |  | 2003                                     |   |  | 2004 vs. 2003                                             |   |  |                                                    |  
|                                     |  |  | £m       |   |  | £m                                       |   |  | £m                                                        |   |  | %                                                  |  
|National Starch                      |  |  |          |   |  |                                          |   |  |                                                           |   |  |                                                    |  
|Adhesives                            |  |  | 774      |   |  | 757                                      |   |  | 17                                                        |   |  | 2                                                  |  
|Specialty Starches                   |  |  | 460      |   |  | 483                                      |   |  | (23                                                       | ) |  | (5                                                 | )
|Specialty Synthetic Polymers         |  |  | 384      |   |  | 375                                      |   |  | 9                                                         |   |  | 2                                                  |  
|Electronic and Engineering Materials |  |  | 252      |   |  | 251                                      |   |  | 1                                                         |   |  |                                                   |  
|                                    
|Total                                |  |  | 1,870    |   |  | 1,866                                    |   |  | 4                                                         |   |  |                                                   |  
|                                    
|Quest                                |  |  |          |   |  |                                          |   |  |                                                           |   |  |                                                    |  
|Food                                 |  |  | 299      |   |  | 411                                      |   |  | (112                                                      | ) |  | (27                                                | )
|Fragrance                            |  |  | 285      |   |  | 280                                      |   |  | 5                                                         |   |  | 2                                                  |  
|                                    
|Total                                |  |  | 584      |   |  | 691                                      |   |  | (107                                                      | ) |  | (15                                                | )
|                                    
|Uniqema                              |  |  | 629      |   |  | 669                                      |   |  | (40                                                       | ) |  | (6                                                 | )
|                                    
|Paints                               |  |  |          |   |  |                                          |   |  |                                                           |   |  |                                                    |  
|Decorative Europe                    |  |  | 709      |   |  | 688                                      |   |  | 21                                                        |   |  | 3                                                  |  
|Decorative North America             |  |  | 836      |   |  | 897                                      |   |  | (61                                                       | ) |  | (7                                                 | )
|Decorative Asia                      |  |  | 252      |   |  | 224                                      |   |  | 28                                                        |   |  | 13                                                 |  
|Decorative Latin America             |  |  | 157      |   |  | 152                                      |   |  | 5                                                         |   |  | 3                                                  |  
|Packaging Coatings                   |  |  | 181      |   |  | 177                                      |   |  | 4                                                         |   |  | 2                                                  |  
|Other                                |  |  | 26       |   |  | 25                                       |   |  | 1                                                         |   |  | 4                                                  |  
|                                    
|Total                                |  |  | 2,161    |   |  | 2,163                                    |   |  | (2                                                        | ) |  |                                                   |  
|                                    
|International Businesses             |  |  | 5,244    |   |  | 5,389                                    |   |  | (145                                                      | ) |  | (3                                                 | )
|                                    
|Regional and Industrial              |  |  | 375      |   |  | 481                                      |   |  | (106                                                      | ) |  | (22                                                | )
|Inter-class eliminations             |  |  | (18      | ) |  | (21                                      | ) |  | 3                                                         |   |  | 14                                                 |  
|                                    
|Total Group                          |  |  | 5,601    |   |  | 5,849                                    |   |  | (248                                                      | ) |  | (4                                                 | )
|                                    

18

---



Reconciliation table  UK GAAP “As reported” operating profit to non-UK GAAP “Constant currency trading profit performance”   2004 vs. 2003

|                                                                                 |  |  | National Starch |   |  | Quest |   |  | Uniqema |   |  | Paints |   |  | International Businesses |   |  | Regional and Industrial |    |  | Total Group |  
|-------------------------------------------------------------------------------- |  |  | --------------- | - |  | ----- | - |  | ------- | - |  | ------ | - |  | ------------------------ | - |  | ----------------------- | -- |  | ----------- | -
|                                                                                 |  |  | £m              |   |  | £m    |   |  | £m      |   |  | £m     |   |  | £m                       |   |  | £m                      |    |  | £m          |  
|                                                                                
|Operating profit after exceptional items                                         |  |  |                 |   |  |       |   |  |         |   |  |        |   |  |                          |   |  |                         |    |  |             |  
|                                                                                
|2004                                                                             |  |  | 202             |   |  | 43    |   |  | 21      |   |  | 199    |   |  | 465                      |   |  | (26                     | )  |  | 439         |  
|                                                                                
|2003                                                                             |  |  | 123             |   |  | 15    |   |  | (34     | ) |  | 137    |   |  | 241                      |   |  | (47                     | )  |  | 194         |  
|                                                                                
|Exceptional operating items                                                      |  |  |                 |   |  |       |   |  |         |   |  |        |   |  |                          |   |  |                         |    |  |             |  
|                                                                                
|2004                                                                             |  |  | 1               |   |  | 7     |   |  | (3      | ) |  |       |   |  | 5                        |   |  |                        |    |  | 5           |  
|                                                                                
|2003                                                                             |  |  | 59              |   |  | 29    |   |  | 41      |   |  | 49     |   |  | 178                      |   |  | 22                      |    |  | 200         |  
|                                                                                
|Operating profit before exceptional items                                        |  |  |                 |   |  |       |   |  |         |   |  |        |   |  |                          |   |  |                         |    |  |             |  
|                                                                                
|2004                                                                             |  |  | 203             |   |  | 50    |   |  | 18      |   |  | 199    |   |  | 470                      |   |  | (26                     | )  |  | 444         |  
|                                                                                
|2003                                                                             |  |  | 182             |   |  | 44    |   |  | 7       |   |  | 186    |   |  | 419                      |   |  | (25                     | )  |  | 394         |  
|                                                                                
|“As reported” change
    (2004 vs. 2003) increase/(decrease) £m                  |  |  | 21              |   |  | 6     |   |  | 11      |   |  | 13     |   |  | 51                       |   |  | (1                      | )  |  | 50          |  
|                                                                                
|“As reported” change (2004 vs. 2003) increase/(decrease) %                       |  |  | 12              | % |  | 14    | % |  | 157     | % |  | 7      | % |  | 12                       | % |  | 4                       | %  |  | 13          | %
|                                                                                
|Goodwill amortisation                                                            |  |  |                 |   |  |       |   |  |         |   |  |        |   |  |                          |   |  |                         |    |  |             |  
|                                                                                
|2004                                                                             |  |  | 16              |   |  | 1     |   |  | 1       |   |  | 17     |   |  | 35                       |   |  |                        |    |  | 35          |  
|                                                                                
|2003                                                                             |  |  | 17              |   |  | 1     |   |  | 1       |   |  | 17     |   |  | 36                       |   |  |                        |    |  | 36          |  
|                                                                                
|Trading profit                                                                   |  |  |                 |   |  |       |   |  |         |   |  |        |   |  |                          |   |  |                         |    |  |             |  
|                                                                                
|2004                                                                             |  |  | 219             |   |  | 51    |   |  | 19      |   |  | 216    |   |  | 505                      |   |  | (26                     | )  |  | 479         |  
|                                                                                
|2003                                                                             |  |  | 199             |   |  | 45    |   |  | 8       |   |  | 203    |   |  | 455                      |   |  | (25                     | )  |  | 430         |  
|                                                                                
|“As reported” trading profit change (2004 vs. 2003) increase/(decrease) £m       |  |  | 20              |   |  | 6     |   |  | 11      |   |  | 13     |   |  | 50                       |   |  | (1                      | )  |  | 49          |  
|                                                                                
|“As reported” trading profit change (2004 vs. 2003) increase/(decrease) %        |  |  | 10              | % |  | 13    | % |  | 138     | % |  | 6      | % |  | 11                       | % |  | (4                      | )% |  | 11          | %
|                                                                                
|Foreign currency translation effects adverse/(favourable) £m                     |  |  | 14              |   |  | 5     |   |  | 1       |   |  | 13     |   |  | 33                       |   |  |                         |    |  | 39          |  
|                                                                                 |  |  |                 |  
|“Constant currency” trading profit change (2004 vs. 2003) increase/(decrease) £m |  |  | 34              |   |  | 11    |   |  | 12      |   |  | 26     |   |  | 83                       |   |  |                         |    |  | 88          |  
|                                                                                 |  |  |                 |  
|“Constant currency” trading profit change (2004 vs. 2003)increase/(decrease)%    |  |  | 17              | % |  | 24    | % |  | 115     | % |  | 12     | % |  | 18                       | % |  |                         |    |  | 20          | %
|                                                                                 |  |  |                 |  

National Starch

National Starch’s sales for
    2004 of £1,870m were in line with 2003 on an as reported basis. Excluding
    foreign exchange translation effects National Starch’s sales for 2004
    were 8% ahead of 2003. Operating profit before exceptional items for 2004
    was £203m,
    12% ahead of 2003 on an as reported basis. Sales were strong throughout the
    year, and accelerated in the second half due to increasing volumes and the
    impact of price increases implemented to offset rising raw material costs.
    Petrochemical-based raw material costs escalated through the year and gross
    margin percentages were lower than in 2003 despite the implementation of
    price increases. Costs below gross margin rose to support the sales growth,
but nevertheless trading profit was 17% ahead of 2003 on a constant currency
    basis.

The following commentaries relate to the four business groupings within National Starch: Adhesives (41% of National Starch’s sales in 2004), Specialty Starch (25%), Specialty Synthetic Polymers (21%) and Electronic and Engineering Materials (13%). The geographic split of sales by customer location for National Starch in 2004 was: Europe 28%, North America 38%, Asia 27% and Latin America and Rest of World 7%.

AdhesivesAdhesives reported sales were 2% ahead
of 2003. Excluding foreign exchange translation effects, Adhesives constant currency
sales for 2004 were 8% ahead of 2003. Growth was strong in the US, due in part
to much improved business conditions in comparison with 2003. Sales in Asia were
also encouraging, with China, Indonesia, India and Vietnam all continuing to
achieve strong constant currency sales growth. In Latin America, constant currency
sales growth in Mexico, Brazil, Argentina and Venezuela offset lower sales in
Chile, and in Europe, constant currency sales were modestly ahead of last year,
with growth in Germany and France offsetting lower sales in the UK. Increased
raw material costs offset the benefits of the sales growth
however.

19

---



Specialty StarchesSpecialty Starches as reported sales for 2004 were 5% below 2003, but excluding foreign exchange translation effects, constant currency sales were 3% ahead.  Constant currency sales growth was strong in Europe, where price increases were implemented to offset higher raw material costs. On a constant currency basis growth remained strong in Asia and accelerated in Latin America, especially in both Mexico and Brazil.  In the US, overall constant currency sales were broadly in line with 2003, with growth for food starch offset by a continued decline in industrial starch.

Specialty Synthetic PolymersSpecialty Synthetic Polymers sales for 2004 were 2% ahead of 2003 as reported and 12% ahead on a constant currency basis.  However the business was impacted by sharply higher raw material costs. Constant currency sales for Vinamul, Alco and Elotex were all well ahead of 2003.  Regionally, sales in Asia grew strongly, particularly in China and Thailand.

Electronic and Engineering MaterialsElectronic and Engineering Materials
reported sales were in line with 2003 as reported, but excluding foreign exchange
translation effects, were 11% ahead on a constant currency basis in generally
favourable market conditions. Constant currency sales for Ablestik, Emerson and
Cuming and Acheson were all ahead of 2003 and, in regional terms, growth was
particularly strong in Asia.

Quest

Quest completed the transition to a focussed Flavours and Fragrance business by divesting the Food Ingredients business in 2004.

Sales of £584m for 2004 were £107m (15%) below 2003 on an as reported basis, mainly due to the impact of the divestment. Excluding foreign exchange translation effects, sales were 11% below 2003.  Operating profit before exceptional items of £50m was 14% ahead of 2003 on an as reported basis.

Regionally, constant currency sales growth for Flavours was strong in Asia and Latin America and, for the Fragrance business, in North America. Gross margin percentages for both the Flavours and Fragrances businesses were ahead of last year.  Consequently, with costs below gross margin benefiting from restructuring, constant currency trading profit was 24% higher than in 2003.

Quest made progress implementing the restructuring programme that began in 2003, which aims to simplify its organisation and deliver savings in costs below gross margin.  The programme was extended in 2004, with additional cash expenditure of £15m planned by the end of 2006. An exceptional charge of £7m was included in 2004 operating profit in relation to these programmes.

The following commentaries relate to Quest’s two major strategic businesses: Food (51% of Quest’s sales in 2004) and Fragrance (49%).  The geographic split of sales by customer location in 2004 was Europe 40%, North America 24%, Asia 20% and Latin America and Rest of World 16%.

FoodFood
    reported sales for 2004 were 27% below 2003 due primarily to the impact of
    the Food Ingredients divestment. Sales growth for Flavours in both Asia and
    Latin America was partly offset by lower sales in North America and Europe,
    which were impacted by reduced summer demand for beverages and other food
    products. Emphasis continued to be placed on rebuilding customer confidence
    in Europe following customer service problems that resulted from 2002 systems
    changes at the business’ Naarden facility in the Netherlands, and service
levels continued to improve in 2004.

Gross margin percentages for Flavours were ahead of last year, and cost below gross margin benefited from restructuring.

20

---



FragranceFragrance reported sales were 2% higher
than 2003 and 8% higher on a constant currency basis, with strong growth in North
America and some significant wins in fine fragrances.

Uniqema

Uniqema’s trading profit improved markedly in 2004.  Reported sales of £629m were 6% below 2003 but, excluding foreign exchange translation effects were in line with 2003 on a constant currency basis, with improved demand in the USA offset by weak demand for fatty acids in Europe. The geographic split of sales by customer location for Uniqema in 2004 was: Europe 49%, North America 29%, Asia 15%, Latin America and Rest of World 7%. Overall gross margin percentages improved despite the relative strength of the euro against the US dollar (which continued to affect continental European exports to North America and Asia) and a decline in glycerine prices.  Control of costs below gross margin was also maintained, supplemented by benefits
from the restructuring programme.

Paints

Paints reported sales of £2,161m
    for the year were in line with 2003. Excluding foreign exchange translation
    effects, sales were 7% ahead of 2003, with growth for all decorative paint
    businesses (Europe, North America, Asia and Latin America) and for the Packaging
    Coatings business. Overall gross margin percentages were lower than last
    year with escalating raw material costs in the second half of the year. Trading
profit was 12% ahead of 2003 on a constant currency basis.

The following commentaries relate to the four geographical regions where Decorative Paints operates (Decorative Paints accounted for just under 91% of Paints’ overall sales for 2004) and to the Packaging Coating business (8%).  Other businesses accounted for 1% of overall sales. The geographic split for Paints by customer location in 2004 was: Europe 37%, North America 40%, Asia 14% and Latin America and Rest of World 9%.

In Decorative Europe, reported sales for 2004 were 3% ahead of 2003. Excluding adverse foreign exchange translation effects, sales for 2004 on a constant currency basis were 4% ahead of 2003. This was primarily due to a strong performance in the UK retail business where sales to the major DIY retailers increased.  UK Trade sales also grew, as did sales in France, Ireland and Poland, but other markets in Europe were generally weak.

In Decorative North America, reported sales for 2004 were 7% below 2003. Excluding adverse foreign exchange translation effects sales for 2004 on a constant currency basis were 3% ahead of 2003. After a strong first half year, the second half of the year was weaker, reflecting lower growth in retail markets and the impact of four severe hurricanes.  Gross margin percentages were impacted by higher raw material and freight costs which were only partly offset by increases in selling prices.

In Decorative Asia, reported sales for 2004 were 13% ahead of 2003. Excluding adverse foreign exchange translation effects, sales for 2004 on a constant currency basis were 26% ahead of 2003, with notable performances in China, India, Indonesia and Pakistan.

Decorative Latin America reported sales for 2004 were 3% ahead of 2003.  Excluding adverse foreign exchange translation effects, sales for 2004 were 16% ahead of 2003 and were particularly strong in Brazil, Argentina and Uruguay.

Reported sales for 2004 for the Packaging Coatings business were 2% ahead of 2004, and excluding adverse foreign exchange translation effects, sales were 7% above 2003.

Regional and Industrial

Reported sales for the Regional and Industrial businesses were £375m, 22% below 2003.  Constant currency sales were 12% below 2003 due to businesses divested, partly offset by strong sales growth for the PTA business in Pakistan.

21

---



The operating loss before exceptional items for the year was £26m compared with a loss of £25m in 2003.  This loss included a £52m charge for pension costs, £10m more than 2003.  However, this increased charge was largely offset by an improved performance for Pakistan PTA Ltd.

The charge in respect of pension costs in relation to the ICI UK Pension Fund is included in Regional and Industrial for segmental reporting, as it largely relates to commitments to pensioners and deferred pensioners who worked for ICI’s divested UK Industrial Chemical businesses.

Review of 2003 business results

Reconciliation table  UK GAAP “As reported” turnover performance to non-UK GAAP “Constant currency sales” performance  2003 vs. 2002

|                                     |  |  | Turnover |   |  | “As reported” changeIncrease/ (decrease) |   |  | Foreign exchange
translation effectsAdverse/
(favourable) |   |  | “Constant currency” changeIncrease/ (decrease) |  
|------------------------------------ |  |  | -------- | - |  | ---------------------------------------- | - |  | --------------------------------------------------------- | - |  | ---------------------------------------------- | -
|                                     |  |  | 2003     |   |  | 2002                                     |   |  | 2003 vs. 2002                                             |   |  |                                                |  
|                                     |  |  | £m       |   |  | £m                                       |   |  | £m                                                        |   |  | %                                              |  
|National Starch                      |  |  |          |   |  |                                          |   |  |                                                           |   |  |                                                |  
|Adhesives                            |  |  | 757      |   |  | 753                                      |   |  | 4                                                         |   |  | 1                                              |  
|Specialty Starches                   |  |  | 483      |   |  | 475                                      |   |  | 8                                                         |   |  | 2                                              |  
|Specialty Synethetic Polymers        |  |  | 375      |   |  | 361                                      |   |  | 14                                                        |   |  | 4                                              |  
|Electronic and Engineering Materials |  |  | 251      |   |  | 252                                      |   |  | (1                                                        | ) |  |                                               |  
|                                    
|Total                                |  |  | 1,866    |   |  | 1,841                                    |   |  | 25                                                        |   |  | 1                                              |  
|                                    
|Quest                                |  |  |          |   |  |                                          |   |  |                                                           |   |  |                                                |  
|Food                                 |  |  | 411      |   |  | 426                                      |   |  | (15                                                       | ) |  | (3                                             | )
|Fragrance                            |  |  | 280      |   |  | 290                                      |   |  | (10                                                       | ) |  | (4                                             | )
|                                    
|Total                                |  |  | 691      |   |  | 716                                      |   |  | (25                                                       | ) |  | (3                                             | )
|                                    
|Performance Specialties              |  |  |          |   |  |                                          |   |  |                                                           |   |  |                                                |  
|Uniqema                              |  |  | 669      |   |  | 669                                      |   |  |                                                          |   |  |                                               |  
|Synetix and Security Systems         |  |  |         |   |  | 135                                      |   |  | (135                                                      | ) |  | (100                                           | )
|                                    
|Total                                |  |  | 669      |   |  | 804                                      |   |  | (135                                                      | ) |  | (17                                            | )
|                                    
|Paints                               |  |  |          |   |  |                                          |   |  |                                                           |   |  |                                                |  
|Decorative Europe                    |  |  | 688      |   |  | 656                                      |   |  | 32                                                        |   |  | 5                                              |  
|Decorative North America             |  |  | 897      |   |  | 981                                      |   |  | (84                                                       | ) |  | (9                                             | )
|Decorative Asia                      |  |  | 224      |   |  | 212                                      |   |  | 12                                                        |   |  | 6                                              |  
|Decorative Latin America             |  |  | 152      |   |  | 136                                      |   |  | 16                                                        |   |  | 12                                             |  
|Packaging Coatings                   |  |  | 177      |   |  | 170                                      |   |  | 7                                                         |   |  | 4                                              |  
|Other                                |  |  | 25       |   |  | 27                                       |   |  | (2                                                        | ) |  | (7                                             | )
|                                    
|Total                                |  |  | 2,163    |   |  | 2,182                                    |   |  | (19                                                       | ) |  | (1                                             | )
|                                    
|International Businesses             |  |  | 5,389    |   |  | 5,543                                    |   |  | (154                                                      | ) |  | (3                                             | )
|                                    
|Regional and Industrial              |  |  | 481      |   |  | 615                                      |   |  | (134                                                      | ) |  | (22                                            | )
|Inter-class eliminations             |  |  | (21      | ) |  | (33                                      | ) |  | 12                                                        |   |  | (36                                            | )
|                                     |  |  |          |   |  |                                          |   |  |                                                          
|Total Group                          |  |  | 5,849    |   |  | 6,125                                    |   |  | (276                                                      | ) |  | (5                                             | )
|                                     |  |  |          |   |  |                                          |   |  |                                                          

22

---



Reconciliation table  UK GAAP “As reported” operating profit to non-UK GAAP “Constant currency trading profit performance”  2003 vs. 2002

|                                                                                 |  |  | National
    Starch |    |  | Quest |    |  | Uniqema |    |  | Paints |   |  | International
    Businesses |    |  | Regional
    and Industrial |    |  | Total Group |   
|-------------------------------------------------------------------------------- |  |  | ------------------- | -- |  | ----- | -- |  | ------- | -- |  | ------ | - |  | ---------------------------- | -- |  | --------------------------- | -- |  | ----------- | --
|                                                                                 |  |  | £m                  |    |  | £m    |    |  | £m      |    |  | £m     |   |  | £m                           |    |  | £m                          |    |  | £m          |   
|                                                                                
|Operating profit after exceptional items                                         |  |  |                     |    |  |       |    |  |         |    |  |        |   |  |                              |    |  |                             |    |  |             |   
|                                                                                
|2003                                                                             |  |  | 123                 |    |  | 15    |    |  | (34     | )  |  | 137    |   |  | 241                          |    |  | (47                         | )  |  | 194         |   
|                                                                                
|2002                                                                             |  |  | 206                 |    |  | 81    |    |  | 48      |    |  | 171    |   |  | 506                          |    |  | (10                         | )  |  | 496         |   
|                                                                                
|Exceptional operating items                                                      |  |  |                     |    |  |       |    |  |         |    |  |        |   |  |                              |    |  |                             |    |  |             |   
|                                                                                
|2003                                                                             |  |  | 59                  |    |  | 29    |    |  | 41      |    |  | 49     |   |  | 178                          |    |  | 22                          |    |  | 200         |   
|                                                                                
|2002                                                                             |  |  |                    |    |  |      |    |  |        |    |  |       |   |  |                             |    |  |                            |    |  |            |   
|                                                                                
|Operating profit before exceptional items                                        |  |  |                     |    |  |       |    |  |         |    |  |        |   |  |                              |    |  |                             |    |  |             |   
|                                                                                
|2003                                                                             |  |  | 182                 |    |  | 44    |    |  | 7       |    |  | 186    |   |  | 419                          |    |  | (25                         | )  |  | 394         |   
|                                                                                
|2002                                                                             |  |  | 206                 |    |  | 81    |    |  | 48      |    |  | 171    |   |  | 506                          |    |  | (10                         | )  |  | 496         |   
|                                                                                
|“As reported” change
    (2003 vs. 2002) increase/(decrease)                     |  |  | (24                 | )  |  | (37   | )  |  | (41     | )  |  | 15     |   |  | (87                          | )  |  | (15                         | )  |  | (102        | ) 
|                                                                                
|“As reported” change (2003 vs. 2002) increase/(decrease) %                       |  |  | (12                 | )% |  | (46   | )% |  | (85     | )% |  | 9      | % |  | (17                          | )% |  | (150                        | )% |  | (21         | )%
|                                                                                
|Goodwill amortisation £m                                                         |  |  |                     |    |  |       |    |  |         |    |  |        |   |  |                              |    |  |                             |    |  |             |   
|                                                                                
|2003                                                                             |  |  | 17                  |    |  | 1     |    |  | 1       |    |  | 17     |   |  | 36                           |    |  |                            |    |  | 36          |   
|                                                                                
|2002                                                                             |  |  | 18                  |    |  | 1     |    |  | 1       |    |  | 17     |   |  | 37                           |    |  |                            |    |  | 37          |   
|                                                                                
|Trading profit                                                                   |  |  |                     |    |  |       |    |  |         |    |  |        |   |  |                              |    |  |                             |    |  |             |   
|                                                                                
|2003                                                                             |  |  | 199                 |    |  | 45    |    |  | 8       |    |  | 203    |   |  | 455                          |    |  | (25                         | )  |  | 430         |   
|                                                                                
|2002                                                                             |  |  | 224                 |    |  | 82    |    |  | 49      |    |  | 188    |   |  | 543                          |    |  | (10                         | )  |  | 533         |   
|                                                                                
|“As reported” trading profit change (2003 vs. 2002) increase/(decrease)          |  |  | (25                 | )  |  | (37   | )  |  | (41     | )  |  | 15     |   |  | (88                          | )  |  | (15                         | )  |  | (103        | ) 
|                                                                                
|“As reported” trading profit change (2003 vs. 2002) increase/(decrease) %        |  |  | (11                 | )% |  | (45   | )% |  | (84     | )% |  | 8      | % |  | (16                          | )% |  | (150                        | )% |  | (19         | )%
|                                                                                
|Foreign currency translation effects adverse/(favourable) £m                     |  |  | 2                   |    |  | 7     |    |  | 1       |    |  | 3      |   |  | 13                           |    |  |                             |    |  |             |   
|                                                                                 |  |  |                     |    |  |      
|“Constant currency” trading profit change (2003 vs. 2002) increase/(decrease) £m |  |  | (23                 | )  |  | (30   | )  |  | (40     | )  |  | 18     |   |  | (75                          | )  |  |                             |    |  |             |   
|                                                                                 |  |  |                     |    |  |      
|“Constant currency” change (2003 vs. 2002) increase/(decrease)  %                |  |  | (10                 | )% |  | (36   | )% |  | (83     | )% |  | 10     | % |  | (14                          | )% |  |                             |    |  |             |   
|                                                                                 |  |  |                     |    |  |      

National Starch

National Starch’s sales of £1,866m
    for 2003 were 1% ahead of 2002 on a reported basis and excluding foreign
    exchange translation effects sales were 4% ahead, although operating profit
    before exceptional items for 2003 was, at £182m,
    12% below 2002 on a reported basis. Trading profit of £199m for 2003
    was 10% lower than 2002 on a constant currency basis. While growth in sales
    improved as 2003 progressed, and sales in Asia were strong throughout, significantly
    higher raw material prices, in particular for vinyl acetate monomer and other
    petrochemical based products in North America, and to a lesser extent in
    Europe, offset the benefits of the sales growth. Sales price increases were
    implemented but did not fully recover the increased raw material costs, and
    overall gross margin percentages were lower than for 2002. Additionally,
    higher natural gas prices in the United States and increased healthcare and
    pension expenses resulted in higher operating costs, primarily for the Specialty
    Starch division.

A restructuring programme was announced during 2003, aimed at improving operating efficiency, with an estimated cash spend of £32m by the end of 2006, together with £22m of capital expenditure. An exceptional charge of £59m was included in 2003 operating profit after exceptional items in relation to this programme.

The following commentaries relate to the four business groupings within National Starch: Adhesives (41% of National Starch’s sales in 2003), Specialty Starch (26%), Specialty Synthetic Polymers (20%) and Electronic and Engineering Materials (13%). The geographic split of sales by customer location for National Starch in 2003 was Europe 27%, North America 40%, Asia 27% and Latin America and Rest of World 6%.

23

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AdhesivesAdhesives reported sales were 1% ahead of 2002, but excluding foreign exchange translation effects constant currency sales were 3% ahead of 2002. However, significantly higher raw material prices throughout 2003 resulted in gross margin percentages well below 2002. Constant currency sales growth was strongest in Latin America and Asia, particularly in Mexico, China, and Japan. In the United States, sales were impacted by a weak manufacturing sector and a downturn in the market for recreational vehicles, although general market conditions did improve toward the end of 2003. Sales in Europe were slightly ahead of 2002 on a constant currency basis, with improvement in Germany and Italy, partly offset by weakness in the UK and France. During 2003 the
business in Europe divested its Cheese Coating business, and entered into a joint venture in engineered wood adhesives, called Purbond AG.

Specialty StarchesSpecialty
    Starches reported sales for 2003 were 2% ahead of 2002, but excluding foreign
    exchange translation effects, sales were 6% ahead. However, the business
    was impacted by higher raw material costs and higher manufacturing costs
    in North America. Good constant currency sales growth continued in Asia,
    particularly in Thailand, Indonesia and in Australia, where the benefits
    of the 2002 acquisition of the ‘Hi Maize’ resistant starch business
    from Penford Corporation were most apparent. In Brazil, imports of product
    to supplement the short supply of locally produced starch lowered margins.
    During 2003, as part of a review of the global specialty starch supply chain,
    plans were announced to close one starch manufacturing plant in North America
    and one in Europe. In order to ensure continuity of supply following the
    closures, National Starch commissioned a new starch modification facility
    in China in 2004, and enhanced the capability of three existing specialty
starch manufacturing plants.

Specialty Synthetic PolymersSpecialty
    Synthetic Polymers reported sales in 2003 were 4% ahead of 2002, but excluding
    foreign exchange translation effects, sales were 6% ahead. However, gross
    margin percentages were well below 2002 due to the impact of higher petrochemical
    based raw material costs throughout 2003. The ‘Elotex’ redispersible
    powders business grew sales strongly, with expansion into Eastern Europe
    and growth continuing in the United States. The Personal Care polymers business
    and Alco Chemical both continued to perform well, but the Vinamul emulsion
    polymer business had a difficult year due to significantly higher raw material
costs.

Electronic and Engineering MaterialsElectronic
    and Engineering Materials reported sales in 2003 were in line with 2002,
    but excluding foreign exchange translation effects, sales were 2% ahead of
    2002, and gross margin percentages were also up, with some recovery in the
    electronics sector, particularly towards the end of the year. Ablestik delivered
    very strong constant currency growth, with success with new technologies
    and improvements in its core semiconductor materials market. Emerson & Cuming
    also delivered constant currency sales growth, primarily in China and Taiwan.
    However, offsetting most of these gains were lower constant currency sales
    for Acheson, which reflected weak demand in CRT and automotive applications.
    During the year, the division divested its Permabond engineering materials
    business, retaining one small product line which, in future, will be reported
in Adhesives.

Quest

Quest had a poor year in 2003. Sales
    for 2003 of £691m were 3% below 2002 on both a reported and constant
    currency basis. Constant currency sales growth in North America and Latin
    America was offset by lower sales in Europe, primarily in Food. With lower
    gross margin percentages for both the Food and Fragrance businesses, operating
    profit before exceptional items for 2003 was £44m,
46% lower than 2002 on a reported basis. Trading profit of £45m was 36%
lower on a constant currency basis.

During 2003, Quest commenced a number of restructuring programmes in order to simplify its organisation and to deliver fixed cost savings. Cash spend of £17m by the end of 2005 is planned in relation to these programmes. An exceptional charge of £20m was included in 2003 operating profit after exceptional items in relation to these programmes.

24

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The following commentaries relate to Quest’s two major strategic businesses: Food (60% of Quest’s sales in 2003) and Fragrances (40%).  The geographic split of sales by customer location in 2003 was Europe 41%, North America 26%, Asia 18% and Latin America and Rest of World 15%.

FoodFood had a difficult year in 2003, with reported sales 3% lower than 2002, and excluding foreign exchange translation effects, sales were 4% lower on a constant currency basis, due to a significant reduction in sales in Europe.  This reflected a loss of market share in sweet flavours following customer service problems that resulted from 2002 systems changes at its Naarden facility in the Netherlands. During 2003 progress was made in rebuilding certain customer relationships, supply chain performance improved substantially and the organization was streamlined. Sales outside Europe on a constant currency basis were ahead of last year, with strong performances for flavours in North America, and in China. Overall gross margin percentages were lower
than 2002, although there was some improvement as 2003 progressed.

FragranceReported sales for Fragrance in 2003 were 4% below 2002. Excluding foreign exchange translation effects, sales were 1% lower.  Strong constant currency sales growth in North America was offset by lower sales in other regions, reflecting difficult market conditions particularly in Fine Fragrances during the second half of the year. Gross margin percentages were lower, reflecting in part adverse changes in the sales product mix.

Performance Specialties

The sales and operating profit for Performance Specialties for 2003 included only the results of the Uniqema business, following the divestment of the Synetix and Security Systems businesses during 2002. As reported sales of £669m and operating profit before exceptional items of £7m were 17% (£135m) and 85% (£41m) below 2002 respectively, with all of the sales shortfall and £21m of the operating profit shortfall related to the businesses divested in 2002.

UniqemaUniqema
    had another difficult year in 2003. Reported sales were £669m in 2003,
    in line with 2002, but excluding foreign exchange translation effects, sales
    were 2% below 2002, with weak demand resulting in lower sales volumes of
    fatty acids, particularly in Europe and the Americas, only partially offset
    by increased prices. The relative strength of the Euro against the US dollar,
    affecting continental European exports to North America and Asia, adversely
    impacted gross margins by an estimated £10m
    for the year, and the business was also impacted by significant increases
in energy costs in North America.

During 2003, a major restructuring programme was announced in order to reduce overheads, and in addition, two manufacturing sites would be closed in the US, with an estimated total cash spend of £40m by the end of 2005, together with £7m of capital expenditure. An exceptional charge of £48m was included in 2003 operating profit after exceptional items in relation to this programme.

Paints

Paints reported sales of £2,163m for 2003 were 1% lower than 2002 but excluding foreign exchange translation effects, sales were 2% ahead of 2002, with growth in Europe, Asia and Latin America. Overall gross margin percentages were similar to 2002, and with the benefits of restructuring and good cost control, operating profit before exceptional items of £186m was 9% ahead of 2002. Excluding the effects of foreign exchange translation, constant currency trading profit was 10% higher.

During 2003, Paints commenced a number of restructuring programmes, mainly in Europe, to improve supply chain productivity. Cash expenditure of £45m in relation to these programmes is planned, mainly by 2005, together with £19m of capital expenditure. An exceptional charge of £49m was included in 2003 operating profit after exceptional items in relation to these programmes.

The following commentaries relate to the four geographical regions where Decorative Paints operates (91% of Paints’ sales for 2003) and to Packaging Coating business (8%).  Other businesses represented 1% of sales. The geographic split for Paints by customer location in 2003 was Europe 37%, North America 42%, Asia 12% and Latin America and Rest of World 9%.

25

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In Decorative Europe, reported sales for 2003 were 5% ahead of 2002. Excluding favourable foreign exchange translation effects, sales were 1% ahead of 2002, with good performances in the UK retail and trade markets, Ireland and Poland offsetting lower sales in Germany where the weak economy continued to affect results.

In Decorative North America, reported sales for 2003 were 9% below 2002. However, 7% of this decline was due to adverse foreign exchange transaction effects; excluding these effects sales were 2% below 2002, impacted by poor weather in the first half of 2003, which particularly affected sales of product for exterior use.

Decorative Asia continued to deliver good results. Reported sales for 2003 were 6% ahead of 2002, and excluding foreign exchange translation effects, sales were 12% ahead with notable performances in China, India, Thailand, Vietnam and Pakistan.

Sales in Decorative Latin America recovered strongly in 2003, particularly in Argentina and Uruguay, following a very difficult 2002 where currency devaluation had a major impact on performance. For the region in total, 2003 reported sales were 12% ahead of last year, and excluding foreign exchange translation effects, sales were 22% ahead.

Reported sales for the Packaging Coatings business in 2003 were 4% ahead of 2002, and excluding foreign exchange translation effects, sales were 3% above 2002.

Regional and Industrial

Sales for the Regional and Industrial businesses were £481m, 22% below 2002, including £55m of ‘nil margin’ sales (2002 £209m). Excluding the impact of ‘nil margin’ sales and sales from businesses divested, the Regional and Industrial businesses delivered 17% growth, with particularly strong growth for the businesses in Pakistan.

The operating loss before exceptional items for the year was £25m, compared with a loss of £10m in 2002, and included a  £42m charge for pension costs, £26m more than 2002, following the triennial valuation of the ICI UK Pension Fund conducted at March 31, 2003 (as detailed under the heading “Notes relating to the accounts  Note 36  Retirement benefits”, which appears on pages 99 to 101 under Item 18 “Financial Statements” of this Annual Report on Form 20-F). In addition, 2002 was impacted by a £5m provision in relation to ICI’s former Soda Ash business.

The charge in respect of pension costs in relation to the ICI UK Pension Fund is included in Regional and Industrial for segmental reporting, as it largely relates to commitments to pensioners and deferred pensioners who worked for ICI’s divested UK Industrial Chemical businesses.

Regional and Industrial operating profit after exceptional items included £25m of exceptional operating charges related to the restructuring programme to reduce the scope of activities in ICI’s Corporate Centre, with overall expected cash expenditure of £24m in relation to the programme by the end of 2006.

26

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Treasury policies

The Group’s Treasury seeks to reduce financial risk, to ensure sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. It operates within policies and procedures approved by the Board, which include strict controls on the use of financial instruments in managing the Group’s risk. The Group does not undertake any trading activity in financial instruments. The Group reviews the credit quality of counterparties and limits individual and aggregate credit exposures accordingly.

Financing and interest rate risk

At December 31, 2004, the Group’s net debt was £920m (2003 £1,326m; 2002 £1,667m).

The Group’s policy is to finance the Group mainly through a mixture of retained earnings and debt. Debt is principally sourced from bonds, medium-term notes, commercial paper, securitised receivables and bank debt. The Group’s borrowings are primarily raised centrally by Group finance companies and on-lent to operating subsidiaries on commercial terms. The Group borrows in the major global debt markets in a range of currencies at both fixed and floating rates of interest, and uses derivatives to generate the desired currency and interest rate profile of borrowings.

The Group’s exposure to interest rate fluctuations on its borrowings is managed through the use of interest rate swaps and forward rate agreements. The Group’s target is to maintain interest cover above four times.  It maintains its debt book in principally floating rates, but fixes debt, selectively, to support its policy of trying to ensure that interest cover does not fall below four times. “Notes relating to the accounts  Note 20  Loans”, which appears on pages 84 and 85, and “Notes relating to the accounts  Note 37  Financial risk management”, which appears on pages 102 to 106 in each case under Item 18 “Financial Statements” of this Annual Report on Form 20-F, show the overall
interest rate structure of the Group’s borrowings at the end of 2004. The currency disposition of the borrowings is used as a partial, long-term hedge of the cash flows arising from investments overseas and as a hedge against any future business disposal proceeds due to be received. Consequently, a large part of the Group’s borrowings (after taking account of swaps and forward contracts) are denominated in US Dollars. Details of the currency mix of borrowings are shown in “Notes relating to the accounts  Note 37  Financial risk management”, which appears on pages 102 to 106 under Item 18 “Financial Statements” of this Annual Report on Form 20-F. In addition, in determining currency mix, the Group takes into account the availability and costs
of funds, and the sensitivity of Group gearing and earnings ratios to exchange rate movements.

The maturity of loans is shown under “Notes relating to the accounts  Note 20  Loans”, which appears on pages 84 and 85 under  Item 18 “Financial Statements” of this Annual Report on Form 20-F. The Group’s objective in determining borrowing maturity is to ensure a balance between flexibility, cost and the continuing availability of funds. As such, it funds in a mix of long-term and short-term maturity debt.

Funding policy aims to produce a reasonably even maturity profile for long-term debt up to around five years or longer, depending on relative cost. The average maturity for long-term debt was four years at December 31, 2004.

Liquidity and investments

At December 31, 2004, the Group had at its disposal $1,385m (sterling equivalent £718m) of undrawn, committed borrowing facilities. These comprised $685m maturing October 2006 and $700m maturing May 2008. These facilities provided a back-stop for short-term funding as well as flexibility to supplement future cash flows. In addition, facilities of $240m (£124m) provided a back-stop for two US receivables securitisation programmes.

The Group’s net debt position has historically changed over the course of a year, and in particular, short-term debt has generally increased in the early part of the year to fund working capital requirements. These working capital requirements arise principally from the seasonality of the Paints business, which experiences higher sales of products used on the exterior buildings, and thus working capital, during the North American and European summer (the second and third quarters of the year).

27

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The Group’s commercial paper programmes and other short-term borrowings are normally used to fund these working capital fluctuations. At December 31, 2004, the Group had £137m of short-term borrowings outstanding, as shown under the heading “Notes related to the accounts  Note 18  Short-term borrowings”, which appears on page 83 under Item 18 “Financial Statements” of this Annual Report on Form 20-F.

During 2004, the principal movement in long-term debt was the maturity of a $750m (£412m) seven year note in September 2004.

The Group runs two receivables securitisation programmes in the US, as referred to above. At December 31, 2004, the outstanding amount on these facilities was £104m.  This is reported in the consolidated financial statements under short-term borrowings.  In previous years it has been reported as a current instalment of loans.

During 2004, there were no changes in ICI’s debt ratings.

At December 31, 2004, the Standard and Poor’s Rating Services’ rating was BBB/Stable/A-2 and Moody’s Investor Service’s rating was Baa3/Stable/P-3. In 2005, a £100m 18 year 9.75% Bond will mature in April.  This is expected to be refinanced through cash flow generation and short-term debt issuance as necessary.  Access to the range of debt markets which ICI currently enjoys requires ICI to maintain its investment grade credit rating. Any downgrade of ICI’s credit rating would reduce its funding options, significantly increase its cost of borrowings and have an adverse effect on its results of operations and cash flow.

Foreign currency risk

Most of the Group’s net assets are denominated in currencies other than Sterling with the result that the Group’s Sterling balance sheet can be significantly affected by currency movements. The Group partially hedges this effect by borrowing in currencies other than Sterling. The Group does not hedge translation exposures other than by passive use of currency borrowings.

The Group requires its subsidiaries to hedge their material transaction exposures (sales and purchases in currencies other than their functional currency) using forward contracts. The majority of this hedging is performed by Group Treasury. The Group selectively hedges its anticipated future trading cash flows up to twelve months ahead using forward contracts and purchased currency options. The Group’s profits are denominated in many currencies across the world, the most significant of which are the US dollar and related currencies.

Based on the 2004 currency mix of profits, the adverse annual impact due to translation exposures on the Group operating profit before exceptional items and goodwill amortisation of a 5% strengthening of Sterling against the US dollar and related currencies compared with the average rates prevailing in 2004 would be approximately £13m. The equivalent impact of a 5% strengthening of sterling against the euro would lead to an impact of approximately £2m.

Critical accounting policies and estimates

The Group’s main accounting policies affecting its results of operations and financial condition are set forth under the heading “Accounting policies”, which appears on pages 58 and 59 under Item 18 “Financial Statements” of this Annual Report on Form 20-F. Judgements and assumptions have been required by management in applying the Group’s accounting policies in many areas. Actual results may differ from the estimates calculated using these judgements and assumptions. The following policies are considered to be the Group’s critical accounting policies under UK GAAP as the judgements and assumptions made could have a significant impact on its results of operations and financial condition.

Disposal provisionsAs
    at December 31, 2004, the Group had disposal provisions of £310m. These disposal provisions have arisen as a result of the reshaping of the Group’s
    portfolio of businesses and include amounts relating to long-term residual
    obligations such as legacy management, pension administration, environmental
    costs and direct disposal costs such as termination costs, transaction costs
    and separation costs. The initial determination of the size of these provisions,
    and the subsequent timing and amounts of the expenditure in relation to these
    provisions, is inherently difficult to estimate and is based on best management
    judgement at the time. The provisions are regularly reviewed in the light
of the most current information available.

28

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Restructuring provisionsAs
    at December 31, 2004, the Group had restructuring provisions of £73m,
    principally in respect of the restructuring programmes announced during 2003.
    The provisions are established in accordance with FRS No. 12, but include
    judgements on the costs of severance of the affected employees and of plant
    closure and other costs. In addition, management judgement is required in
    determining the asset impairments related to the programme. The provisions
will be reviewed in future years.

Retirement benefitsA
    triennial valuation of the ICI UK Pension Fund was conducted at March 31,
    2003, both for funding purposes and for accounting purposes (in accordance
    with SSAP 24). The accounting valuation, which was based on assumptions determined
    with advice from the Company’s actuary, identified a deficit of £344m, compared with a deficit of £4m at the previous valuation at March 31, 2000. The charge to the profit and loss account increased from £42m in 2003 to £52m in 2004 mainly due to the full year effect. The size of the deficit is sensitive to the market value of the Fund’s
    investments and to actuarial assumptions, which include price inflation,
    pension and salary increases, the discount rate used in assessing accrued
liabilities, demographic assumptions and the level of contributions by the Company.
    As there is a degree of inter-dependency between some of the assumptions,
    it would be impractical and potentially misleading to give any approximate
    impact on the annual Group operating profit of a change in any one assumption
in isolation.

Forward share purchase arrangementsIncluded
    within exceptional items in 2003 was a charge of £57m as a provision against shares of the Company, which ICI is committed to buy under forward purchase agreements. The provision is based on the estimated net realisable value of the shares having regard to the period over which the related options are exercisable. The provision is unchanged in 2004 and will be kept under review in the light of the trends in the Company’s
share price.

Contingent liabilitiesThe
    Group is exposed to a variety of events which might result in liabilities
    arising. No provision has been made for these contingent liabilities since
    either the obligations have been evaluated as “possible” and
    their existence will be confirmed by uncertain future events, or they have
    not been recognised, as either a transfer of economic benefits is not “probable” or
    the amount cannot be measured with sufficient reliability. Details of the
    Group’s contingent liabilities are set out in “Notes relating
    to the accounts  Note 39  Commitments and contingent liabilities”,
    which appears on pages 107 and 108 under Item 18 “Financial Statements” of
    this Annual Report on Form
20-F.

TaxationProvisions
    for tax contingencies require management to make judgements and estimates
    in relation to tax issues and exposures. Amounts provided are based on management’s
    interpretation of country specific tax law and the likelihood of settlement.
    Tax benefits are not recognised unless the tax positions are probable of
    being sustained. In arriving at this position, management reviews each material
    tax benefit to assess whether a provision should be taken against full recognition
    of the benefit on the basis of potential settlement through negotiation and/or
    litigation. All such provisions are included in creditors due within one
year.

The material tax provisions are discussed below:

Over the past eight years, the Group
    has established a portfolio of specialty chemicals and coatings businesses
    through a number of acquisitions and disposals. Since 1997, the Group has
    bought and sold businesses valued in excess of £12bn.
    As a result of this reshaping and of disposals, a number of potential tax
    exposures have arisen. The Group had a provision of £84m at December
    31, 2004 for these exposures. In addition, the Group faces a number of potential
    transfer pricing issues in jurisdictions around the world. The issues are
    often complex and can require many years to resolve. The total provision
    included in the financial statements to cover the various worldwide exposures
    to transfer pricing issues was £71m at
December 31, 2004.



29

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Additionally, the Group considers
    its goodwill accounting policy to be critical under US GAAP:GoodwillThe
    Group had capitalised goodwill under US GAAP of £2,827m at December
    31, 2004. Goodwill is required to be tested for impairment at least annually
    (the fourth quarter for the
    Group) or more frequently if changes in circumstances or the occurrence of
    events indicated potential impairment exists. The Company uses the present
    value of future cash flows to determine implied fair value. In calculating
    the fair value, significant management judgement is required in forecasting
    cash flows of the reporting unit, in estimating terminal growth values and
    in selecting an appropriate discount rate. If alternative management judgements
    were adopted then different impairment outcomes could result. No further
    impairment resulted from the annual impairment test. The headroom in the
    annual impairment test for the Quest reporting unit was £74m (total
    US GAAP goodwill of £547m at December 31, 2004); a 1% increase in the
discount rate applied would have resulted in an impairment.

New Accounting Standards

International Financial Reporting
    StandardsThe
    Company will implement International Financial Reporting Standards, or IFRS,
    for Group financial reporting with effect from January 1, 2005. The transition
    date for adoption of IFRS has been determined, in accordance with IFRS 1,
    as January 1, 2004 (subject to finalisation of a proposed Securities and
    Exchange Commission rule on the exemption from provision of a second year
    of IFRS comparatives). The Group’s approach to this transition together
    with the principal differences between UK GAAP and IFRS and their effect
    are set out under the heading “Transition to International Financial
    Reporting Standards”, which appears on page 122 of the Company’s
    Annual Report and Accounts 2004 contained in its report on Form 6-K dated
March 16, 2005 and is incorporated herein by reference.

As regards the financial statements of the parent company, for the year to December 31, 2005, which comprise the balance sheet published with consolidated financial statements and the profit and loss account which is presented to the Board of Directors in accordance with section 230 of the Companies Act 1985, it is the Company’s intention that these will continue to be prepared in accordance with UK GAAP.  The only new UK Accounting Standards currently in issue which will materially affect future financial statements of the Company are FRS 17 Retirement benefits (as amended) and FRS 21 Events after the balance sheet date.

New US standards are outlined under the headings “(n) New US Accounting Standards implemented in the period” and “(o) New US Accounting Standards not yet implemented” under “Notes relating to the accounts  Note 42  Differences between UK and US accounting principles”, which appear on page 112 under Item 18 “Financial Statements” of this Annual Report on Form 20-F.

B.      Liquidity and Capital Resources.

The following information which appears under Item 18 “Financial Statements” of this  Annual Report on Form 20-F is incorporated herein by reference: the information set forth under the heading “Notes relating to the accounts  Note 20  Loans, which appears on pages 84 and 85; the information set forth under the heading “Notes relating to the accounts  Note 37   Financial risk management”, which appears on pages 102 to 106; and the information set forth in the table under the heading “Notes relating to the accounts  Note 39  Commitments and contingent liabilities”, which appears on page 107.

The information which appears under
    Item 5(F) “Operating and financial review and prospects  Contractual
    obligations” of
    this Annual Report on Form 20-F, which appears on page 33 of this Annual
    Report
on Form 20-F, is also incorporated herein by reference.

In addition, the following  information
    which appears in the Company’s Annual Report and Accounts 2004 contained
    in its report on Form 6-K dated March 16, 2005 is incorporated herein by
    reference: the information set forth in the third paragraph (beginning “Commitments
    for capital expenditure not provided in the Group’s consolidated financial
    statements...”) under the heading “Operating and financial
    review  Capital expenditure”, which appears on page 29 thereof;
     the information set forth under the heading “Operating and financial
    review  Counterparty credit risk”, which appears on page 24 thereof;
    the information set forth under the heading “Operating and financial
    review
 Cash flow  UK GAAP ”, which appears on page 22 thereof; the
information set forth under the heading “Operating and financial review  Treasury
policies”, which appears on page 22 thereof; the information set forth
under the heading “Operating and financial review  Financing and
interest rate risk”, which appears on pages 22 and 23 thereof; the information
set forth under the heading “Operating and financial review  Liquidity
and investments”, which appears on page 23 thereof; and the information
set forth under the heading “Operating and financial review  Foreign
currency risk”, which appears on page 23 thereof.

30

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As noted in the second paragraph (beginning “ as regards the latter, the Group is committed via a trust. . . ) under Item 5(E) “Operating and financial review and prospects  Off-Balance Sheet Arrangements” of this Annual Report on Form 20-F, which appears on page 32 of this  Annual Report on Form 20-F , the Imperial Chemical Industries Employee Benefit Trust has entered into forward commitments to purchase shares in the Company, which include collateral requirements relating to the prevailing price of shares in the Company.

The operation of the Group’s control procedures gives the Directors a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future.

C.      Research and Development, Patents and Licenses, etc.

The following information which appears in the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005 is incorporated herein by reference: the information set forth under the heading “Operating and financial review  Intellectual property”, which appears on page 29 thereof; and the information set forth under the heading “Operating and financial review  Research and development (R&D)”, which appears on page 30 thereof.

D.      Trend Information.

Operating results

Operating results for 2005 are subject to the outcome of many uncertainties, including those matters set forth under “Risk factors”, which appear on pages 123 to 125 of the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005 and are incorporated herein by reference. The following factors could also have an impact:

| |  | The economic environment: the Group experienced favourable economic conditions in most regions in 2004 and particularly in Asia Pacific (24% of sales in 2004).  A slowing of economic growth in any of the key regions in 2005 could directly impact the results of the Group.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                

| |  | Raw material costs: many parts of the Group experienced significant increases in costs for raw materials during 2004, particularly for petrochemical based materials, and for natural gas in the US, but also for renewable raw materials.  Whilst the impact of cost increases was partially offset by increases to selling prices, further cost increases are expected in 2005 which could adversely affect ICI.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                   

| |  | Restructuring: the restructuring programmes announced
in 2003 resulted in an exceptional charge of £209m to the end of 2004.
A further charge for these programmes of £19m
is expected in 2005. Cost savings in 2005 from these programmes are expected
to be around £104; £32m more than in 2004.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                   

| |  | Foreign exchange: results may be affected by currency movements when the profits and losses of overseas subsidiaries are translated from local currencies into sterling. The trend over the last three years has been for the US dollar to depreciate against sterling: the average rate of £/US$ was 1.50 in 2002, 1.64 in 2003 and 1.84 in 2004. Based on the currency mix of profits and losses in 2004, the adverse annual impact on the Group’s operating profit of a 5% weakening of the US$ and related currencies against sterling, compared with the average rates prevailing in 2004, would be approximately £13m.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

31

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Cash flow

Cash flow for 2005 is subject to the outcome of many uncertainties, including those matters set forth under the heading “Risk factors”, which appear on pages 123 to 125 of the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005 and are incorporated herein by reference, and particularly the trend of operating results discussed above.

The following factors could also have an impact:

| |  | Restructuring: the restructuring programmes announced initially in 2003 are expected to result in a total cash cost of £168m. Of this, £93m was spent up to the end of 2004, with the remainder expected to be paid primarily in 2005.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |   |                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Disposal provisions: payments against provisions established on the disposal of businesses amounted to £85m in 2004, and the total provision remaining at the end of 2004 amounted to £310m.  Expenditure against these provisions is expected to decline to around £50m in 2005.
| |   |                                                                                                                                                                                                                                                                                  

| |  | Taxation: paid in 2004 of £44m reflected a
level of cash outflow below that which the Group expects to sustain on an ongoing
basis. For planning purposes over the next few years, the Group is currently
forecasting average taxation paid, excluding tax on divestments, to be equivalent
to around 22% of profit before exceptional items, taxation and goodwill amortisation.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                  

| |  | Long term debt: during 2004 the Group made loan repayments
of £521m. Long-term loans due for repayment in 2005 total £165m.
| | - | ---------------------------------------------------------------------------------------------------------------------------

E.      Off-Balance Sheet Arrangements.

Off-balance sheet financing mainly comprises the leases as shown in the information contained in the tables under “Notes related to the accounts  Note 34  Leases”, which appears on page 97 under Item 18 “Financial Statements” of this Annual Report on Form 20-F, and a series of forward contracts (total nominal amount of £126m as of December 31, 2004) used to hedge some of the obligations of the employee share ownership plans.

As regards the latter, the Group
    is committed via a trust to acquire under forward contracts, shares or ADSs
    of the Company to hedge its obligations under the Senior Staff and Executive
    Share Option Schemes, the Performance Growth Plan, the Performance Share
    Plan and the Stock Appreciation Rights Plan. The trust has entered into forward
    commitments
    to purchase 26.4
    million shares at a weighted average cost of £4.78 per share (total
    commitment £126m) in 2005, although the trust has the option to roll
    forward these commitments for further periods if required. These forward
    commitments include collateral requirements related to the prevailing share
    price of the Company. At December 31, 2004, no collateral payments were posted
    with the counterparties to these transactions. These shares are intended
    to satisfy requirements for share options exercisable in the period 2005
    to 2014. A provision of £70m has been made to write-down the shares
    under forward commitments to estimated net realisable value having regard
    to the period over which the related options are exercisable.



32

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F.      Contractual
      Obligations.

The
    following table summarises ICI’s principal contractual obligations
    at December 31, 2004, including instalments, which are described in the consolidated
    financial statements and related notes. The table below excludes contractual
    obligations such as derivatives, and other hedging instruments, and also
    the non-novated contracts referred to in the narrative of “Notes relating
    to the accounts  Note 39  Commitments and contingent liabilities”,
    which appears on pages 107 and 108 under Item 18 “Financial Statements” of
    this Annual Report on Form 20-F. Further analysis of certain of the major
    elements comprising the Group’s principal contractual obligation is
    included in the
“Notes relating to the accounts” indicated in the table below:

|                           |  |  |                                      |  |  | Total |  |  | Payments due by period | 
|-------------------------- |  |  | ------------------------------------ |  |  | ----- |  |  | ---------------------- | 
|                           |  |  | Notes
  relating
  to the
  accounts |  |  |       |  |  | Lessthan1 year         | 
|As at December 31, 2004    |  |  |                                      |  |  | £m    |  |  | £m                     | 
|Loans                      |  |  | 20                                   |  |  | 1,282 |  |  | 165                    | 
|Finance lease obligations  |  |  | 34                                   |  |  | 2     |  |  | 1                      | 
|Operating leases           |  |  | 34                                   |  |  | 301   |  |  | 62                     | 
|Capital expenditure        |  |  | 39                                   |  |  | 25    |  |  | 25                     | 
|ICI UK Pension Fund top-up |  |  | 36                                   |  |  | 496   |  |  | 62                     | 
|Purchase obligations       |  |  |                                      |  |  | 1,090 |  |  | 179                    | 
|                           |  |  |                                      |  |  |       |  |  |                        | 
|Total                      |  |  |                                      |  |  | 3,196 |  |  | 494                    | 
|                           |  |  |                                      |  |  |       |  |  |                        | 

At December 31, 2004, 79% of the Group’s loans, after financial derivatives, were at floating interest rates. It is not possible, therefore, to provide an accurate estimate of the Group’s commitments for future interest payments.

ITEM 6  DIRECTORS, SENIOR
      MANAGEMENT AND EMPLOYEES

A.      Directors and Senior Management.

The following information which appears in the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005 is incorporated herein by reference: the information set forth under the heading “Board of Directors and Executive Management Team  Board of Directors”, which appears on pages 32 to 34 thereof; and the information set forth under the heading “Board of Directors and Executive Management Team  Executive Management Team”, which appears on page 35 thereof.

B.      Compensation.

The
    following information which appears under Item 18 “Financial Statements” of
    this Annual Report on Form 20-F is incorporated herein by reference: the
    information set forth in the first two sentences of the second paragraph
    (beginning “The
    aggregate remuneration paid to or accrued for all Directors and Officers
    of the Company . . .”)
    under the heading “Notes relating to the accounts  Note 2  Directors’ and
    Officers’ remuneration and interests”, which appears on page
    65; and the information set forth under the subheading “Notes relating
    to the accounts  Note 23  Called-up share capital of parent company
 Employees’ share options schemes and other share based plans”,
which appears on page 89.

In
    addition, the following information which appears in the Company’s
    Annual Report and Accounts 2004 contained in its report on Form 6-K dated
    March 16, 2005 is incorporated herein by reference: the information set forth
    under the heading “Remuneration report  2004 actual remuneration”,
    which appears on pages 45 to 47 thereof; the information set forth under
    the heading “Remuneration report  Performance Growth Plan (PGP)”,
    which appears on page 44 thereof; the information set forth under the heading “Remuneration
    report  Awards under Performance Growth Plan”, which appears
    on page 48 thereof; the information set forth in the graphs entitled “Five-year
cumulative Total Shareholder Return: ICI and Peer Group Indices” and “Five-year
cumulative Total Shareholder Return: ICI and FTSE Indices” which appear
under the heading “Remuneration report  Performance graphs” on
page 46 thereof; the information set forth under the heading “Remuneration
report  Directors’ interests in share options”, which appears
on pages 49 and 50 thereof; the information set forth under the heading “Remuneration
report  Retirement benefits”, which appears on page 51 thereof; and
the information set forth under the heading “Remuneration report  Directors’ pensions
benefits”, including the table thereunder, that appears on page 51 thereof.

33

---



As
    of March 24, 2005, there were options outstanding in respect of 42.4m Ordinary
    Shares of £1 each under the Senior Staff, Executive Share Option and
    UK-Sharesave Option Schemes normally exercisable in the period 2005 to 2015
    at subscription
    prices
    of £1.34
    to £10.08.

C.      Board Practices.

The following information which appears in the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005 is incorporated herein by reference: the information set forth under the heading “Corporate governance  Board Committees  Nomination Committee”, which appears on page 37 thereof; the information set forth under the heading “Corporate governance  Board Committees  Remuneration Committee”, which appears on page 37 thereof;  the information under the heading “Corporate governance  Board Committees  Audit Committee”, which appears on page 38 thereof; and the information set forth under the headings
“Remuneration report  Directors’ services agreements and letters of engagement  Executive directors” and “Remuneration report  Directors’ services agreements and letters of engagement  Chairman and Non-Executive Directors,” which appears on pages 53 to 54 thereof.

D.      Employees.

The information set forth under the heading “Notes relating to the accounts  Note 35  Employee numbers and costs”, which appears on page 98 under Item 18 “Financial Statements” of this Annual Report on Form 20-F, is incorporated herein by reference.

In addition, the information set forth under the heading “Operating and financial review  Employees”, which appears on page 31 of the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005, is incorporated herein by reference.

E.      Share Ownership.

The
    information set forth in the third sentence of the second paragraph (beginning “At
    14 February 2005 shares held by and options granted to Directors and Officers
    . . .”) onward under the heading “Notes relating to the accounts  Note
    2  Directors’ and Officers’ remuneration and interests”,
which appears on page 65 under Item 18 “Financial Statements” of
this Annual Report on Form 20-F, is incorporated herein by reference.

In addition, the following information which appears in the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005 is incorporated herein by reference: the information set forth under the heading “Remuneration report  Directors’ interests in share options”, which appears on pages 49 and 50 thereof; and the information set forth under the heading “Remuneration report  Directors’ interests in shares”, which appears on page 52 thereof.

34

---





As of March 24, 2005, shares held by and options granted to Directors and Officers to subscribe for £1 Ordinary Shares in the Company were as follows:

|                                                                                                                                                                                        |  |  | £1
  Ordinary
  Shares(1)     |  |  | Options granted(1)                                    | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ----------------------------- |  |  | ----------------------------------------------------- | 
|                                                                                                                                                                                        |  |  | At  March
  24, 2005
  Number |  |  | Options
  outstanding
  at
  March 24,  2005
  Number | 
|                                                                                                                                                                                        |  |  |                               |  |  |                                                       | 
|Directors (for
    further details see the portions of the Remuneration Report on pages 49,
    50 and page 52 of the Annual Report 2004 that are incorporated herein by
    reference) |  |  | 492,947                       |  |  | 11,201,748                                            | 
|Officers                                                                                                                                                                                |  |  | 126,483                       |  |  | 4,743,372                                             | 

|    |                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------
|(1) | Includes ADRs disclosed in
    terms of £1 Ordinary Share equivalents/Ordinary Share option equivalents.

As of March 24, 2005, no individual director or officer had interests in shares or options exceeding one per cent of the issued Ordinary Share Capital of the Company.

As of March 24, 2005, the total amount of the Company’s voting securities owned by Directors and Officers of ICI, as a group, was:

|Title of Class  | Amount owned
  (number
    of shares) | Per cent of
  class
|--------------- | ------------------------------------- | -------------------
|Ordinary Shares | 619,430                               | 0.052              

ITEM 7  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.      Major Shareholders.

The
    information set forth in paragraphs (a), (b)(i) and (c) under the heading “Shareholder
    information  Control of Company”, which appears on page 127 of
    the Company’s Annual Report and Accounts 2004 contained in its report
    on Form 6-K dated March 16, 2005, is incorporated herein by reference.

35

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Set out below is updated information regarding interests in the Company’s £1 Ordinary Shares appearing in the Register of Interests in Shares maintained by the Company:

|                                            |  |  | As of March 24, 2005                           | 
|------------------------------------------- |  |  | ---------------------------------------------- | 
|                                            |  |  | Amount owned
  (number of shares)
    millions | 
|Barclays PLC                                |  |  | 100.3                                          | 
|Citibank Shareholder Services*              |  |  | 90.8                                           | 
|Brandes Investment Partners LLC             |  |  | 77.2                                           | 
|Standard Life Investments Ltd               |  |  | 55.7                                           | 
|Threadneedle Asset Management Ltd           |  |  | 44.1                                           | 
|Legal and General Investment Management Ltd |  |  | 41.9                                           | 
|Capital International Ltd                   |  |  | 39.3                                           | 

|  |                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------
|* | This interest relates to ADRs issued by Citibank
        Shareholder Services, when acting as Depositary; ADRs evidence
ADSs.

As
    of March 24, 2005, no other person held an interest in shares, comprising
    3% or more of the issued Ordinary Share Capital of the Company, appearing
    in the Register of Interests in Shares maintained under the provisions of
Section 211 of the Companies Act 1985.

B.      Related Party Transactions.

The following information  which appears under Item 18 “Financial Statements” of this Annual Report on Form 20-F is incorporated herein by reference: the information set forth under the heading  “Notes relating to the accounts  Note 38   Statutory and other information   Loans and guarantees to officers”,which appears on page 106; and the information set forth under the heading “Notes relating to the accounts  Note 40  Related party transactions”, which appears on page 108.

In addition, the information set forth under the heading “Notes relating to the accounts  Note 41  Related party transactions”, which appears on page 106 of the Company’s Annual Report and Accounts 2002 contained in its report on Form 6-K dated March 11, 2003, is incorporated herein by reference.  And, the information set forth under the heading “Notes relating to the accounts  Note 40  Related party transactions”, which appears on page 102 of the Company’s Annual Report and Accounts 2003 contained in its report on Form 6-K dated March 12, 2004, is incorporated herein by reference.

C.      Interests of Experts and Counsel.

Not applicable.

ITEM 8  FINANCIAL INFORMATION

A.      Consolidated Statements and Other Financial Information.

See Item 18 “Financial Statements” of this Annual Report on Form 20-F for a full list of financial statements included as part of this report.

Export Sales.

The total amount of export sales from the United Kingdom and the total amount of export sales from the United Kingdom as a percentage of total sales by ICI companies located in the United Kingdom is set out below:

|                                                                                                                           |  |  | 2004  |   |  | 2003  |   |  | 2002  |  
|-------------------------------------------------------------------------------------------------------------------------- |  |  | ----- | - |  | ----- | - |  | ----- | -
|Exports from the United Kingdom                                                                                            |  |  | £392m |   |  | £456m |   |  | £516m |  
|Exports from the United Kingdom
    as a percentage of total sales made by ICI companies located in the United
    Kingdom |  |  | 37    | % |  | 40    | % |  | 38    | %

36

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Subsidiary Undertakings.

The information set forth in the last two sentences of the first paragraph (beginning “In particular, the Company has fully and unconditionally guaranteed the debt securities . . .”) under the heading “Notes relating to the accounts  Note 39  Commitments and contingent liabilities”, which appears on page 107 under Item 18 “Financial Statements” of this Annual Report on Form 20-F, is incorporated herein by reference.

Legal or Arbitration Proceedings.

Certain companies in the Group are defendants in various lawsuits. These lawsuits concern issues such as alleged product liability and contract disputes.

The Glidden Company, or Glidden, a wholly owned subsidiary of ICI, is a defendant, along with former lead paint and pigment producers as well as other lead product manufacturers and their trade associations, in a number of law suits in the United States. These suits seek damages for alleged personal injury caused by lead-based paint or the costs of removing lead-based paint. An alleged predecessor of Glidden manufactured lead pigments until the 1950s and lead-based consumer paint until the 1960s. Glidden is currently a defendant in four active suits and is also named in three unserved cases. Glidden continues to believe that it has strong defences to all of the pending cases and has denied all liability and will continue to defend all
actions.

Following ICI’s trading statement on March 25, 2003, three purported class action lawsuits were filed in the US Federal District Court for the Southern District of New York on behalf of ICI shareholders who purchased ICI ADRs and Ordinary Shares between August 2002 and March 2003.  The lawsuits, which have now been consolidated into a single action, allege that prior to the trading statement ICI failed to disclose properly the extent of customer service problems at Quest following the implementation of new enterprise resource planning systems in 2002.  In September 2004, the court dismissed a number of the plaintiffs’ claims.  ICI continues to contest the remaining claims.

In July 2004, ICI received a request for information covering the period 1990 to 2003 in connection with a European Commission investigation into alleged cartel activity in the European Methacrylates market.  The request concerns ICI’s former Acrylics business which was sold in November 1999. ICI’s policy is to co-operate with the Commission as fully as it can.

With respect to each of the proceedings described above, ICI is unable to make estimates within a reasonable range of outcomes of the loss to which the proceedings may give rise.  Disclosure of the amount sought by plaintiffs (where known) is not considered meaningful with respect to these proceedings.

The Group is also involved in various other legal proceedings, principally in the United Kingdom and United States, including the following:

In May 2003, the Kanagawa City Health and Medical Bureau in Japan required Quest Japan to recall flavours containing an ingredient known as WS3. The Japanese health authorities acknowledged that WS3 posed no risk to human health, but nevertheless argued that technically it was not approved for use in Japan. Three customers were affected by the recall, including Coca Cola (Japan) Company Limited. On August 8, 2003, the Coca Cola Company and Coca Cola (Japan) Company Limited filed a lawsuit in the state court of Fulton County, Georgia USA seeking damages to be determined at trial for costs allegedly arising from their recall. In December 2004, Quest, without admission of liability, settled the dispute with the Coca Cola Company and Coca Cola
(Japan) Company Limited.  Quest has also settled its dispute with one of the other affected customers.  It remains possible that the third affected customer may seek to recover alleged damages.

From the early 1970s until 1999, ICI Americas Inc, or ICIA, a subsidiary, operated and maintained, on behalf of the US Army, two manufacturing facilities.  Employees at each facility were employed by ICIA and were members of the ICIA pension schemes. The US Army reimbursed to ICIA the cost of contributions to each pension scheme. Upon termination of the contract in 1999, each of the schemes carried a surplus.  In September 2004, the US Army Contracting Officer issued a final determination holding that termination of the contract triggered a refund to the US Government of an amount equal to the value of the 1999 pension surplus.  ICIA is appealing the final determination to the Armed Service Board of Contract Appeals.

37

---



The Directors do not believe that
    the outcome of these other proceedings will have a material effect on the
    Group’s financial position.

The ultimate outcome of the matters described above is subject to many uncertainties, including future events and the uncertainties inherent in litigation. The Group has made provision in its financial statements for such matters to the extent losses are presently considered probable and estimable. However, these matters involve substantial sums, and an unfavourable outcome of one or more of these matters could have a material effect on the Group’s results of operations, liquidity or financial position.

Policy on Dividend Distributions.

The Group’s dividend policy is that dividends should represent about one third of net profit before exceptional items and goodwill amortisation.

|B. | Significant Changes.
|-- | --------------------

On November 23, 2004, the Company agreed to sell the US, Canadian and European Vinamul Polymers business of National Starch and Chemical Company to Celanese for US$208m (£111m) in cash.  Net proceeds after tax and other costs are expected to be approximately US$157m (£84m), and have been used to reduce indebtedness.  The sale was completed on February 4, 2005.

For the year ended December 31, 2003, the US, Canadian and European Vinamul Polymers business had sales external to ICI of £146m, operating profit before exceptional items of £11m and, at December 31, 2003, had net operating assets of £95m.  The transaction is expected to give rise to a profit after tax of about £5m excluding attribution of goodwill previously written off £140m and will be accounted for as an exceptional item.

On
    March 9, 2005, the Company cancelled $300m of its $685m undrawn, committed
    borrowing facility. As a concequence the total of undrawn, committed borrowing
    facilties available to the Group reduced from $1,385m to $1,085m as of that
    date.

ITEM 9  THE OFFER AND LISTING

A.      Offer and Listing Details.

The information set forth in the fourth paragraph (beginning “The following table shows, for the years and months indicated, the reported high and low middle market values for the Company’s Ordinary Shares . . .”) and the related table under “Shareholder information  Trading market for Ordinary Shares, which appears on page 126 of the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005, is incorporated herein by reference.

The reported high and low middle market values  for the Company’s Ordinary Shares on the London Stock Exchange, based on its Daily Official List and the reported high and low sale prices of ADSs, as reported by Dow Jones (ADR quotations) for each month since February 2005 are set out below:

|                            |  |  | £1 Ordinary
    Shares |  |  | ADSs     | 
|--------------------------- |  |  | ---------------------- |  |  | -------- | 
|2005                        |  |  | Monthhigh              |  |  | Monthlow | 
|                            |  |  | £                      |  |  | £        | 
|February                    |  |  | 2.83                   |  |  | 2.33     | 
|March (through to March 24) |  |  | 2.82                   |  |  | 2.66     | 

The Company’s share price as of March 24, 2005 was £2.72; the Company’s ADS price as of March 24, 2005 was $20.26.

38

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B.      Plan
      of Distribution.

Not applicable.

C.      Markets.

The
    information set forth in the second paragraph (beginning “The principal
    trading market for the Company’s Ordinary Shares...”) and
    in the table that immediately follows setting out the number of record holders
    under the heading “Shareholder information  Trading market for
    Ordinary Shares”, which appears on page 126 of the Company’s
    Annual Report and Accounts 2004 contained in its report on Form 6-K dated
    March 16, 2005, is incorporated herein by reference.

|                                      |  |  | Total   |  |  | In the United
  States | 
|------------------------------------- |  |  | ------- |  |  | ---------------------- | 
|Number of record holders of:          |  |  |         |  |  |                        | 
|Ordinary Shares as at January 1, 2005 |  |  | 151,832 |  |  | 700                    | 
|ADSs as at March
    24, 2005         |  |  | 2,220   |  |  | 2,167                  | 

As of March 24, 2005, the proportion of Ordinary Shares represented by ADSs was 7.6% of the Ordinary Shares in issue.

D.      Selling Shareholders.

Not applicable.

E.      Dilution.

Not applicable.

F.      Expenses of the Issue.

Not applicable.

ITEM 10  ADDITIONAL INFORMATION

A.      Share capital.

Not applicable.

B.      Memorandum and Articles.

The information set forth in Item 10 (B) “Additional Information  Memorandum and Articles” of the Company’s Report on Form 20-F dated March 26, 2003 and filed with the Securities and Exchange Commission on March 27, 2003, is incorporated herein by reference.

C.      Material Contracts.

The following material contracts (not being contracts entered into in the ordinary course of business) have been entered into by a member of the Group within the period of two years to March 31, 2005:

| | (a) | an agreement dated July 31, 2003 between, amongst others, (1) the Company, (2) ICI Chemicals & Polymers Limited, (3) Ineos Chlor Holdings Limited and (4) Ineos Chlor Limited under which the parties agreed on an overall refinancing package for Ineos Chlor.  The original disposal of ICI’s Chlor Chemicals business to Ineos Chlor included an agreement for ICI to provide Ineos Chlor with a £100 million loan facility.  Under the agreement of July 31 2003, the Company agreed to make available new funding of £60m alongside £45m of new funding from the Ineos Group and £50m of Regional Selective Assistance from the UK Government; the new funding from the Company to comprise a £30m cash contribution and additional loan finance of
£30m.  The terms of the original £100m loan were also restructured;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

39

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| | (b) | an Underwriting Agreement dated November 18, 2003
among (1) ICI Wilmington Inc. (2) the Company and (3) Barclays Capital Inc.,
Citigroup Global Markets Inc. and UBS Securities LLC, referred to together as the Underwriters,
pursuant to which the Underwriters agreed to purchase debt securities from ICI
Wilmington in the form of US$ 500 million 4.375% guaranteed notes due 2008 and
US$ 500 million 5.625% guaranteed notes due 2013. The Underwriting Agreement
contains warranties, undertakings and indemnities given by ICI in favour of the
Underwriters;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |     |                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | a Sale and Purchase Agreement dated March 1, 2004 between the Company and the Kerry Group plc for the sale of Food Ingredients, a part of the Company’s Quest International business for a purchase price of US$ 440 million (£238 million) in cash.  The agreement contains various warranties, indemnities and covenants made by the Company for the benefit of the purchaser;
| |     |                                                                                                                                                                                                                                                                                                                                                                                 

| | (d) | an agreement dated October 25, 2004  between, amongst
others, (1) the Company, (2) ICI Chemicals & Polymers Limited, (3) Ineos
Chlor Holdings Limited and (4) Ineos Chlor Limited under which Ineos agreed to
take over ICI’s outstanding funding commitment to Ineos Chlor of £55m,
as described in (a) above, and ICI agreed to write off all existing indebtedness
from Ineos Chlor; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                            

| | (e) | A Sale and Purchase Agreement dated November 23, 2004 between Ergon Investments UK Limited, or Ergon, a subsidiary of the Company, and Celanese Americas Corporation for the sale of The Vinamul Polymers business of Ergon for a purchase price of US$208m (£111m) in cash.  The agreement contains various warranties, indemnities and covenants made by Ergon for the benefit of the purchaser.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

D.      Exchange Controls.

The information set forth under the heading “Shareholder information  Exchange controls and other limitations affecting security holders”, which appears on page 127 of the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005, is incorporated herein by reference.

E.      Taxation.

The following is a summary of the principal UK tax and US federal tax consequences of purchasing, owning and disposing of ADSs or Ordinary Shares to the US Holders described herein, but is not a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to acquire such securities.  This discussion does not address US state, local and non-US tax consequences (other than certain UK tax consequences).  The discussion applies only to US Holders who hold ADSs or Ordinary Shares as capital assets for US federal income tax purposes and it does not address special classes of holders, such as certain financial institutions, insurance companies, dealers and traders
in securities or foreign currencies, persons holding ADSs or Ordinary Shares as part of a hedge, straddle, conversion or other integrated transaction, persons whose functional currency for US federal income tax purposes is not the US dollar, partnerships or other entities classified as partnerships for US federal income tax purposes, persons liable for the alternative minimum tax, tax-exempt organisations, persons that own or are deemed to own 10% or more of the Company’s Ordinary Shares, or persons who acquired the Company’s ADSs or Ordinary Shares pursuant to the exercise of any employee stock option or otherwise as compensation.

The Double Taxation (Income) Convention of 1975 (the “Old Convention”) between the United Kingdom and the United States has been renegotiated and a new Convention (the “New Convention”) signed on 24 July 2001 has been ratified by the UK and US governments.  The New Convention has come into force.  However, US Holders entitled to greater benefits under the Old Convention may elect to apply the Old Convention to dividends received on or prior to April 30, 2004.

As used herein, a ‘‘US Holder’’ is a beneficial owner of ADSs or Ordinary Shares that is, (a) for US federal income tax purposes (i) a citizen or resident of the United States, (ii) a corporation, or other entity taxable as a corporation, created or organised in or under the laws of the United States or any political subdivision thereof or (iii) an estate or trust the income of which is subject to US federal income taxation regardless of its source, and (b) a resident of the United States for purposes of, and eligible for the benefits of both, the Old Convention and the New Convention.

40

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This discussion is based on UK tax law and the Internal Revenue Code of 1986, as amended, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, the Old Convention and the New Convention, all as currently in effect.  These laws are subject to change, possibly on a retroactive basis.  This discussion is also based in part on representations by the Depositary and assumes that each obligation under the deposit agreement and any related agreements will be performed in accordance with its terms.

For US federal income tax purposes and for purposes of the Old Convention and New Convention, if a US Holder owns an ADS, such holder will generally be treated as the owner of the Ordinary Shares underlying the ADS.  The US Treasury has expressed concerns that parties to whom ADSs are pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits by US Holders of ADSs.  Such actions would also be inconsistent with the claiming of the reduced rate of tax applicable to dividends received by certain non-corporate US Holders.  Accordingly, the availability of foreign tax credits and the reduced tax rate for dividends received by certain non-corporate US Holders, both described below, could be affected by actions
taken by parties to whom ADSs are pre-released.

Please consult your tax adviser with regard to the application of UK tax laws and US federal tax laws to the ADSs or Ordinary Shares in your particular circumstances, including your eligibility for benefits under the Old Convention and the New Convention, as well as any tax consequences arising under the laws of any US state, local or other taxing jurisdiction.

Taxation of dividends paid to US Holders

An individual shareholder who is resident in the UK for UK tax purposes and who receives a dividend from the Company is entitled to claim a tax credit (the “UK Tax Credit Amount”) in the UK against his/her income tax liability attributable to the dividend.

Under the Old Convention, certain US Holders of Ordinary Shares or ADSs are entitled to the payment of an amount equal to the UK Tax Credit Amount, although the US Holder will not actually receive any payment because the United Kingdom is entitled to deduct withholding tax in an amount equal to the payment.  Dividends (including the associated UK Tax Credit Amount if a US Holder elects to apply the Old Convention to dividends received on or prior to April 30, 2004) received by a US Holder with respect to the Ordinary Shares or ADSs, other than certain pro rata distributions of Ordinary Shares, will constitute foreign-source dividend income for US federal income tax purposes to the extent paid out of the Company’s current or accumulated
earnings and profits, as determined in accordance with US federal income tax principles.  The amount of the dividend which is includible in taxable income of a US Holder is the US dollar value of the dividend, converted using the exchange rate on the date the Depositary receives the dividend in the case of ADSs, or the date the US Holder receives the dividend in the case of Ordinary Shares, regardless of whether the payment is converted into US dollars on the date of receipt.  If a US Holder realises gain or loss on a sale or other disposition of sterling, it will be US-source ordinary income or loss.

If a US Holder elects to apply the Old Convention and claim a foreign tax credit for dividends received on or prior to April 30, 2004, the UK withholding tax will be treated as a foreign income tax which may, subject to certain limitations and restrictions and the discussion above regarding concerns expressed by the US Treasury, be eligible for credit against the US Holder’s US federal income tax liability.  The limitation on foreign taxes eligible for the foreign tax credit is calculated separately with respect to specific classes of income.  The rules governing foreign tax credits are complex and, therefore, US Holders should consult their own tax advisers regarding the availability of foreign tax credits in their particular
circumstances.

Under the New Convention, there is no UK withholding payable on dividends and, therefore, no US foreign tax credit is available.

A dividends-received deduction is
    not allowed to corporate US Holders with respect to dividends paid by the
Company.

41

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Subject to applicable limitations that may vary depending upon a US Holder’s individual circumstances and subject to the discussion above regarding concerns expressed by the US Treasury, dividends paid to certain non-corporate US Holders in taxable years beginning before January 1, 2009 will be taxable at a maximum tax rate of 15%. Non-corporate US Holders should consult their own tax advisers to determine whether they are subject to any special rules that limit their ability to be taxed at this favourable rate.

Taxation on capital gains

In certain circumstances, when a shareholder in the UK sells shares, liability to tax in respect of capital gains is computed by reference to the market value of the shares on March 31, 1982.  The market value of ICI Ordinary Shares at March 31, 1982, for the purposes of capital gains tax, was 309p.

ICI and Zeneca demerged on June 1, 1993. Post-demerger ICI shares inherited a base cost for capital gains equivalent to 0.50239 of their pre-demerger base cost.

For the purposes of UK taxation of capital gains (“CGT”), the issue of new ICI shares in the 2002 rights issue was regarded as a reorganisation of the share capital of ICI.  New shares acquired by taking up an entitlement under the rights issue were treated as the same asset as, and having been acquired at the same time as and at the same aggregate cost as, the prior holding of ICI shares.  The subscription money for the new shares was added to the base cost of the existing holding.  (In the case of shareholders within the charge to corporation tax, indexation allowance applies to the amount paid for the new shares only from the date the amount was paid or liable to be paid.)

Under present UK law, individuals
    who are neither resident nor ordinarily resident in the UK, and companies
    which are not resident in the UK will not generally be liable to UK tax on
    capital gains made on the disposal of their Ordinary Shares or ADSs, unless
    such Ordinary Shares or ADSs are held in connection with a trade, profession
    or vocation carried on in the UK through a branch or agency. However, an
    individual who is temporarily resident outside the UK may, in certain circumstances,
    be subject to tax on gains realised whilst he or she is resident outside
    the UK. Under the New Convention, US Holders generally will not be liable
    for UK tax on capital gains on the sale or exchange of Ordinary Shares or
    ADSs, provided the Ordinary Shares or ADSs do not form part of the business
property of a permanent establishment in the UK.

A US Holder will recognise capital gain or loss for US federal income tax purposes on the sale or exchange of the Ordinary Shares or ADSs in the same manner as on the sale or exchange of any other shares held as capital assets.  Any gain or loss will generally be US  source income or loss.  US Holders should consult their own tax advisers about the treatment of capital gains.

UK inheritance tax

Under the current Double Taxation
    (Estates) Convention (the “Estate Tax Convention”), between the
    US and the UK, Ordinary Shares or ADSs held by an individual shareholder
    who is domiciled for the purposes of the Estate Tax Convention in the US
    (a “US resident shareholder”), and is not for the purposes of
    the Estate Tax Convention a national of the United Kingdom, nor resident
    in the UK for seven out of the last ten tax years, will generally not be
    subject to the UK inheritance tax on the individual’s death nor on
    a chargeable gift of the Ordinary Shares or ADSs during the individual’s
    lifetime provided that any applicable US federal gift or estate tax liability
    is paid, unless the Ordinary Shares or ADSs are part of the business property
    of a permanent establishment of the individual in the UK or, in the case
    of a shareholder who performs independent personal services, pertain to a
    fixed base situated in the UK. Where the Ordinary Shares or ADSs have been
    placed in trust by a settlor who, at the time of settlement, was a US resident
    shareholder, the Ordinary Shares or ADSs will generally not be subject to
    UK inheritance tax unless the settlor, at the time of settlement, was not
    domiciled in the US or was a UK national. In the exceptional case where the
    Ordinary Shares or ADSs are subject both to UK inheritance tax and to US
    federal gift or estate tax, the Estate Tax Convention generally provides
for double taxation to be relieved by means of credit relief.

F.      Dividends and Paying Agents.

Not applicable.

42

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G.      Statement by Experts.

Not applicable.

H.      Documents on Display.

The information set forth under the heading “Shareholder information  Documents on display  Securities and Exchange Commission”, which appears on page 129 of the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005, is incorporated herein by reference.

I.       Subsidiary Information.

The information set forth under the heading “Principal subsidiary undertakings”, which appears on page 118 under Item 18 “Financial Statements” of this Annual Report on Form 20-F, is incorporated herein by reference.

ITEM 11  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The
    information set forth in the fifth paragraph (beginning “As regards
    the latter, the Group is committed . . . .) under Item 5(E) Operating
    and financial review and prospects  Off-balance sheet arrangements” of
    the Annual Report on Form 20-F, which appears on page 32 of
    this Annual Report on Form 20-F, is also incorporated herein by reference.

In addition, the following information which appears in the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005 is incorporated herein by reference: the information set forth under the heading “Operating and financial review  Quantitative disclosure about market risk”, including the subheadings “Market risk  Interest rate sensitivity” and “Market risk  Foreign currency sensitivity”, which appears on page 24 thereof; the information set forth under the heading “Operating and financial review  Financing and interest rate risk”, which appears on pages 22 and 23 thereof; and the information set
forth under the heading “Operating and financial review  Counterparty credit risk”, which appears on page 24 thereof.

ITEM 12  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

| | Not applicable.
| | ---------------



Part II

ITEM 13  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

The information set forth under the heading “Shareholder information  Defaults, dividend arrearages and delinquencies”, which appears on page 126 of the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005, is incorporated herein by reference.

ITEM 14  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

ITEM 15  CONTROLS AND PROCEDURES

The information set forth under the heading “Corporate governance  Audit and internal control”, which appears on pages 38 and 39 of the Company’s Annual Report and Accounts 2004 contained in its report on Form 6-K dated March 16, 2005, is incorporated herein by reference.

The Company’s Chief Executive and Chief Financial Officer have evaluated the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of December 31, 2004 and concluded that, as of the date of their evaluation, the Company’s disclosure controls and procedures were adequate and effective and designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to them by others within those entities.

43

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There has been no change in the Company’s internal controls over financial reporting that occurred during the period covered by this Annual Report on Form 20-F that has materially affected, or is reasonably likely to materially affect, its internal controls over financial reporting.

ITEM 16A  AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors has determined that Mr J T Gorman and Baroness Noakes are the Audit Committee’s financial experts for the purposes of the Sarbanes-Oxley Act of 2002.

ITEM 16B  CODE OF ETHICS

The
    information regarding the Company’s “Code of Business Conduct” is
    set forth under the heading “Corporate governance  Principles
    of business conduct”, which appears on page 40 of the Company’s
    Annual Report and Accounts 2004 contained in its report on Form 6-K dated
    March 16, 2005, is incorporated herein by reference. The Code applies to
    all ICI employees including the Group’s Chief Executive, Chief Financial
    Officer and Group Financial Controller.

ITEM 16C  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The
    information, including the table set forth under the heading “Notes
    relating to the accounts  Note 44   Remuneration of the Auditor
    set out in accordance with SEC Regulations”, which appears on page
    117C under Item 18 “Financial Statements” of this Annual Report
    on Form 20-F is incorporated herein by reference. In addition, the information
    set forth in the fourth paragraph (beginning The Audit Committee has
    established a policy which is intended to preserve. . .”) under the
    heading “Corporate governance  Audit Committee Report”,
    which appears on page 38 of the Company’s Annual Report and Accounts
    2004 contained in its report on Form 6-K dated March 16, 2005, is incorporated
    herein by reference.

All fees for audit related services, tax services and other services provided by the Auditor of the Company  during the three years ended December 31, 2004 were approved by the Audit Committee of the Company.

ITEM 16D  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

44

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ITEM 16E  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Neither the Company nor any of its “affiliated purchasers” purchased equity securities of the Company between January 1, 2004 and December 31, 2004.

Pursuant to shareholder resolutions approved at the Annual General Meetings of the Company for 2003 and 2004, during 2004 the Company was unconditionally and generally authorized to make market purchases (within the meaning of section 163 (3) of the (UK) Companies Act 1985) as follows:

|Share repurchaseAuthorisations                                                  |  |  | Date announced |  |  | Amount approvedOrdinary Shares of £1 each |  |  | Expiration date | 
|------------------------------------------------------------------------------- |  |  | -------------- |  |  | ----------------------------------------- |  |  | --------------- | 
|Authorisation pursuant to shareholder resolution at 2003 Annual General Meeting |  |  | May 22, 2003   |  |  | 119,120,015                               |  |  | May 26, 2004    | 
|Authorisation pursuant to shareholder resolution at 2004 Annual General Meeting |  |  | May 26, 2004   |  |  | 119,120,038                               |  |  | May 25, 2005    | 

The information set forth in the
    second paragraph (beginning “As regards the latter, the Group is committed
    via a trust. . .”) under Item 5(E) “Off-Balance Sheet Arrangements” of
    this Annual Report on Form 20-F, which appears on page 32 of this Annual
    Report on Form 20-F, is incorporated herein by reference.



Part III

ITEM 17  FINANCIAL STATEMENTS

The Company has responded to Item 18 in lieu of this item.

ITEM 18  FINANCIAL STATEMENTS

The
    information set forth under the heading “Report of Independent Registered
    Public Accounting Firm To The Board and Members of Imperial Chemical Industries
    PLC” on page 46, the table of contents to the Group financial statements
    on the page numbered 57 and the financial statements and notes relating thereto
    (which follow the table of contents) on pages numbered 58 to 118 in each
    case of this Annual Report on Form 20-F, constitute the Company’s response
    to this Item 18 “Financial Statements”.

The information set out in these accounts does not constitute the Company’s statutory accounts for the years ended December 31, 2004 and 2003.  Such statutory accounts have been reported on by the Company’s auditors; their reports were unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985.  The statutory accounts for the year ended December 31, 2003 have been delivered to the Registrar of Companies and those for the year ended December 31, 2004 will be delivered in due course.

45

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Report of Independent Registered Public Accounting Firm

To The Board and Members of Imperial Chemical Industries PLC

We have audited the accompanying consolidated balance sheets of Imperial Chemical Industries PLC and subsidiaries (“the Group”) as of 31 December 2004 and 2003, and the related consolidated profit and loss accounts, consolidated statements of total recognised gains and losses, consolidated statements of cash flow and consolidated reconciliations of movements in shareholders' funds for each of the years in the three-year period ended 31 December 2004 presented on pages 58 to 118.  These consolidated financial statements are the responsibility of the Group's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Imperial Chemical Industries PLC and subsidiaries as of 31 December 2004 and 2003 and the results of their operations and their cash flows for each of the years in the three-year period ended 31 December 2004 in conformity with generally accepted accounting principles in the United Kingdom.

Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America.  Information relating to the nature and effect of such differences is presented in note 42 to the consolidated financial statements.

/s/ KPMG Plc
KPMG Audit PlcChartered AccountantsRegistered AuditorLondon17 February 2005

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|ACCOUNTS |  | 57
|-------- |  | --
|         |  |   

| |                                                            |     |                                                           
| | ---------------------------------------------------------- | --- | ----------------------------------------------------------
| |                                                            |     |                                                           
| |                                                            |     |                                                           
| | Contents
      to the accounts                             |     |                                                           
| |                                                            |     |                                                           
| |                                                            |     |                                                           
| |                                                            |     |                                                           
| | Accounting
      policies                                  | 58  |                                                           
| |                                                            |     |                                                           
| | Group
      profit and loss account                        | 60  |                                                           
| |                                                            |     |                                                           
| | Statement
      of Group total recognised gains and losses | 60  |                                                           
| |                                                            |     |                                                           
| | Balance
      sheets                                       | 62  |                                                           
| |                                                            |     |                                                           
| | Statement
      of Group cash flow                         | 63  |                                                           
| |                                                            |     |                                                           
| | Reconciliation
      of movements in shareholders funds   | 63  |                                                           
| |                                                            |     |                                                           
| | Notes
      relating to the accounts                       |     |                                                           
| | 1                                                          |     | Basis of
      presentation of financial information      
| | 2                                                          |     | Directors
      and Officers remuneration and interests 
| | 3                                                          |     | Exceptional
      items before tax                        
| | 4                                                          |     | Segment
      information                                 
| | 5                                                          |     | Operating
      profit                                    
| | 6                                                          |     | Share of
      operating profits less losses of associates
| | 7                                                          |     | Net interest
      payable                                
| | 8                                                          |     | Taxation
      on profit (loss) on ordinary activities    
| | 9                                                          |     | Dividends                                                 
| | 10                                                         |     | Earnings
      (loss) per £1 Ordinary Share               
| | 11                                                         |     | Intangible
      fixed assets  goodwill                  
| | 12                                                         |     | Tangible
      fixed assets                               
| | 13                                                         |     | Investments
      in subsidiary undertakings  Company    
| | 14                                                         |     | Investments
      in participating and other interests    
| | 15                                                         |     | Stocks                                                    
| | 16                                                         |     | Debtors                                                   
| | 17                                                         |     | Current
      asset investments and short-term deposits   
| | 18                                                         |     | Short-term
      borrowings                               
| | 19                                                         |     | Other creditors                                           
| | 20                                                         |     | Loans                                                     
| | 21                                                         |     | Provisions
      for liabilities and charges              
| | 22                                                         |     | Disposal
      and legacy, and restructuring provisions   
| | 23                                                         |     | Called-up
      share capital of parent company           
| | 24                                                         |     | Reserves                                                  
| | 25                                                         |     | Net cash
      inflow from operating activities           
| | 26                                                         |     | Returns
      on investments and servicing of finance     
| | 27                                                         |     | Capital
      expenditure and financial investment        
| | 28                                                         |     | Acquisitions                                              
| | 29                                                         |     | Management
      of liquid resources                      
| | 30                                                         |     | Disposals                                                 
| | 31                                                         |     | Financing                                                 
| | 32                                                         |     | Analysis
      of net debt                                
| | 33                                                         |     | Cash and
      short-term borrowings                      
| | 34                                                         |     | Leases                                                    
| | 35                                                         |     | Employee
      numbers and costs                          
| | 36                                                         |     | Retirement
      benefits                                 
| | 37                                                         |     | Financial
      risk management                           
| | 38                                                         |     | Statutory
      and other information                     
| | 39                                                         |     | Commitments
      and contingent liabilities              
| | 40                                                         |     | Related
      party transactions                          
| | 41                                                         |     | Post balance
      sheet events                           
| | 42                                                         |     | Differences
      between UK and US accounting principles 
| |                                                            |     |                                                           
| | Principal
      subsidiary undertakings                    | 118 |                                                           
| |                                                            |     |                                                           
| |                                                            |     |                                                           
| |                                                            |     |                                                           
| |                                                            |     |                                                           
| |                                                            |     |                                                           
| |                                                            |     |                                                           
| |                                                            |     |                                                           
| |                                                            |     |                                                           
| |                                                            |     | ICI ANNUAL
      REPORT AND ACCOUNTS 2004                 
| |                                                            |     |                                                           

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|58 |  | ACCOUNTS
|-- |  | --------
|   |  |         

Accounting policies



As used in the financial statements and related notes, the termCompanyrefers to Imperial Chemical Industries PLC; the termsICIandGrouprefer to the Company and its consolidated subsidiaries but not to its
associates. The financial statements are prepared under the historical cost convention and in accordance with the Companies Act 1985 and applicable accounting standards. Accounting policies conform with UK Generally Accepted
Accounting Principles (UK GAAP). The following paragraphs describe the main
accounting policies. The accounting policies of some overseas subsidiaries do not conform with UK Accounting Standards and, where appropriate, adjustments are made on consolidation in order to present the Group financial statements on a consistent
basis. Note 42 describes the significant differences between UK GAAP and US Generally Accepted Accounting Principles (US GAAP) and presents a reconciliation of net income and shareholdersequity from UK GAAP to US GAAP as a result
of each difference. Basis of consolidation The Group accounts include the accounts of the
  parent undertaking and of all subsidiaries, joint ventures and associates. The
  results of businesses acquired during the year are included from the effective
  date of acquisition. The results of businesses disposed of during the year are
  included up to the date of relinquishing control. Material, separately identifiable
  businesses disposed of are analysed as discontinued operations and prior yearsanalyses are restated to reflect those businesses as discontinued. Turnover Turnover represents amounts received and receivable
  for goods supplied and services rendered to customers after deducting sales
  allowances, rebates and value added taxes. Revenue from the sale of goods is
  recognised when the significant risks and rewards of ownership of the goods
  have been transferred to the customer, the revenue can be measured reliably
  and collectability is reasonably assured. Depreciation The Groups
  policy is to write-off the book value of each tangible fixed asset excluding
  land to its residual value evenly over its estimated remaining life. Reviews
  are made annually of the estimated remaining lives of individual productive
  assets, taking account of commercial and technological obsolescence as well
  as normal wear and tear. Under this policy, the total lives approximate to 32
  years for buildings and 14 years for plant and equipment. Depreciation of assets
  qualifying for grants is calculated on their full cost. No depreciation has
  been provided on land. Impairment reviews are performed where there is an indication
  of potential impairment. If the carrying value of an asset exceeds the higher
  of the discounted estimated future cashflows and net realisable value, the impairment
  is charged to the profit and loss account. Pension costs The pension costs relating to Group retirement
  plans are assessed in accordance with the advice of independent qualified actuaries
  and accounted for in accordance with SSAP 24. The amounts so determined include
  the regular cost of providing the benefits under the plans which should be a
  level percentage of current and expected future earnings of the employees covered
  under the plans. Variations from the regular pension cost are spread on a systematic
  basis over the estimated average remaining service lives of current employees
  in the plans. Research and development Research and development expenditure is charged
  to profit in the year in which it is incurred.




Exceptional items Exceptional items are material items which derive
  from events or transactions that fall within the ordinary activities of the
  Group and which individually or, if of a similar type, in aggregate, need to
  be disclosed by virtue of their size or incidence if the financial statements
  are to give a true and fair view. Foreign currencies Profit and loss accounts in foreign currencies
  are translated into sterling at average rates for the relevant accounting periods.
  Assets and liabilities are translated at exchange rates ruling at the date of
  the Group balance sheet. Exchange differences on short-term foreign currency
  borrowings and deposits are included within net interest payable. Exchange differences
  on all other balances, except relevant foreign currency loans, are taken to
  operating profit. In the Group accounts, exchange differences arising on consolidation
  of the net investments in overseas subsidiary undertakings and associates are
  taken to reserves, as are differences arising on equity investments denominated
  in foreign currencies in the Company accounts. Differences
  on relevant long-term foreign currency loans used to finance net investments
  in subsidiary undertakings are taken to reserves and offset against the differences
  on net investments in both Group and Company accounts. Financial derivatives Hedge accounting The Group uses various derivative financial instruments
  to reduce exposure to foreign exchange risks. These include currency swaps,
  forward currency contracts and currency options. The Group also uses interest
  rate swaps, forward rate agreements and interest rate caps derivatives to adjust
  interest rate exposures. The Group considers its derivative financial instruments
  to behedges(i.e. an offset of foreign exchange and interest rate risks) when certain criteria
  are met. Under hedge accounting for currency options, the Group defers the instruments
  impact on profit until it recognises the underlying hedged item in profit. Foreign currency derivative instruments:
  The Groups
  criteria to qualify for hedge accounting are: 
    The instrument must be related
      to a foreign currency asset or liability that is probable and whose characteristics
      have been identified;
    It must involve the same currency
      as the hedged item; and
    It must reduce the risk of
      foreign currency exchange movements on the Groups
      operations. Interest rate derivative instruments:
  The Groups
  criteria to qualify for hedge accounting are: 
    The instrument must be related
      to an asset or a liability; and
    It must change the character
      of the interest rate by converting a variable rate to a fixed rate or vice
      versa. Derivative financial instruments
  reported in the financial statements: 
   The unamortised premium paid on purchased currency options is included in debtors in the balance sheet. Cash flows related to foreign currency derivative transactions are reported along with related transactions in net cash inflow from operating activities or returns on investments and servicing of finance, as
appropriate, in the Statement of Group cash flow. Currency swaps Principal amounts are revalued at exchange rates
  ruling at the date of the Group balance sheet and included in the sterling value
  of loans. In accordance with SSAP 20 and FRS 3 exchange gains/losses are included
  in the Statement of Group Total Recognised Gains and Losses along with similar
  movements in the values of the investments being hedged.




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|ACCOUNTS |  | 59
|-------- |  | --
|         |  |   



Financial derivatives (continued)Forward currency contracts
  Those forward currency contracts hedging transaction
  exposures (purchases and sales held in the books of account) are revalued to
  balance sheet rates with net unrealised gains/losses being shown as debtors/creditors. Those contracts used to change the currency mix of net debt are revalued to balance sheet rates with net unrealised gains/losses being shown as part of the debt they are hedging. The difference between spot and forward
rate for these contracts is recognised as part of net interest payable over the period of the contract. Realised and unrealised exchange gains/losses are shown in the financial statements in the same place as the underlying borrowing/deposit. Currency options Option premia are recognised at their historic
  cost in the Group balance sheet asother
  debtors. At maturity, the
  option premia net of any realised gains on exercise, are taken to the financial
  statements as operating profit. Interest rate swaps and forward rate agreements
  Interest payments/receipts are accrued with net
  interest payable. They are not revalued to fair value or shown on the Group
  balance sheet at period end. If they are terminated early, the gain or loss
  is spread over the remaining maturity of the original instrument. Interest rate caps The option premia are recognised on the Group
  balance sheet asother
  debtors.
  The option premia, net of any realised gains on individual caplets, are taken
  to net interest payable and spread evenly over the lifetime of the cap. Associates Associates are undertakings in which the Group
  holds a long-term interest and over which it actually exercises significant
  influence. The Groups share of the profits less losses from associates are included
  in the Group profit and loss account on the equity accounting basis. The holding
  value of associates in the Group balance sheet is calculated by reference to
  the Groups
  equity in the net assets of such undertakings, as shown by the most recent accounts
  available. Interests in joint arrangements that are not entities are included
  proportionately in the accounts of the investing entity. Investments Investments are held at cost less provisions
  for impairment. Operating leases The cost of operating leases is charged on
    the straight line basis over the period of the lease. Taxation Full provision for deferred tax is made for
    timing differences between the recognition of gains and losses in the consolidated
    financial statements and their recognition in the tax computation, using current
    tax rates except as otherwise required by FRS 19. The Group does not discount
    these balances. No deferred tax is provided in respect of any future remittance
    of earnings of foreign subsidiaries or associates where no commitment has
    been made to remit such earnings. Taxation
    on exchange differences on relevant foreign currency loans used to finance
    net investments in subsidiary undertakings and associates is taken to reserves
    to be consistent with the treatment of the underlying exchange differences
    on the loans and net investments. Provisions for tax contingencies require management to make judgements and estimates in relation to tax audit issues and exposures. Tax benefits are not recognised unless the tax positions are probable of being
sustained. In arriving at this position, management reviews each material tax benefit to assess whether a provision should be taken against full recognition of that benefit on the basis of potential settlement through negotiation and/or
litigation.




Stock valuation Finished goods, raw materials and other stocks
  are stated at the lower of cost and net realisable value, the first in, first
  out or an average cost method of valuation is used. In determining cost for
  stock valuation purposes, depreciation is included but selling expenses and
  certain overhead expenses are excluded. Environmental liabilities The Group is exposed to environmental liabilities
  relating primarily to its past operations, principally in respect of soil and
  groundwater remediation costs. Provisions for these costs are made when expenditure
  on remedial work is probable and the cost can be estimated within a reasonable
  range of possible outcomes. Disposal provisions The Group is exposed to certain liabilities
    when businesses are divested and disposal provisions are created as part of
    the gain or loss on disposal calculation. Typical costs include pension liabilities,
    environmental costs, transaction costs and separation costs. Provisions
    are only established when the Group has a present obligation (legal or constructive)
    as a result of a past event, it is probable that a transfer of economic benefits
    will be required to settle the obligation, and a reliable estimate can be
    made of the amount of the obligation. The Group reviews its disposal provisions
    regularly to determine whether they accurately reflect the present obligations
    of the Group based on the latest available facts. Contingent liabilities Contingent liabilities are possible obligations
  that arise from past events and whose existence will be confirmed only by the
  occurrence of one or more uncertain future events not wholly within the Groups
  control or are present obligations arising from past events that are not recognised
  as it is not probable a transfer of economic benefits will occur or the amount
  cannot be measured with sufficient certainty. The Group reviews its obligations
  regularly and provides disclosures of its contingent liabilities in note 39. Goodwill On the acquisition of a business, fair values
    are attributed to the net assets acquired. Goodwill arises where the fair
    value of the consideration given for a business exceeds the fair value of
    such net assets. For purchased goodwill arising on acquisitions after
    31 December 1997 goodwill is capitalised and
    amortised through the profit and loss account over a period of 20 years unless
    the Directors consider it has a materially different useful life, either on
    acquisition or subsequently, if a shorter life is indicated. For goodwill
    arising on acquisitions prior to 31 December 1997 purchased goodwill was charged
    directly to reserves in the year of acquisition. On subsequent disposal or
    termination of a previously acquired business, the profit or loss recognised
    on disposal or termination is calculated after charging the amount of any
    related goodwill previously taken to reserves. Impairment reviews are performed
    where there is an indication of potential impairment. If the carrying value
    of goodwill exceeds its estimated recoverable amount, any impairment is charged
    to the profit and loss account. The estimated recoverable amount of goodwill
    is determined based on discounted projected future operating cash flows. Employee Share Ownership Plan (ESOP)
  The financial statements of the Group include
  the assets and related liabilities of the Imperial Chemical Industries PLC Employee
  Benefits Trust and Impkemix Trustees Limited, a subsidiary company of the Group,
  which acts as trustee for the Groups
  employee share ownership plan. Under the requirements of UITF 38Accounting
  for ESOP Truststhe shares held by
  the ESOP are stated at cost and deducted from shareholdersfunds.


ICI ANNUAL REPORT AND ACCOUNTS 2004

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|60 |  | ACCOUNTS
|-- |  | --------
|   |  |         

Group profit and loss account
  for the year ended 31 December 2004

|                                                           |       |  | 2004                       
|---------------------------------------------------------- | ----- |  | ---------------------------
|                                                           |       |  |                            
|                                                           |       |  | Continuing
      operations
|                                                           |       |  |                            
|                                                           |       |  | Before                     
|                                                           |       |  | exceptional                
|                                                           |       |  | items                      
|                                                           | notes |  | £m                         
|                                                           |       |  |                            
|Turnover                                                   | 4,5   |  | 5,601                      
|                                                           |       |  |                            
|Operating costs                                            | 3,5   |  | (5,192                     
|                                                           |       |  |                            
|Other operating income                                     | 5     |  | 35                         
|                                                           |       |  |                            
|Operating profit (loss)                                    | 3,4,5 |  | 444                        
|                                                           |       |  |                            
|After deducting
      goodwill amortisation                | 4     |  | (35                        
|                                                           |       |  |                            
|Share of operating profits less losses
      of associates | 6     |  | 4                          
|                                                           |       |  |                            
|                                                           |       |  | 448                        
|                                                           |       |  |                            
|Profits less losses on sale or closure
      of operations | 3     |  |                            
|                                                           |       |  |                            
|Profits less losses on disposals of fixed
      assets     | 3     |  |                            
|                                                           |       |  |                            
|Amounts written off investments                            | 3     |  |                            
|                                                           |       |  |                            
|Profit (loss) on ordinary activities
      before interest | 4     |  | 448                        
|                                                           |       |  |                            
|Net interest payable                                       | 7     |  |                            
|                                                           |       |  |                            
|Group                                                      |       |  | (86                        
|                                                           |       |  |                            
|Associates                                                 |       |  |                           
|                                                           |       |  |                            
|                                                           |       |  | (86                        
|                                                           |       |  |                            
|Profit (loss) on ordinary activities
      before taxation |       |  | 362                        
|                                                           |       |  |                            
|Taxation on profit (loss) on ordinary activities           | 8     |  | (111                       
|                                                           |       |  |                            
|Profit (loss) on ordinary activities
      after taxation  |       |  | 251                        
|                                                           |       |  |                            
|Attributable to minorities                                 |       |  | (27                        
|                                                           |       |  |                            
|Net profit (loss) for the financial
      year             |       |  | 224                        
|                                                           |       |  |                            
|Dividends                                                  | 9     |  |                            
|                                                           |       |  |                            
|Profit (loss) retained for the year                        | 24    |  |                            
|                                                           |       |  |                            
|Earnings (loss) per £1 Ordinary
      Share                | 10    |  |                            
|                                                           |       |  |                            
|Basic                                                      |       |  | 18.9p                      
|                                                           |       |  |                            
|Diluted                                                    |       |  | 18.8p                      
|                                                           |       |  |                            



Statement of group total
  recognised gains and lossesfor the year ended 31 December 2004

|                                                                                             | 2004 |  
|-------------------------------------------------------------------------------------------- | ---- | -
|                                                                                             | £m   |  
|                                                                                             |      |  
|Net profit (loss) for the financial
      year                                               |      |  
|                                                                                             |      |  
|Parent and subsidiary
      undertakings                                                     | 208  |  
|                                                                                             |      |  
|Associates                                                                                   | 2    |  
|                                                                                             |      |  
|                                                                                             | 210  |  
|                                                                                             |      |  
|Currency translation differences on foreign
      currency net investments and related loans | (16  | )
|                                                                                             |      |  
|Taxation on translation differences on
      foreign currency loans                          | 8    |  
|                                                                                             |      |  
|                                                                                             | (8   | )
|                                                                                             |      |  
|Total gains and losses recognised since
      last annual report                             | 202  |  
|                                                                                             |      |  

See accompanying notes to consolidated financial statements.



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



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|ACCOUNTS |  | 61a
|-------- |  | ---
|         |  |    

Group profit and loss account for the year ended 31 December 2004

|                                                               |       |  | 2003                           
|-------------------------------------------------------------- | ----- |  | -------------------------------
|                                                               |       |  |                                
|                                                               |       |  | Continuing
          operations
|                                                               |       |  |                                
|                                                               |       |  | Before                         
|                                                               |       |  | exceptional                    
|                                                               |       |  | items                          
|                                                               | notes |  | £m                             
|                                                               |       |  |                                
|Turnover                                                       | 4,5   |  | 5,849                          
|                                                               |       |  |                                
|Operating costs                                                | 3,5   |  | (5,471                         
|                                                               |       |  |                                
|Other operating income                                         | 5     |  | 16                             
|                                                               |       |  |                                
|Operating profit (loss)                                        | 3,4,5 |  | 394                            
|                                                               |       |  |                                
|After deducting
            goodwill amortisation              | 4     |  | (36                            
|                                                               |       |  |                                
|Share of operating profits less losses
        of associates   | 6     |  | 2                              
|                                                               |       |  |                                
|                                                               |       |  | 396                            
|                                                               |       |  |                                
|Profits less losses on sale or closure
        of operations   | 3     |  |                                
|                                                               |       |  |                                
|Profits less losses on disposals of fixed
        assets       | 3     |  |                                
|                                                               |       |  |                                
|Amounts written off investments                                | 3     |  |                                
|                                                               |       |  |                                
|Profit (loss) on ordinary activities
          before interest | 4     |  | 396                            
|                                                               |       |  |                                
|Net interest payable                                           | 7     |  |                                
|                                                               |       |  |                                
|Group                                                          |       |  | (92                            
|                                                               |       |  |                                
|Associates                                                     |       |  | 1                              
|                                                               |       |  |                                
|                                                               |       |  | (91                            
|                                                               |       |  |                                
|Profit (loss) on ordinary
          activities before taxation |       |  | 305                            
|                                                               |       |  |                                
|Taxation on profit (loss) on ordinary
        activities       | 8     |  | (99                            
|                                                               |       |  |                                
|Profit (loss) on ordinary activities
          after taxation  |       |  | 206                            
|                                                               |       |  |                                
|Attributable to minorities                                     |       |  | (23                            
|                                                               |       |  |                                
|Net profit (loss) for the financial
          year             |       |  | 183                            
|                                                               |       |  |                                
|Dividends                                                      | 9     |  |                                
|                                                               |       |  |                                
|Profit (loss) retained for the year                            | 24    |  |                                
|                                                               |       |  |                                
|Earnings (loss) per £1 Ordinary
          Share                | 10    |  |                                
|                                                               |       |  |                                
|Basic                                                          |       |  | 15.5p                          
|                                                               |       |  |                                
|Diluted                                                        |       |  | 15.5p                          
|                                                               |       |  |                                



Statement
      of group total recognised gains and lossesfor the year ended 31 December 2004

|                                                                                               | 2003 | 
|---------------------------------------------------------------------------------------------- | ---- | 
|                                                                                               | £m   | 
|                                                                                               |      | 
|Net profit (loss) for the financial
          year                                             |      | 
|                                                                                               |      | 
|Parent and subsidiary
          undertakings                                                   | 18   | 
|                                                                                               |      | 
|Associates                                                                                     | 2    | 
|                                                                                               |      | 
|                                                                                               | 20   | 
|                                                                                               |      | 
|Currency translation differences on foreign
        currency net investments and related loans | 2    | 
|                                                                                               |      | 
|Taxation on translation differences on
        foreign currency loans                          | 7    | 
|                                                                                               |      | 
|                                                                                               | 9    | 
|                                                                                               |      | 
|Total gains and losses recognised since
          last annual report                           | 29   | 
|                                                                                               |      | 

See accompanying notes to consolidated financial
    statements.



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



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|ACCOUNTS |  | 61b
|-------- |  | ---
|         |  |    

Group profit and loss account for the year ended 31 December 2004

|                                                               |       |  | 2002                         
|-------------------------------------------------------------- | ----- |  | -----------------------------
|                                                               |       |  |                              
|                                                               |       |  | Continuing
        operations
|                                                               |       |  |                              
|                                                               |       |  | Before                       
|                                                               |       |  | exceptional                  
|                                                               |       |  | items                        
|                                                               | notes |  | £m                           
|                                                               |       |  |                              
|Turnover                                                       | 4,5   |  | 6,125                        
|                                                               |       |  |                              
|Operating costs                                                | 3,5   |  | (5,652                       
|                                                               |       |  |                              
|Other operating income                                         | 5     |  | 23                           
|                                                               |       |  |                              
|Operating profit (loss)                                        | 3,4,5 |  | 496                          
|                                                               |       |  |                              
|After deducting
            goodwill amortisation              | 4     |  | (37                          
|                                                               |       |  |                              
|Share of operating profits less losses
        of associates   | 6     |  | 18                           
|                                                               |       |  |                              
|                                                               |       |  | 514                          
|                                                               |       |  |                              
|Profits less losses on sale or closure
        of operations   | 3     |  |                              
|                                                               |       |  |                              
|Profits less losses on disposals of fixed
        assets       | 3     |  |                              
|                                                               |       |  |                              
|Amounts written off investments                                | 3     |  |                              
|                                                               |       |  |                              
|Profit (loss) on ordinary activities
          before interest | 4     |  | 514                          
|                                                               |       |  |                              
|Net interest payable                                           | 7     |  |                              
|                                                               |       |  |                              
|Group                                                          |       |  | (123                         
|                                                               |       |  |                              
|Associates                                                     |       |  | (28                          
|                                                               |       |  |                              
|                                                               |       |  | (151                         
|                                                               |       |  |                              
|Profit (loss) on ordinary
          activities before taxation |       |  | 363                          
|                                                               |       |  |                              
|Taxation on profit (loss) on ordinary
        activities       | 8     |  | (115                         
|                                                               |       |  |                              
|Profit (loss) on ordinary activities
          after taxation  |       |  | 248                          
|                                                               |       |  |                              
|Attributable to minorities                                     |       |  | (21                          
|                                                               |       |  |                              
|Net profit (loss) for the financial
          year             |       |  | 227                          
|                                                               |       |  |                              
|Dividends                                                      | 9     |  |                              
|                                                               |       |  |                              
|Profit (loss) retained for the year                            | 24    |  |                              
|                                                               |       |  |                              
|Earnings (loss) per £1 Ordinary
          Share                | 10    |  |                              
|                                                               |       |  |                              
|Basic                                                          |       |  | 20.4p                        
|                                                               |       |  |                              
|Diluted                                                        |       |  | 20.3p                        
|                                                               |       |  |                              



Statement
      of group total recognised gains and lossesfor the year ended 31 December 2004

|                                                                                               | 2003 |  
|---------------------------------------------------------------------------------------------- | ---- | -
|                                                                                               | £m   |  
|                                                                                               |      |  
|Net profit (loss) for the financial
          year                                             |      |  
|                                                                                               |      |  
|Parent and subsidiary
          undertakings                                                   | 192  |  
|                                                                                               |      |  
|Associates                                                                                     | (13  | )
|                                                                                               |      |  
|                                                                                               | 179  |  
|                                                                                               |      |  
|Currency translation differences on foreign
        currency net investments and related loans | (91  | )
|                                                                                               |      |  
|Taxation on translation differences on
        foreign currency loans                          | 34   |  
|                                                                                               |      |  
|                                                                                               | (57  | )
|                                                                                               |      |  
|Total gains and losses recognised since
          last annual report                           | 122  |  
|                                                                                               |      |  

See accompanying notes to consolidated financial
    statements.



ICI ANNUAL REPORT
    AND ACCOUNTS 2004

---



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|62                 |  | ACCOUNTS
|------------------ |  | --------
|                   |  |         
|Balance
    sheets

|at 31 December 2004                                              |       |  |        |   |  |         |  
|---------------------------------------------------------------- | ----- |  | ------ | - |  | ------- | -
|                                                                 |       |  |        |   |  |         |  
|                                                                 |       |  | Group  |   |  | Company |  
|                                                                 |       |  |        |   |  |         |  
|                                                                 |       |  | 2004   |   |  | 2003    |  
|                                                                 | notes |  | £m     |   |  | £m      |  
|                                                                 |       |  |        |   |  |         |  
|Assets employed                                                  |       |  |        |   |  |         |  
|                                                                 |       |  |        |   |  |         |  
|Fixed assets                                                     |       |  |        |   |  |         |  
|                                                                 |       |  |        |   |  |         |  
|Intangible assets  goodwill                                     | 11    |  | 480    |   |  | 532     |  
|                                                                 |       |  |        |   |  |         |  
|Tangible assets                                                  | 4,12  |  | 1,659  |   |  | 1,794   |  
|                                                                 |       |  |        |   |  |         |  
|Investments                                                      |       |  |        |   |  |         |  
|                                                                 |       |  |        |   |  |         |  
|Subsidiary undertakings                                          | 13    |  |        |   |  |         |  
|                                                                 |       |  |        |   |  |         |  
|Participating and other interests                                | 14    |  | 61     |   |  | 57      |  
|                                                                 |       |  |        |   |  |         |  
|                                                                 |       |  | 2,200  |   |  | 2,383   |  
|                                                                 |       |  |        |   |  |         |  
|Current assets                                                   |       |  |        |   |  |         |  
|                                                                 |       |  |        |   |  |         |  
|Stocks                                                           | 15    |  | 648    |   |  | 626     |  
|                                                                 |       |  |        |   |  |         |  
|Debtors                                                          | 16    |  | 1,587  |   |  | 1,605   |  
|                                                                 |       |  |        |   |  |         |  
|Investments and short-term deposits                              | 17    |  | 105    |   |  | 345     |  
|                                                                 |       |  |        |   |  |         |  
|Cash                                                             | 33    |  | 396    |   |  | 249     |  
|                                                                 |       |  |        |   |  |         |  
|                                                                 |       |  | 2,736  |   |  | 2,825   |  
|                                                                 |       |  |        |   |  |         |  
|Total assets                                                     |       |  | 4,936  |   |  | 5,208   |  
|                                                                 |       |  |        |   |  |         |  
|Creditors due within one year                                    |       |  |        |   |  |         |  
|                                                                 |       |  |        |   |  |         |  
|Short-term borrowings                                            | 18    |  | (137   | ) |  | (29     | )
|                                                                 |       |  |        |   |  |         |  
|Current installments of loans                                    | 20    |  | (165   | ) |  | (534    | )
|                                                                 |       |  |        |   |  |         |  
|Other creditors                                                  | 19    |  | (1,775 | ) |  | (1,663  | )
|                                                                 |       |  |        |   |  |         |  
|                                                                 |       |  | (2,077 | ) |  | (2,226  | )
|                                                                 |       |  |        |   |  |         |  
|Net current assets (liabilities)                                 |       |  | 659    |   |  | 599     |  
|                                                                 |       |  |        |   |  |         |  
|Total assets less current liabilities                            | 4     |  | 2,859  |   |  | 2,982   |  
|                                                                 |       |  |        |   |  |         |  
|Financed by                                                      |       |  |        |   |  |         |  
|                                                                 |       |  |        |   |  |         |  
|Creditors due after more than one year                           |       |  |        |   |  |         |  
|                                                                 |       |  |        |   |  |         |  
|Loans                                                            | 20    |  | 1,117  |   |  | 1,353   |  
|                                                                 |       |  |        |   |  |         |  
|Other creditors                                                  | 19    |  | 20     |   |  | 18      |  
|                                                                 |       |  |        |   |  |         |  
|                                                                 |       |  | 1,137  |   |  | 1,371   |  
|                                                                 |       |  |        |   |  |         |  
|Provisions for liabilities and charges                           | 21    |  | 914    |   |  | 1,092   |  
|                                                                 |       |  |        |   |  |         |  
|Minority interests  equity                                      |       |  | 87     |   |  | 69      |  
|                                                                 |       |  |        |   |  |         |  
|                                                                 |       |  |        |   |  |         |  
|Shareholders funds  equity                                     |       |  |        |   |  |         |  
|                                                                 |       |  |        |   |  |         |  
|Called-up share capital                                          | 23    |  | 1,191  |   |  | 1,191   |  
|                                                                 |       |  |        |   |  |         |  
|Reserves                                                         |       |  |        |   |  |         |  
|                                                                 |       |  |        |   |  |         |  
|Share premium account                                            |       |  | 933    |   |  | 933     |  
|                                                                 |       |  |        |   |  |         |  
|Associates reserves                                             |       |  | 15     |   |  | 13      |  
|                                                                 |       |  |        |   |  |         |  
|Profit and loss account                                          |       |  | (1,418 | ) |  | (1,687  | )
|                                                                 |       |  |        |   |  |         |  
|Total reserves                                                   | 24    |  | (470   | ) |  | (741    | )
|                                                                 |       |  |        |   |  |         |  
|Total shareholders funds (page 63)                              |       |  | 721    |   |  | 450     |  
|                                                                 |       |  |        |   |  |         |  
|                                                                 |       |  | 2,859  |   |  | 2,982   |  
|                                                                 |       |  |        |   |  |         |  
|See accompanying notes to consolidated
    financial statements. |       |  |        |   |  |         |  

Included within Group net current assets are debtors
of £538m (2003 £521m) which fall due after more than one year. Included within the Company net current liabilities are debtors of £303m (2003
£297m) which fall due after more than one year.

The accounts on pages 58 to 118 were approved by the Board of Directors on 17 February 2005 and were signed on its behalf by:

P B EllwoodCBE Director

T A ScottDirector



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



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|ACCOUNTS                         |  | 63
|-------------------------------- |  | --
|                                 |  |   
|Statement
    of group cash flow |  |   

|for the year ended 31 December 2004                              |       |  |      |   |  |      |   |  |        |  
|---------------------------------------------------------------- | ----- |  | ---- | - |  | ---- | - |  | ------ | -
|                                                                 |       |  |      |   |  |      |   |  |        |  
|                                                                 |       |  | 2004 |   |  | 2003 |   |  | 2002   |  
|                                                                 | notes |  | £m   |   |  | £m   |   |  | £m     |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Net cash inflow from operating activities                        | 25    |  | 531  |   |  | 539  |   |  | 623    |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Returns on investments and servicing of finance                  | 26    |  | (79  | ) |  | (96  | ) |  | (185   | )
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Taxation                                                         |       |  | (44  | ) |  | (37  | ) |  | (35    | )
|                                                                 |       |  |      |   |  |      |   |  |        |  
|                                                                 |       |  | 408  |   |  | 406  |   |  | 403    |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Capital expenditure and financial investment                     | 27    |  | (150 | ) |  | (138 | ) |  | (184   | )
|                                                                 |       |  |      |   |  |      |   |  |        |  
|                                                                 |       |  | 258  |   |  | 268  |   |  | 219    |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Acquisitions and disposals                                       |       |  |      |   |  |      |   |  |        |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Acquisitions                                                     | 28    |  | (29  | ) |  | (20  | ) |  | (54    | )
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Disposals                                                        | 30    |  | 209  |   |  | 104  |   |  | 290    |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|                                                                 |       |  | 180  |   |  | 84   |   |  | 236    |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Equity dividends paid                                            |       |  | (82  | ) |  | (86  | ) |  | (106   | )
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Cash inflow before use of liquid resources and financing         |       |  | 356  |   |  | 266  |   |  | 349    |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Management of liquid resources                                   | 29    |  | 225  |   |  | (194 | ) |  | (13    | )
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Financing                                                        |       |  |      |   |  |      |   |  |        |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Issues of shares                                                 |       |  |     |   |  |     |   |  | 807    |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Decrease in debt                                                 |       |  | (426 | ) |  | (84  | ) |  | (1,151 | )
|                                                                 |       |  |      |   |  |      |   |  |        |  
|                                                                 | 31    |  | (426 | ) |  | (84  | ) |  | (344   | )
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Increase (decrease) in cash                                      | 33    |  | 155  |   |  | (12  | ) |  | (8     | )
|                                                                 |       |  |      |   |  |      |   |  |        |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Reconciliation of movements in shareholders funds               |       |  |      |   |  |      |   |  |        |  
|for the year ended 31 December 2004                              |       |  |      |   |  |      |   |  |        |  
|                                                                 |       |  | 2004 |   |  | 2003 |   |  | 2002   |  
|                                                                 | notes |  | £m   |   |  | £m   |   |  | £m     |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Net profit (loss) for the financial year                         |       |  | 210  |   |  | 20   |   |  | 179    |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Dividends                                                        |       |  | (86  | ) |  | (74  | ) |  | (88    | )
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Profit (loss) retained for the year                              |       |  | 124  |   |  | (54  | ) |  | 91     |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Issues of ICI Ordinary Shares                                    |       |  |     |   |  |     |   |  | 807    |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Movement in respect of own shares                                | 24    |  | 1    |   |  | 5    |   |  | (6     | )
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Goodwill movement                                                | 24    |  | 154  |   |  | 27   |   |  | 22     |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Other recognised gains and (losses) related to the year          | 24    |  | (8   | ) |  | 9    |   |  | (57    | )
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Net increase (reduction) in shareholders funds                  |       |  | 271  |   |  | (13  | ) |  | 857    |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Shareholders funds at beginning of year  equity                |       |  | 450  |   |  | 463  |   |  | (394   | )
|                                                                 |       |  |      |   |  |      |   |  |        |  
|Shareholders funds at end of year  equity                      |       |  | 721  |   |  | 450  |   |  | 463    |  
|                                                                 |       |  |      |   |  |      |   |  |        |  
|See accompanying notes to consolidated
    financial statements. |       |  |      |   |  |      |   |  |        |  

ICI ANNUAL REPORT AND ACCOUNTS 2004

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|64                                 |  | ACCOUNTS
|---------------------------------- |  | --------
|                                   |  |         
|Notes
    relating to the accounts
|                                  

|1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Basis of presentation of financial information
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                               
|Implementation of UK Accounting
    Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                               
|New accounting standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                               
|FRS No. 17 Retirement benefits
    (as amended)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|This Standard
         sets out revised requirements for the accounting and disclosure of an
         employers
         retirement benefit obligations and related funding. The Group has followed
         the transitional requirements of the Standard and has provided increasing
         levels of disclosure of amounts measured in accordance with the requirements
         of the Standard in its accounts for the years 2001, 2002, 2003 and 2004.
         With the exception of the recognition in the primary statements, which,
         with restated comparative data, is required for accounting periods commencing
         on or after 1 January 2005, the full extent of the requirements of FRS
         No. 17 are now disclosed in note 36 to these financial statements. The
         requirements of the Standard will have no impact on cash
flows.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                               
|Restatements arising in
      prior years                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|UITF Abstract 38 Accounting
      for ESOP trusts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|The results reported in
        these financial statements for 2002 were restated in 2003 to reflect
        the requirements of UITF 38. Shareholdersdeficit at 1 January 2002, originally reported in the accounts
        to 31 December 2002 at (£364m), has been restated in these financial
    statements (£394m).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                               
|Continuing and Discontinued
      Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|For UK reporting purposes,
        the results in these accounts differentiate between the Groups
        continuing and discontinued operations. As defined in FRS No. 3Reporting
        Financial Performance,discontinued
        operations are material, clearly separate operations which have been
        sold or permanently terminated. All other operations are classified as
    continuing operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                               
|Transactions in these financial
        statements which are identified as relating to discontinued operations
        comprise exceptional items (and associated tax effects) in respect of
        the following operations, all of which were sold or terminated before
    1 January 2002:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Polyurethanes business 
      Tioxide business
          
      Selected Petrochemicals businesses 
      Fluropolymers business 
      Acrylics business
        
      Chlor-Chemicals,
      Klea and Crosfield businesses 
      Methanol business 
      Polyester
    business 
    Ethylene oxide business
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|Non co-terminous year
      ends                                                                                                                                                                                                                                                                                                                                                                                                           
|Owing to local conditions
          and to avoid undue delay in the presentation of the Group accounts,
          three subsidiaries made up their accounts to dates earlier than 31
          December, but not earlier than 30 September; additionally five subsidiaries
          made up their accounts prior to 30 September but interim accounts to
    31 December were drawn up for consolidation purposes.                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|Cash                                                                                                                                                                                                                                                                                                                                                                                                                                       
|In the statement of Group
          cash flow and related notescashincludes cash at bank, deposits repayable on demand and overdrafts;
          deposits are repayable on demand if they are, in practice, available
    within 24 hours without penalty.                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                  
|The preparation of the
          consolidated financial statements in conformity with Generally Accepted
          Accounting Principles requires management to make estimates and assumptions
          that affect reported amounts and related disclosures. Actual results
    could differ from those estimates.                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|Implementation of International
      Financial Reporting Standards                                                                                                                                                                                                                                                                                                                                                                        
|The Company will implement
        International Financial Reporting Standards (IFRS) for Group financial
        reporting with effect from 1 January 2005. The transition date for adoption
        of IFRS has been determined in accordance with IFRS 1 as 1 January 2004
        (subject to finalisation of a proposed Securities and Exchange Commission
    rule on the exemption from provision of a second year of comparatives).



ICI ANNUAL REPORT AND ACCOUNTS 2004

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|ACCOUNTS |  | 65
|-------- |  | --
|         |  |   

|2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Directorsand Officersremuneration and interests
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                  
|Information covering
      Directorsremuneration,
      interests in shares, debentures, share options and pension benefits is included
      in the Remuneration report on pages 43 to 54.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                  
|The aggregate
      remuneration paid to or accrued for all Directors and Officers of the Company
      for services in all capacities during the year ended 31 December 2004 was
      £7.0m (2003 £5.2m; 2002 £6.0m); Directors £4.4m
      (2003 £2.8m; 2002 £4.0m); Officers £2.6m (2003 £2.4m;
      2002 £2.0m). The aggregate amount set aside or accrued to provide
      pension, retirement and similar benefits for Directors and Officers of the
      Company during the year ended 31 December 2004 was £0.5m (2003 £0.7m;
      2002 £1.0m); Directors £0.3m (2003 £0.4m; 2002 £0.7m);
      Officers £0.2m (2003 £0.3m; 2002 £0.3m). At 14 February
      2005 shares held by and options granted to Directors and Officers to subscribe
      for £1 Ordinary Shares in the Company were as follows:



|                                                                                                                                                             |                                                                                                                      | £1 OrdinaryShares |                | Options
      granted
|------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------- | ------------------ | -------------- | ----------------------
|                                                                                                                                                             |                                                                                                                     
|                                                                                                                                                             | Options                                                                                                              |                    |                |                       
|At                                                                                                                                                           | outstanding                                                                                                          |                    |               
|14 February                                                                                                                                                  | at 14 February                                                                                                       | Subscription       | Date latest   
|2005                                                                                                                                                         | 2005                                                                                                                 | prices             | option expires
|Number                                                                                                                                                       | Number                                                                                                               | £                  |               
|                                                                                                                                                             |                                                                                                                      |                    |                |                       
|Directors (for further details
      see Remuneration Report pages 49, 50 and 52)                                                                            | 488,947                                                                                                              |                    | 8,554,995      |                       
|                                                                                                                                                             |                                                                                                                      |                    |                |                       
|Officers                                                                                                                                                     | 126,483                                                                                                              |                    | 3,960,426      |                       
|                                                                                                                                                             |                                                                                                                      |                    |                |                       
|                                                                                                                                                             |                                                                                                                      |                    |                |                       
|                                                                                                                                                            | Includes ADRs
          disclosed in terms of £1 Ordinary Share equivalents/Ordinary
      Share option equivalents.
|                                                                                                                                                            
|No individual director or
      officer had interests in shares or options exceeding one per cent of the
      issued Ordinary Share capital of the Company.

ICI ANNUAL REPORT
  AND ACCOUNTS 2004

---



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|66 |  | ACCOUNTS
|-- |  | --------

Notes relating to the accounts

|3 | Exceptional items before tax
|- | ----------------------------
|  |                             

|                                                                                    |      |      |      |      |     |     
|----------------------------------------------------------------------------------- | ---- | ---- | ---- | ---- | --- | ----
|2004                                                                                | 2003 | 2002
|£m                                                                                  | £m   | £m  
|                                                                                    |      |      |      |      |     |     
|Charged in arriving at
      operating profit (loss)(a)                             |      |      |      |      |     |     
|                                                                                    |      |      |      |      |     |     
|Continuing operations                                                               |      |      |      |      |     |     
|                                                                                    |      |      |      |      |     |     
|Restructuring                                                                       | (5   | )(a) | (189 | )(a) |    |     
|                                                                                    |      |      |      |      |     |     
|Other                                                                               |     |      | (11  | )(a) |    |     
|                                                                                    |      |      |      |      |     |     
|Credited (charged) after operating profit
      (loss)                              |      |      |      |      |     |     
|                                                                                    |      |      |      |      |     |     
|Continuing operations                                                               |      |      |      |      |     |     
|                                                                                    |      |      |      |      |     |     
|Profits less losses on
      sale or closure of operations                          |      |      |      |      |     |     
|                                                                                    |      |      |      |      |     |     
|Profits                                                                             | 41   | (b)  | 64   | (c)  | 114 | (d) 
|                                                                                    |      |      |      |      |     |     
|Losses                                                                              | (18  | )(e) | (23  | )(f) | (74 | )(g)
|                                                                                    |      |      |      |      |     |     
|                                                                                    | 23   |      | 41   |      | 40  |     
|                                                                                    |      |      |      |      |     |     
|Profits less losses on
      disposals of fixed assets                              | (1   | )    | 5    |      | 3   |     
|                                                                                    |      |      |      |      |     |     
|Amounts written off investments                                                     |     |      | (57  | )(h) | (99 | )(i)
|                                                                                    |      |      |      |      |     |     
|Discontinued operations                                                             |      |      |      |      |     |     
|                                                                                    |      |      |      |      |     |     
|Profits less losses on
      sale or closure of operations                          |      |      |      |      |     |     
|                                                                                    |      |      |      |      |     |     
|Profits                                                                             | 9    |      | 41   | (j)  | 19  |     
|                                                                                    |      |      |      |      |     |     
|Losses                                                                              | (29  | )(k) | (50  | )(l) | (9  | )   
|                                                                                    |      |      |      |      |     |     
|                                                                                    | (20  | )    | (9   | )    | 10  |     
|                                                                                    |      |      |      |      |     |     
|Exceptional items within profit (loss)
      on ordinary activities before taxation | (3   | )    | (220 | )    | (46 | )   
|                                                                                    |      |      |      |      |     |     

|(a) | A detailed description
      of those exceptional items charged/credited in arriving at operating profit
      (loss) is provided in note 22 and includes the following in respect of 2004
      and 2003:                                                                                                                                                                                                
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|    | 2004                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Exceptional items
      charged to operating profit include £8m in relation to the restructuring
      programmes announced in 2003 (including an extension to the programme following
      the disposal of the Quest Food Ingredients business) across each of:                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|    | (i)                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (ii)                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Other items included
      within operating items in 2004 include a credit of £3m relating to
      the release of prior year restructuring provisions.                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|    | 2003                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Exceptional items
      charged to operating profit include £201m in relation to a significant
      restructuring programme announced in 2003 to improve cost effectiveness
      across each of:                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|    | (i)                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (ii)                                                                                                                                                                                                                                                                                                                                                                                                      
|    | (iii)                                                                                                                                                                                                                                                                                                                                                                                                     
|    | (iv)                                                                                                                                                                                                                                                                                                                                                                                                      
|    | (v)                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Other items included
      within exceptional operating items in 2003 included a charge of £11m
      relating to the write-down of fixed assets in Quest following a review of
      the strategic direction of the future ERP systems development, and a credit
      of £12m relating to the release of prior year restructuring provisions.                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|(b) | The profits on
      sale or closure of continuing operations in 2004 relate to the gain on sale
      of part of the Groups
      interest in Pakistan PTA (£26m), a £7m gain in relation to the
      release of provisions created for the sale of Synetix in 2002 (see note
      22), and the gain on the sale of the nitrocellulose and trading businesses
      in India (£5m).                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|(c) | The profits on
      sale or closure of continuing operations in 2003 related primarily to the
      gain on sale of the Groups
      interest in Huntsman International Holdings LLC (£50m), the gain on
      sale of the Groups
      explosives business in India (£4m) and a gain on disposal of National
      Starchs
      Cheese Coatings business (£5m).                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|(d) | The profits on
      sale or closure of continuing operations in 2002 related primarily to the
      profit on the sale of the Groups catalyst business, Synetix, (£90m) and on the sale of
      the Security Systems business (£17m).                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|(e) | The losses on
      sale or closure of continuing operations in 2004 relate primarily to the
      loss on the sale of Quests
      Food Ingredients business (£9m), a loss on closure of the polyethylene
      business in Argentina (£4m) and a loss on the sale of the Metro (wall
      coverings) business in Canada (£5m).                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|(f) | The losses on
      sale or closure of continuing operations in 2003 related primarily to the
      loss on the sale of National Starchs Permabond business (£19m).                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|(g) | The losses on
      sale or closure of continuing operations in 2002 related primarily to the
      loss on the sale of the UK Nitrocellulose and Energetic Technologies business
      (£32m) and the write-down of the Groups
      investment in its 49% associate, Irish Fertilizer Industries Limited, and
      the additional costs incurred in relation to its liquidation (£27m).               
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|(h) | Amounts written
      off investments in 2003 related to a provision to write-down the shares
      of the Company which it is committed to buy under forward contracts to hedge
      employee share options (see note 23). The provisions were made to write-down
      these shares to estimated net realisable value having regard to the period
      over which the related options are exercisable.



ICI ANNUAL REPORT AND ACCOUNTS
  2004

---



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|ACCOUNTS |  | 67
|-------- |  | --



|3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Exceptional
      items before tax (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Amounts
      written off investments in 2002 related to provisions for all ICIs
      then existing investments in Ineos Chlor, where uncertainty existed as to
      the extent to which, and period over which these amounts would be recovered
      (see note 39).                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(j)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | The profits on sale of closure
      of discontinued operations in 2003 related to a number of provision releases
      related to prior year divestments and a £7m receipt from the Ineos
    Group in relation to a number of outstanding matters.                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(k)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | The losses on sale or closure
      of discontinued operations in 2004 relate to a £13m charge in relation
      to an increased provision in relation to the costs of the divestment of
      the Polyurethanes, Tioxide and selected petrochemical businesses, a £6m
      charge in relation to an increased provision in relation to the costs of
      the divestments of the Chlor-Chemicals, Klea and Crossfield businesses and
      a £5m charge relating to ICIs
    exit from Ineos Chlor (see note 14).
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(l)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ICI agreed in 2003, as part
      of an overall refinancing package for Ineos Chlor, to make available new
      funding comprising: a £30m cash contribution expected to be made in
      2004, and additional loan financing of £30m expected to be drawn during
      2005 (see note 39).A £30m charge
      relating to the cash contribution element of the refinancing was included
    within the losses on sale or closure of discontinued operations in 2003.                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Under UK GAAP,
      exceptional items are material items which derive from events or transactions
      that fall within the ordinary activities of the Group and which individually
      or, if of a similar type, in aggregate, need to be disclosed by virtue of
      their size or incidence if the financial statements are to give a true and
      fair view. Under US GAAP, exceptional items would be included in operating
    income, unless they relate to discontinued operations.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|4                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Segment information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|The Group is managed
      in five business segments, or classes, differentiated primarily by the nature
      of products manufactured in each, together with a segment for discontinued
      operations. An explanation of the basis on which operations are classified
      as discontinued is set out in note 1.                                                                                                                                                                            

|                                                                                                                                                                                                                                                                                                                 
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The major products of each
      business segment are as follows:                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                 
|Business                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                 
|National Starch                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                 
|Quest                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                 
|Uniqema                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                 
|Paints                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                 
|Regional and Industrial                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                 
|* Divested second quarter 2004.                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                 
|The accounting policies for
      each segment are the same as those appearing on pages 58 and 59. The Group
      s policy is to transfer productsinternally
      at external market prices. Corporate overheads are allocated to each business
      segment on a consistent basis over the periodspresented.



ICI ANNUAL REPORT
  AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|68 |  | ACCOUNTS
|-- |  | --------
|   |  |         

Notes relating to the accounts

|4 | Segment information (continued)
|- | -------------------------------

|Classes of
      business                                                          |          |                                                                           |                                                                                              |      |      
|---------------------------------------------------------------------------------- | -------- | ------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ---- | -----
|                                                                                   | Turnover | Profit
      before exceptional items, taxation and goodwill amortisation | Profit
      before interest and taxation after exceptional items and goodwill amortisation* |     
|                                                                                   |          |                                                                           |                                                                                              |      |      
|2004                                                                               |          | 2003                                                                      |                                                                                              | 2002 | 2004 
|£m                                                                                 | £m       | £m                                                                        | £m                                                                                           | £m   | £m   
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Continuing operations                                                              |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|National
      Starch                                                              | 1,870    |                                                                           | 1,866                                                                                        |      | 1,841
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Quest                                                                              | 584      |                                                                           | 691                                                                                          |      | 716  
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Uniqema                                                                            | 629      |                                                                           | 669                                                                                          |      | 804  
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Paints                                                                             | 2,161    |                                                                           | 2,163                                                                                        |      | 2,182
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Regional
      and Industrial                                                      | 375      |                                                                           | 481                                                                                          |      | 615  
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Inter-class eliminations                                                           | (18      | )                                                                         | (21                                                                                          | )    | (33  
|                                                                                   |          |                                                                           |                                                                                              |      |      
|                                                                                   | 5,601    |                                                                           | 5,849                                                                                        |      | 6,125
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Discontinued operations                                                            |         |                                                                           |                                                                                             |      |     
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Associates                                                                         |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Share of operating
        profits 
            less
      losses                  |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Interest receivable (payable)                                                      |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Group net interest payable                                                         |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Amounts written-off investments                                                    |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|                                                                                   | 5,601    |                                                                           | 5,849                                                                                        |      | 6,125
|                                                                                   |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|*Goodwill amortisation charged
      in arriving at the results                    |         
|                                                                                   |          |                                                                           |                                                                                              |      |      
|National Starch                                                                    |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Quest                                                                              |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Uniqema                                                                            |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Paints                                                                             |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Regional and Industrial                                                            |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Continuing operations                                                              |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|National
      Starch                                                              |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Quest                                                                              |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Uniqema                                                                            |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Paints                                                                             |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|Regional
      and Industrial                                                      |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
|                                                                                   |          |                                                                           |                                                                                              |      |      
| Includes
      Synetix and Security Systems businesses, which were sold in 2002.



ICI ANNUAL REPORT AND ACCOUNTS 2004



---



Back to Contents to the Accounts

|ACCOUNTS |  | 69
|-------- |  | --
|         |  |   

|4                                                                                                                                                                                                                                                                                                                                                   | Segment information (continued)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------
|                                                                                                                                                                                                                                                                                                                                                    |                                
|Geographical areas                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                    |                                
|The information opposite is re-analysed
      in the table below by geographic area. The figures for each geographic area
      show the turnover and profit made by, and the net operating assets owned
      by, companies located in that area; export sales and related profits are
    included in the areas from which those sales were made.

|                                                  | Turnover |      | Profit
      before exceptional items,
      taxation and goodwill amortisation |      | Profit
      before interest and taxation
      after exceptional items and
      goodwill amortisation* |     
|------------------------------------------------- | -------- | ---- | ------------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------- | ----
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|2004                                              |          | 2003 |                                                                                 | 2002 |                                                                                                          | 2004
|£m                                                | £m       | £m   |                                                                                 | £m   | £m                                                                                                       | £m  
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Continuing operations                             |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|United Kingdom                                    |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Sales in the UK                                   |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|External                                          | 563      |      | 580                                                                             |      | 752                                                                                                      |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Intra-Group                                       | 104      |      | 104                                                                             |      | 100                                                                                                      |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|                                                  | 667      |      | 684                                                                             |      | 852                                                                                                      |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Sales overseas                                    |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|External                                          | 266      |      | 327                                                                             |      | 357                                                                                                      |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Intra-Group                                       | 126      |      | 129                                                                             |      | 159                                                                                                      |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|                                                  | 392      |      | 456                                                                             |      | 516                                                                                                      |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|                                                  | 1,059    |      | 1,140                                                                           |      | 1,368                                                                                                    |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Continental Europe                                |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|External                                          | 1,187    |      | 1,217                                                                           |      | 1,200                                                                                                    |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Intra-Group                                       | 315      |      | 324                                                                             |      | 359                                                                                                      |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|                                                  | 1,502    |      | 1,541                                                                           |      | 1,559                                                                                                    |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|USA                                               |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|External                                          | 1,722    |      | 1,856                                                                           |      | 2,050                                                                                                    |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Intra-Group                                       | 171      |      | 149                                                                             |      | 152                                                                                                      |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|                                                  | 1,893    |      | 2,005                                                                           |      | 2,202                                                                                                    |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Other Americans                                   |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|External                                          | 574      |      | 592                                                                             |      | 583                                                                                                      |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Intra-Group                                       | 71       |      | 72                                                                              |      | 73                                                                                                       |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|                                                  | 645      |      | 664                                                                             |      | 656                                                                                                      |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Asia Pacific                                      |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|External                                          | 1,216    |      | 1,213                                                                           |      | 1,130                                                                                                    |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Intra-Group                                       | 161      |      | 168                                                                             |      | 147                                                                                                      |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|                                                  | 1,377    |      | 1,381                                                                           |      | 1,277                                                                                                    |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Other countries                                   |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|External                                          | 73       |      | 64                                                                              |      | 53                                                                                                       |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Intra-Group                                       | –        |      | –                                                                               |      | 1                                                                                                        |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|                                                  | 73       |      | 64                                                                              |      | 54                                                                                                       |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|                                                  | 6,549    |      | 6,795                                                                           |      | 7,116                                                                                                    |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Intra-area eliminations                           | (948     | )    | (946                                                                            | )    | (991                                                                                                     | )   
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|                                                  | 5,601    |      | 5,849                                                                           |      | 6,125                                                                                                    |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Discontinued operations                           | –        |      | –                                                                               |      | –                                                                                                        |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Associates                                        |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Share of operating pofits 
           less losses |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Interest (payable) 
           receivable         |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Group net interest 
          payable             |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|Amounts written off 
          investments        |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|                                                  | 5,601    |      | 5,849                                                                           |      | 6,125                                                                                                    |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     
|* Amortisation of goodwill charged                |          |      |                                                                                 |      |                                                                                                          |     
|                                                  |          |      |                                                                                 |      |                                                                                                          |     



ICI ANNUAL REPORT
  AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|70 |  | ACCOUNTS
|-- |  | --------
|   |  |         

Notes relating to the accounts

|4 | Segment information (continued)
|- | -------------------------------

|Classes of business          
|-----------------------------
|                             
|                             
|2004                         
|£m                           
|                             
|Net operating assets         
|                             
|Continuing operations        
|                             
|National Starch              
|                             
|Quest                        
|                             
|Uniqema                      
|                             
|Paints                       
|                             
|Regional and Industrial      
|                             
|Total net operating assets   
|                             
|Net non-operating liabilities
|                             
|                             
|                             

|                              | Goodwill
      include above |     
|----------------------------- | ---------------------------- | ----
|                              |                              |     
|2004                          |                              | 2003
|£m                            | £m                           | £m  
|                              |                              |     
|Goodwill                      |                              |     
|                              |                              |     
|National Starch               | 208                          |     
|                              |                              |     
|Quest                         | 16                           |     
|                              |                              |     
|Uniqema                       | 10                           |     
|                              |                              |     
|Paints                        | 234                          |     
|                              |                              |     
|Regional and
      Industrial | 12                           |     
|                              |                              |     
|                              | 480                          |     
|                              |                              |     



|                                          |      |    | Net
             non-operating liabilities |  
|----------------------------------------- | ---- | -- | ------------------------------------------ | -
|                                          |      |    |                                            |  
|notes                                     | 2004 |    | 2003                                       |  
|£m                                        | £m   | £m
|                                          |      |    |                                            |  
|Net non-operating liabilities             |      |    |                                            |  
|                                          |      |    |                                            |  
|Non-operating assets                      |      |    |                                            |  
|                                          |      |    |                                            |  
|Fixed asset investments                   | 14   |    | 61                                         |  
|                                          |      |    |                                            |  
|Non-operating debtors                     | 16   |    | 72                                         |  
|                                          |      |    |                                            |  
|Investments and short-term
      deposits | 17   |    | 105                                        |  
|                                          |      |    |                                            |  
|Cash at bank                              | 33   |    | 396                                        |  
|                                          |      |    |                                            |  
|                                          |      |    | 634                                        |  
|                                          |      |    |                                            |  
|                                          |      |    |                                            |  
|Non-operating liabilities                 |      |    |                                            |  
|                                          |      |    |                                            |  
|Short-term borrowings                     | 18   |    | (137                                       | )
|                                          |      |    |                                            |  
|Current instalments of
      loans        | 19   |    | (165                                       | )
|                                          |      |    |                                            |  
|Non-operating creditors                   | 20   |    | (501                                       | )
|                                          |      |    |                                            |  
|                                          |      |    | (803                                       | )
|                                          |      |    |                                            |  
|                                          |      |    | (169                                       | )
|                                          |      |    |                                            |  



ICI ANNUAL REPORT AND ACCOUNTS
  2004

---



Back to Contents to the Accounts

|ACCOUNTS |  | 71
|-------- |  | --

|                 |                                
|---------------- | -------------------------------
|4                | Segment information (continued)
|                 |                                
|Geographic areas

|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|------------------------------------------ | ------------------------------- |  | ----------------------------- |  | ----- |  | ----- | - | ----- | - | ----- | -
|                                           | Tangible
          fixed assets |  | Total assets
          less   | 
|                                           |                                 |  | current
          liabilities | 
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|                                           | 2004                            |  | 2003                          |  | 2002  |  | 2004  |   | 2003  |   | 2002  |  
|                                           | £m                              |  | £m                            |  | £m    |  | £m    |   | £m    |   | £m    |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|Tangible fixed assets/Net operating assets |                                 |  |                               |  |       |  |       |   |       |   |       |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|Continuing operations                      |                                 |  |                               |  |       |  |       |   |       |   |       |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|United Kingdom                             | 202                             |  | 228                           |  | 269   |  | 805   |   | 850   |   | 912   |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|Continental Europe                         | 413                             |  | 434                           |  | 414   |  | 617   |   | 670   |   | 690   |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|USA                                        | 566                             |  | 625                           |  | 711   |  | 891   |   | 995   |   | 1,029 |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|Other Americas                             | 94                              |  | 100                           |  | 123   |  | 191   |   | 198   |   | 250   |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|Asia Pacific                               | 378                             |  | 402                           |  | 440   |  | 506   |   | 533   |   | 615   |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|Other countries                            | 6                               |  | 5                             |  | 4     |  | 18    |   | 13    |   | 12    |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|Total net operating assets                 | 1,659                           |  | 1,794                         |  | 1,961 |  | 3,028 |   | 3,259 |   | 3,508 |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|Net non-operating liabilities              |                                 |  |                               |  |       |  | (169  | ) | (277  | ) | (460  | )
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|                                           | 1,659                           |  | 1,794                         |  | 1,961 |  | 2,859 |   | 2,982 |   | 3,048 |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|Turnover by customer location              |                                 |  |                               |  |       |  |       |   |       |   |       |  
|                                           |                                 |  |                               |  |       |  | 2004  |   | 2003  |   | 2002  |  
|                                           |                                 |  |                               |  |       |  | £m    |   | £m    |   | £m    |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|Continuing operations                      |                                 |  |                               |  |       |  |       |   |       |   |       |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|United Kingdom                             |                                 |  |                               |  |       |  | 628   |   | 681   |   | 825   |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|Continental Europe                         |                                 |  |                               |  |       |  | 1,261 |   | 1,300 |   | 1,306 |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|USA                                        |                                 |  |                               |  |       |  | 1,662 |   | 1,803 |   | 1,992 |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|Other Americas                             |                                 |  |                               |  |       |  | 606   |   | 625   |   | 622   |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|Asia Pacific                               |                                 |  |                               |  |       |  | 1,325 |   | 1,324 |   | 1,265 |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|Other countries                            |                                 |  |                               |  |       |  | 119   |   | 116   |   | 115   |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  
|                                           |                                 |  |                               |  |       |  | 5,601 |   | 5,849 |   | 6,125 |  
|                                           |                                 |  |                               |  |       |  |       |   |       |   |       |  



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|72 |  | ACCOUNTS
|-- |  | --------

Notes relating to the accounts

|5 | Operating profit
|- | ----------------

|                                                                                |        |   |        |   |        |  
|------------------------------------------------------------------------------- | ------ | - | ------ | - | ------ | -
|                                                                                | 2004   |   | 2003   |   | 2002   |  
|                                                                                | £m     |   | £m     |   | £m     |  
|                                                                                |        |   |        |   |        |  
|Operating profit before exceptional
      items                                 |        |   |        |   |        |  
|                                                                                |        |   |        |   |        |  
|Continuing operations                                                           |        |   |        |   |        |  
|                                                                                |        |   |        |   |        |  
|Turnover                                                                        | 5,601  |   | 5,849  |   | 6,125  |  
|                                                                                |        |   |        |   |        |  
|Operating costs                                                                 |        |   |        |   |        |  
|                                                                                |        |   |        |   |        |  
|Cost of sales                                                                   | (3,529 | ) | (3,741 | ) | (3,819 | )
|                                                                                |        |   |        |   |        |  
|Distribution costs                                                              | (882   | ) | (931   | ) | (971   | )
|                                                                                |        |   |        |   |        |  
|Research and development                                                        | (147   | ) | (150   | ) | (148   | )
|                                                                                |        |   |        |   |        |  
|Administration and other expenses                                               | (634   | ) | (649   | ) | (714   | )
|                                                                                |        |   |        |   |        |  
|                                                                                | (5,192 | ) | (5,471 | ) | (5,652 | )
|                                                                                |        |   |        |   |        |  
|Other operating income                                                          |        |   |        |   |        |  
|                                                                                |        |   |        |   |        |  
|Royalties                                                                       | 1      |   | 2      |   | 2      |  
|                                                                                |        |   |        |   |        |  
|Other income                                                                    | 34     |   | 14     |   | 21     |  
|                                                                                |        |   |        |   |        |  
|                                                                                | 35     |   | 16     |   | 23     |  
|                                                                                |        |   |        |   |        |  
|Operating profit                                                                | 444    |   | 394    |   | 496    |  
|                                                                                |        |   |        |   |        |  
|Total charge for depreciation and amortisation
      of goodwill included above | (204   | ) | (227   | ) | (233   | )
|                                                                                |        |   |        |   |        |  
|Gross profit, as defined by Companies Act
      1985                            | 2,072  |   | 2,108  |   | 2,306  |  
|                                                                                |        |   |        |   |        |  
|                                                                                |        |   |        |   |        |  
|                                                                                |        |   |        |   |        |  
|Operating profit after exceptional items                                        |        |   |        |   |        |  
|                                                                                |        |   |        |   |        |  
|Continuing operations                                                           |        |   |        |   |        |  
|                                                                                |        |   |        |   |        |  
|Turnover                                                                        | 5,601  |   | 5,849  |   | 6,125  |  
|                                                                                |        |   |        |   |        |  
|Operating costs                                                                 |        |   |        |   |        |  
|                                                                                |        |   |        |   |        |  
|Cost of sales                                                                   | (3,528 | ) | (3,856 | ) | (3,819 | )
|                                                                                |        |   |        |   |        |  
|Distribution costs                                                              | (883   | ) | (943   | ) | (971   | )
|                                                                                |        |   |        |   |        |  
|Research and development                                                        | (147   | ) | (156   | ) | (148   | )
|                                                                                |        |   |        |   |        |  
|Administration and other expenses                                               | (639   | ) | (716   | ) | (714   | )
|                                                                                |        |   |        |   |        |  
|                                                                                | (5,197 | ) | (5,671 | ) | (5,652 | )
|                                                                                |        |   |        |   |        |  
|Other operating income                                                          |        |   |        |   |        |  
|                                                                                |        |   |        |   |        |  
|Royalties                                                                       | 1      |   | 2      |   | 2      |  
|                                                                                |        |   |        |   |        |  
|Other income                                                                    | 34     |   | 14     |   | 21     |  
|                                                                                |        |   |        |   |        |  
|                                                                                | 35     |   | 16     |   | 23     |  
|                                                                                |        |   |        |   |        |  
|Operating profit                                                                | 439    |   | 194    |   | 496    |  
|                                                                                |        |   |        |   |        |  
|Total charge for depreciation and amortisation
      of goodwill included above | (204   | ) | (286   | ) | (233   | )
|                                                                                |        |   |        |   |        |  
|Gross profit, as defined by Companies Act
      1985                            | 2,073  |   | 1,993  |   | 2,306  |  
|                                                                                |        |   |        |   |        |  



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|ACCOUNTS |  | 73
|-------- |  | --

|  |                                                           
|- | ----------------------------------------------------------
|6 | Share of operating profits less losses
      of associates

|                                                                      |      |  |      |  |      | 
|--------------------------------------------------------------------- | ---- |  | ---- |  | ---- | 
|                                                                      | 2004 |  | 2003 |  | 2002 | 
|                                                                      | £m   |  | £m   |  | £m   | 
|                                                                      |      |  |      |  |      | 
|Continuing operations before
      exceptional items                  |      |  |      |  |      | 
|                                                                      |      |  |      |  |      | 
|Share of operating profits
      less losses before interest and tax  |      |  |      |  |      | 
|                                                                      |      |  |      |  |      | 
|Dividends and other income                                            | 1    |  |     |  |     | 
|                                                                      |      |  |      |  |      | 
|Share of operating profits
      less losses before exceptional items | 3    |  | 2    |  | 18   | 
|                                                                      |      |  |      |  |      | 
|                                                                      | 4    |  | 2    |  | 18   | 
|                                                                      |      |  |      |  |      | 

|  |                     
|- | --------------------
|7 | Net interest payable
|  |                     

|                                               |      |   |      |   |      |  
|---------------------------------------------- | ---- | - | ---- | - | ---- | -
|                                               | 2004 |   | 2003 |   | 2002 |  
|                                               | £m   |   | £m   |   | £m   |  
|                                               |      |   |      |   |      |  
|Continuing operations                          |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|Interest payable and similar
      charges     |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|Group                                          |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|Loan interest                                  |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|Bank
      loans                               | 8    |   | 15   |   | 38   |  
|                                               |      |   |      |   |      |  
|Other
      loans                              | 122  |   | 124  |   | 148  |  
|                                               |      |   |      |   |      |  
|                                               | 130  |   | 139  |   | 186  |  
|                                               |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|Interest
      on short-term borrowings        |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|Bank
      borrowings                          | 7    |   | 5    |   | 11   |  
|                                               |      |   |      |   |      |  
|Other
      borrowings                         | 11   |   | 21   |   | 35   |  
|                                               |      |   |      |   |      |  
|                                               | 18   |   | 26   |   | 46   |  
|                                               |      |   |      |   |      |  
|                                               | 148  |   | 165  |   | 232  |  
|                                               |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|Amortisation of discounted
      provisions    | 10   |   | 10   |   | 10   |  
|                                               |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|Associates interest payable
      (receivable) |     |   | (1   | ) | 28   |  
|                                               |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|Interest receivable and
      similar income   |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|Group                                          | (72  | ) | (83  | ) | (119 | )
|                                               |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|                                               |      |   |      |   |      |  
|Net interest payable                           | 86   |   | 91   |   | 151  |  
|                                               |      |   |      |   |      |  



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|74 |  | ACCOUNTS
|-- |  | --------

Notes relating to the accounts

|8 | Taxation on profit (loss) on ordinary
    activities
|- | ----------------------------------------------------

|                                            | Continuing operations |   | Discontinued |   | Total      |  
|------------------------------------------- | --------------------- | - | ------------ | - | ---------- | -
|                                            |                       |   |              |   | operations |  
|                                            | Before                |   | Exceptional  |   |            |  
|                                            | exceptional           |   | items        |   |            |  
|                                            | items                 |   |              |   |            |  
|                                            | £m                    |   | £m           |   | £m         |  
|                                            |                       |   |              |   |            |  
|2004                                        |                       |   |              |   |            |  
|                                            |                       |   |              |   |            |  
|ICI and subsidiary undertakings             |                       |   |              |   |            |  
|                                            |                       |   |              |   |            |  
|United Kingdom taxation                     |                       |   |              |   |            |  
|                                            |                       |   |              |   |            |  
|Corporation tax                             | 28                    |   | (10          | ) | (1         | )
|                                            |                       |   |              |   |            |  
|Double taxation relief                      | (15                   | ) |             |   |           |  
|                                            |                       |   |              |   |            |  
|Deferred taxation                           | 33                    |   | 7            |   |           |  
|                                            |                       |   |              |   |            |  
|                                            | 46                    |   | (3           | ) | (1         | )
|                                            |                       |   |              |   |            |  
|Overseas taxation                           |                       |   |              |   |            |  
|                                            |                       |   |              |   |            |  
|Overseas taxes                              | 59                    |   | 20           |   | (5         | )
|                                            |                       |   |              |   |            |  
|Deferred taxation                           | 4                     |   | (6           | ) |           |  
|                                            |                       |   |              |   |            |  
|                                            | 63                    |   | 14           |   | (5         | )
|                                            |                       |   |              |   |            |  
|Associates                                  | 2                     |   |             |   |           |  
|                                            |                       |   |              |   |            |  
|Tax on profit (loss) on ordinary activities | 111                   |   | 11           |   | (6         | )
|                                            |                       |   |              |   |            |  
|2003                                        |                       |   |              |   |            |  
|                                            |                       |   |              |   |            |  
|ICI and subsidiary undertakings             |                       |   |              |   |            |  
|                                            |                       |   |              |   |            |  
|United Kingdom taxation                     |                       |   |              |   |            |  
|                                            |                       |   |              |   |            |  
|Corporation tax                             | 60                    |   | (24          | ) | (5         | )
|                                            |                       |   |              |   |            |  
|Double taxation relief                      | (43                   | ) |             |   |           |  
|                                            |                       |   |              |   |            |  
|Deferred taxation                           | 18                    |   | (2           | ) |           |  
|                                            |                       |   |              |   |            |  
|                                            | 35                    |   | (26          | ) | (5         | )
|                                            |                       |   |              |   |            |  
|Overseas taxation                           |                       |   |              |   |            |  
|                                            |                       |   |              |   |            |  
|Overseas taxes                              | 85                    |   | 19           |   |           |  
|                                            |                       |   |              |   |            |  
|Deferred taxation                           | (22                   | ) | (45          | ) | (1         | )
|                                            |                       |   |              |   |            |  
|                                            | 63                    |   | (26          | ) | (1         | )
|                                            |                       |   |              |   |            |  
|Associates                                  | 1                     |   |             |   |           |  
|                                            |                       |   |              |   |            |  
|Tax on profit (loss) on ordinary activities | 99                    |   | (52          | ) | (6         | )
|                                            |                       |   |              |   |            |  
|2002                                        |                       |   |              |   |            |  
|                                            |                       |   |              |   |            |  
|ICI and subsidiary undertakings             |                       |   |              |   |            |  
|                                            |                       |   |              |   |            |  
|United Kingdom taxation                     |                       |   |              |   |            |  
|                                            |                       |   |              |   |            |  
|Corporation tax                             | 9                     |   | (8           | ) | (3         | )
|                                            |                       |   |              |   |            |  
|Double taxation relief                      | (2                    | ) |             |   |           |  
|                                            |                       |   |              |   |            |  
|Deferred taxation                           | 62                    |   |             |   |           |  
|                                            |                       |   |              |   |            |  
|                                            | 69                    |   | (8           | ) | (3         | )
|                                            |                       |   |              |   |            |  
|Overseas taxation                           |                       |   |              |   |            |  
|                                            |                       |   |              |   |            |  
|Overseas taxes                              | 39                    |   |             |   |           |  
|                                            |                       |   |              |   |            |  
|Deferred taxation                           | 8                     |   | 7            |   |           |  
|                                            |                       |   |              |   |            |  
|                                            | 47                    |   | 7            |   |           |  
|                                            |                       |   |              |   |            |  
|Associates                                  | (1                    | ) |             |   |           |  
|                                            |                       |   |              |   |            |  
|Tax on profit (loss) on ordinary activities | 115                   |   | (1           | ) | (3         | )
|                                            |                       |   |              |   |            |  

UK and overseas taxation has been provided
    on the profits (losses) earned for the periods covered by the Group accounts.
UK corporation tax has been provided at the rate of 30% (2003 30%; 2002 30%).

The exceptional tax charges (credits) in 2004,
    2003 and 2002 were principally in respect of disposal and restructuring programmes,
as discussed in note 22.

ICI ANNUAL REPORT AND ACCOUNTS 2004

---





Back to Contents to the Accounts

| |  | ACCOUNTS |  | 75
| |  | -------- |  | --
| |  |          |  |   
| |  |          |  |   

|8 | Taxation on profit (loss) on ordinary
          activities (continued)
|- | ----------------------------------------------------------------------

|                                                                             | 2004 |  | 2003 |   | 2002 |  
|---------------------------------------------------------------------------- | ---- |  | ---- | - | ---- | -
|                                                                             | £m   |  | £m   |   | £m   |  
|                                                                             |      |  |      |   |      |  
|Profit (loss) on ordinary activities before taxation is analysed as follows: |      |  |      |   |      |  
|                                                                             |      |  |      |   |      |  
|United Kingdom                                                               | 103  |  | (74  | ) | 80   |  
|                                                                             |      |  |      |   |      |  
|Overseas                                                                     | 252  |  | 156  |   | 247  |  
|                                                                             |      |  |      |   |      |  
|Associates                                                                   | 4    |  | 3    |   | (10  | )
|                                                                             |      |  |      |   |      |  
|                                                                             | 359  |  | 85   |   | 317  |  
|                                                                             |      |  |      |   |      |  

The table below reconciles the total and current tax charge (credit) at the UK corporation tax rate to the Groups
tax on profit (loss)
on ordinary activities:

|                                                                         |     |   |     |   |     |  
|------------------------------------------------------------------------ | --- | - | --- | - | --- | -
|Taxation charge at UK corporation tax rate(2004 30%; 2003 30%; 2002 30%) | 108 |   | 26  |   | 95  |  
|                                                                         |     |   |     |   |     |  
|Movement on provisions                                                   | (8  | ) | (7  | ) | 26  |  
|                                                                         |     |   |     |   |     |  
|Local taxes                                                              | 9   |   | 19  |   | 6   |  
|                                                                         |     |   |     |   |     |  
|Capital (gains) losses not taxable/deductible                            | 23  |   | 27  |   | (22 | )
|                                                                         |     |   |     |   |     |  
|Taxable Intra-Group dividend income                                      | 16  |   | 6   |   | 15  |  
|                                                                         |     |   |     |   |     |  
|Depreciation permanently disallowed                                      |    |   | 2   |   | 5   |  
|                                                                         |     |   |     |   |     |  
|Overseas tax rates                                                       | (10 | ) | (8  | ) | (13 | )
|                                                                         |     |   |     |   |     |  
|Current year tax losses not relieved                                     |    |   | 24  |   | 25  |  
|                                                                         |     |   |     |   |     |  
|Prior year tax losses utilised                                           | (31 | ) | (36 | ) | (10 | )
|                                                                         |     |   |     |   |     |  
|Goodwill amortisation                                                    | 8   |   | 8   |   | 9   |  
|                                                                         |     |   |     |   |     |  
|Tax holidays/manufacturing exemptions                                    | (6  | ) | (8  | ) | (7  | )
|                                                                         |     |   |     |   |     |  
|Other                                                                    | 7   |   | (12 | ) | (18 | )
|                                                                         |     |   |     |   |     |  
|Tax on profit (loss) on ordinary activities                              | 116 |   | 41  |   | 111 |  
|                                                                         |     |   |     |   |     |  
|                                                                         |     |   |     |   |     |  
|                                                                         |     |   |     |   |     |  
|Timing differences                                                       |     |   |     |   |     |  
|                                                                         |     |   |     |   |     |  
|Movement on provisions                                                   | 68  |   | (46 | ) | 33  |  
|                                                                         |     |   |     |   |     |  
|Pension and employee liabilities                                         | (11 | ) | 10  |   | 11  |  
|                                                                         |     |   |     |   |     |  
|Depreciation                                                             |    |   |    |   | 16  |  
|                                                                         |     |   |     |   |     |  
|Other                                                                    | (19 | ) | (16 | ) | 17  |  
|                                                                         |     |   |     |   |     |  
|Total timing differences                                                 | 38  |   | (52 | ) | 77  |  
|                                                                         |     |   |     |   |     |  
|                                                                         |     |   |     |   |     |  
|                                                                         |     |   |     |   |     |  
|Current tax charge                                                       | 78  |   | 93  |   | 34  |  
|                                                                         |     |   |     |   |     |  

The main factors affecting the total tax charge in future periods will be any changes to the corporation tax rates in force in the countries in which the Group operates and the mix of profits between those
territories.

No taxes have been provided for liabilities which may
arise on the distribution of unremitted earnings of subsidiaries and associates,
except where distributions of such profits are planned. Cumulative unremitted
earnings of overseas subsidiaries and associates totalled approximately £1,527m at 31 December 2004 (2003 £1,309m; 2002 £996m).
It is not practicable to calculate the tax which would arise on remittance of
these amounts: the tax would be substantially lower if calculated at statutory
rates after giving effect to foreign tax credits.

ICI ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|76 |  | ACCOUNTS
|-- |  | --------

Notes relating to the accounts

|8                                                                                                                                      | Taxation on profit (loss) on ordinary
          activities (continued)
|-------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------
|                                                                                                                                       |                                                                       
|Deferred taxation                                                                                                                     
|                                                                                                                                       |                                                                       
|Deferred taxation accounted
            for in the Group financial statements and the potential amounts of
    deferred taxation were:
|                                                                                                                                       |                                                                       

|                                                                 | 2004 |   | 2003 |  
|---------------------------------------------------------------- | ---- | - | ---- | -
|                                                                 | £m   |   | £m   |  
|                                                                 |      |   |      |  
|Deferred tax liabilities                                         |      |   |      |  
|                                                                 |      |   |      |  
|UK fixed assets                                                  | 29   |   | 25   |  
|                                                                 |      |   |      |  
|Non-UK fixed assets                                              | 172  |   | 180  |  
|                                                                 |      |   |      |  
|UK pension asset                                                 | 142  |   | 139  |  
|                                                                 |      |   |      |  
|Others                                                           | 84   |   | 89   |  
|                                                                 |      |   |      |  
|                                                                 | 427  |   | 433  |  
|                                                                 |      |   |      |  
|Deferred tax (assets)                                            |      |   |      |  
|                                                                 |      |   |      |  
|Restructuring provisions                                         | (10  | ) | (25  | )
|                                                                 |      |   |      |  
|Pensions                                                         | (73  | ) | (48  | )
|                                                                 |      |   |      |  
|Employee liabilities                                             | (51  | ) | (65  | )
|                                                                 |      |   |      |  
|Business provisions                                              | (38  | ) | (60  | )
|                                                                 |      |   |      |  
|Stock valuation                                                  | (7   | ) | (9   | )
|                                                                 |      |   |      |  
|Provisions on disposal of businesses                             | (8   | ) | (41  | )
|                                                                 |      |   |      |  
|Losses                                                           | (95  | ) | (128 | )
|                                                                 |      |   |      |  
|Intangibles                                                      | (28  | ) | (44  | )
|                                                                 |      |   |      |  
|Foreign tax credits                                              | (54  | ) | (29  | )
|                                                                 |      |   |      |  
|Other                                                            | (57  | ) | (12  | )
|                                                                 |      |   |      |  
|                                                                 | (421 | ) | (461 | )
|                                                                 |      |   |      |  
|Less valuation allowances                                        | 76   |   | 107  |  
|                                                                 |      |   |      |  
|                                                                 | (345 | ) | (354 | )
|                                                                 |      |   |      |  
|Deferred tax liabilities accounted for at the balance sheet date | 82   |   | 79   |  
|                                                                 |      |   |      |  
|Analysed as:                                                     |      |   |      |  
|                                                                 |      |   |      |  
|Current                                                          | 126  |   | 64   |  
|                                                                 |      |   |      |  
|Non-current                                                      | (44  | ) | 15   |  
|                                                                 |      |   |      |  
|                                                                 | 82   |   | 79   |  
|                                                                 |      |   |      |  

Deferred tax assets of £76m (2003 £107m) have not been recognised due to the degree of uncertainty over the utilisation of the underlying tax losses and deductions in certain tax jurisdictions. The change
in valuation allowances during the year ended 31 December 2004 was £31m (2003 £14m) and the valuation allowance has been decreased by £6m (2003 £2m)
by a change in circumstances.

Operating losses of £313m (2003 £454m) are carried forward and available to reduce future taxable income in a number of jurisdictions: these losses have given rise to deferred tax assets of £95m (2003
£128m) against which are set valuation adjustments of £52m (2003 £83m). £3m
of these losses, net of valuation allowances, have expiration dates through to
2007 and the balance can be carried forward indefinitely.

The deferred tax adjustments to net income and net equity to conform with US GAAP are disclosed in note 42.

|9 | Dividends
|- | ---------
|  |          

|                                         | 2004                            |  | 2003 |  | 2002 |  | 2004 |  | 2003 |  | 2002 | 
|---------------------------------------- | ------------------------------- |  | ---- |  | ---- |  | ---- |  | ---- |  | ---- | 
|                                         | Pence per £1
    Ordinary Share |  | £m   |  | £m   |  | £m   | 
|                                         |                                 |  |      |  |      |  |      |  |      |  |      | 
|Interim, paid 1 October 2004             | 3.40                            |  | 2.75 |  | 3.00 |  | 40   |  | 32   |  | 36   | 
|                                         |                                 |  |      |  |      |  |      |  |      |  |      | 
|Second interim, payable on 15 April 2005 | 3.90                            |  | 3.50 |  | 4.50 |  | 46   |  | 42   |  | 52   | 
|                                         |                                 |  |      |  |      |  |      |  |      |  |      | 
|                                         | 7.30                            |  | 6.25 |  | 7.50 |  | 86   |  | 74   |  | 88   | 
|                                         |                                 |  |      |  |      |  |      |  |      |  |      | 

Impkemix Trustees Limited, a wholly owned subsidiary which acts as a trustee for the Imperial Chemical Industries PLC Employee Benefit Trust (the Trust) has waived the right to receive dividends on shares held by the Trust in its own name. Dividends received on shares allocated to beneficiaries and shares held in the form of American Depositary Shares
(ADSs) are distributed, respectively, to beneficiaries and ADS holders.



---



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|ACCOUNTS |  | 77
|-------- |  | --

|   |                                          
|-- | -----------------------------------------
|10 | Earnings (loss) per £1 Ordinary
    Share

|                                                                       |              |       |         |   |         |  
|---------------------------------------------------------------------- | ------------ | ----- | ------- | - | ------- | -
|Continuing                                                             | Discontinued | Total
|operations                                                             | operations   |      
|£m                                                                     | £m           | £m   
|                                                                       |              |       |         |   |         |  
|2004                                                                   |              |       |         |   |         |  
|                                                                       |              |       |         |   |         |  
|Net profit (loss) for the financial year before exceptional items      | 224          |       |        |   | 224     |  
|                                                                       |              |       |         |   |         |  
|Exceptional items after tax and minorities                             |             |       | (14     | ) | (14     | )
|                                                                       |              |       |         |   |         |  
|Net profit (loss) for the financial year                               | 224          |       | (14     | ) | 210     |  
|                                                                       |              |       |         |   |         |  
|                                                                       | million      |       | million |   | million |  
|                                                                       |              |       |         |   |         |  
|Weighted average Ordinary Shares in issue during year                  | 1,191        |       | 1,191   |   | 1,191   |  
|                                                                       |              |       |         |   |         |  
|Weighted average shares held by Group s employee share ownership plan | (8           | )     | (8      | ) | (8      | )
|                                                                       |              |       |         |   |         |  
|Basic weighted average Ordinary Shares in issue during year            | 1,183        |       | 1,183   |   | 1,183   |  
|                                                                       |              |       |         |   |         |  
|Dilutive effect of share options                                       | 1            |       | 1       |   | 1       |  
|                                                                       |              |       |         |   |         |  
|Diluted weighted average Ordinary Shares                               | 1,184        |       | 1,184   |   | 1,184   |  
|                                                                       |              |       |         |   |         |  
|                                                                       | pence        |       | pence   |   | pence   |  
|                                                                       |              |       |         |   |         |  
|Basic earnings (loss) per £1 Ordinary Share                            |              |       |         |   |         |  
|                                                                       |              |       |         |   |         |  
|before exceptional items                                               | 18.9         |       |        |   | 18.9    |  
|                                                                       |              |       |         |   |         |  
|after exceptional items                                                | 18.9         |       | (1.1    | ) | 17.8    |  
|                                                                       |              |       |         |   |         |  
|Diluted earnings (loss) per £1 Ordinary Share                          |              |       |         |   |         |  
|                                                                       |              |       |         |   |         |  
|before exceptional items                                               | 18.8         |       |        |   | 18.8    |  
|                                                                       |              |       |         |   |         |  
|after exceptional items                                                | 18.8         |       | (1.1    | ) | 17.7    |  
|                                                                       |              |       |         |   |         |  
|                                                                       |              |       |         |   |         |  
|                                                                       |              |       |         |   |         |  
|2003                                                                   | £m           |       | £m      |   | £m      |  
|                                                                       |              |       |         |   |         |  
|Net profit for the financial year before exceptional items             | 183          |       |        |   | 183     |  
|                                                                       |              |       |         |   |         |  
|Exceptional items after tax and minorities                             | (160         | )     | (3      | ) | (163    | )
|                                                                       |              |       |         |   |         |  
|Net profit (loss) for the financial year                               | 23           |       | (3      | ) | 20      |  
|                                                                       |              |       |         |   |         |  
|                                                                       | million      |       | million |   | million |  
|                                                                       |              |       |         |   |         |  
|Weighted average Ordinary Shares in issue during year                  | 1,191        |       | 1,191   |   | 1,191   |  
|                                                                       |              |       |         |   |         |  
|Weighted average shares held by Group s employee share ownership plan | (9           | )     | (9      | ) | (9      | )
|                                                                       |              |       |         |   |         |  
|Basic weighted average Ordinary Shares in issue during year            | 1,182        |       | 1,182   |   | 1,182   |  
|                                                                       |              |       |         |   |         |  
|Dilutive effect of share options                                       |             |       |        |   |        |  
|                                                                       |              |       |         |   |         |  
|Diluted weighted average Ordinary Shares                               | 1,182        |       | 1,182   |   | 1,182   |  
|                                                                       |              |       |         |   |         |  
|                                                                       | pence        |       | pence   |   | pence   |  
|                                                                       |              |       |         |   |         |  
|Basic earnings (loss) per £1 Ordinary Share                            |              |       |         |   |         |  
|                                                                       |              |       |         |   |         |  
|before exceptional items                                               | 15.5         |       |        |   | 15.5    |  
|                                                                       |              |       |         |   |         |  
|after exceptional items                                                | 2.0          |       | (0.3    | ) | 1.7     |  
|                                                                       |              |       |         |   |         |  
|Diluted earnings (loss) per £1 Ordinary Share                          |              |       |         |   |         |  
|                                                                       |              |       |         |   |         |  
|before exceptional items                                               | 15.5         |       |        |   | 15.5    |  
|                                                                       |              |       |         |   |         |  
|after exceptional items                                                | 2.0          |       | (0.3    | ) | 1.7     |  
|                                                                       |              |       |         |   |         |  

ICI ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|78 |  | ACCOUNTS
|-- |  | --------

Notes relating
to the accounts



|10 | Earnings (loss) per £1 Ordinary
    Share (continued)
|-- | -----------------------------------------------------

|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | - | ------------ | - | ------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                    | Continuing |   | Discontinued |   | Total   |  
|                                                                                                                                                                                                                                                                                                                                                                                                    | operations |   | operations   |   |         |  
|                                                                                                                                                                                                                                                                                                                                                                                                    | £m         |   | £m           |   | £m      |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|2002                                                                                                                                                                                                                                                                                                                                                                                                |            |   |              |   |         |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|Net profit for the financial year before exceptional items                                                                                                                                                                                                                                                                                                                                          | 227        |   |             |   | 227     |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|Exceptional items after tax and minorities                                                                                                                                                                                                                                                                                                                                                          | (61        | ) | 13           |   | (48     | )
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|Net profit (loss) for the financial year                                                                                                                                                                                                                                                                                                                                                            | 166        |   | 13           |   | 179     |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|                                                                                                                                                                                                                                                                                                                                                                                                    | million    |   | million      |   | million |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|Weighted average Ordinary Shares in issue during year                                                                                                                                                                                                                                                                                                                                               | 1,123      |   | 1,123        |   | 1,123   |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|Weighted average shares held by Group s employee share ownership plan                                                                                                                                                                                                                                                                                                                              | (9         | ) | (9           | ) | (9      | )
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|Basic weighted average Ordinary Shares in issue during year                                                                                                                                                                                                                                                                                                                                         | 1,114      |   | 1,114        |   | 1,114   |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|Dilutive effect of share options                                                                                                                                                                                                                                                                                                                                                                    | 2          |   | 2            |   | 2       |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|Diluted weighted average Ordinary Shares                                                                                                                                                                                                                                                                                                                                                            | 1,116      |   | 1,116        |   | 1,116   |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|                                                                                                                                                                                                                                                                                                                                                                                                    | pence      |   | pence        |   | pence   |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|Basic earnings (loss) per £1 Ordinary Share                                                                                                                                                                                                                                                                                                                                                         |            |   |              |   |         |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|before exceptional items                                                                                                                                                                                                                                                                                                                                                                            | 20.4       |   |             |   | 20.4    |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|after exceptional items                                                                                                                                                                                                                                                                                                                                                                             | 14.9       |   | 1.2          |   | 16.1    |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|Diluted earnings (loss) per £1 Ordinary Share                                                                                                                                                                                                                                                                                                                                                       |            |   |              |   |         |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|before exceptional items                                                                                                                                                                                                                                                                                                                                                                            | 20.3       |   |             |   | 20.3    |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|after exceptional items                                                                                                                                                                                                                                                                                                                                                                             | 14.8       |   | 1.2          |   | 16.0    |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |   |              |   |         |  
|There are no options,
       warrants or rights outstanding in respect of unissued shares except for
       the share option scheme for employees (note 23). Earnings per £1
       Ordinary Share before exceptional items have been calculated to show the
       impact of exceptional items as these can have a distorting effect on earnings
    and therefore warrant separate consideration. |           
|                                                                                                                                                                                                                                                                                                                                                                                                    |           

|11 | Intangible fixed assets  goodwill
|-- | ----------------------------------

|                                                                                                                                                                                                                                                                                                                                                                                          | £m  |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | -
|                                                                                                                                                                                                                                                                                                                                                                                          |     |  
|Group                                                                                                                                                                                                                                                                                                                                                                                     |     |  
|                                                                                                                                                                                                                                                                                                                                                                                          |     |  
|Cost                                                                                                                                                                                                                                                                                                                                                                                      |     |  
|                                                                                                                                                                                                                                                                                                                                                                                          |     |  
|At beginning of year                                                                                                                                                                                                                                                                                                                                                                      | 728 |  
|                                                                                                                                                                                                                                                                                                                                                                                          |     |  
|Acquisitions                                                                                                                                                                                                                                                                                                                                                                              | 1   |  
|                                                                                                                                                                                                                                                                                                                                                                                          |     |  
|Exchange adjustments                                                                                                                                                                                                                                                                                                                                                                      | (24 | )
|                                                                                                                                                                                                                                                                                                                                                                                          |     |  
|At end of year                                                                                                                                                                                                                                                                                                                                                                            | 705 |  
|                                                                                                                                                                                                                                                                                                                                                                                          |     |  
|Amortisation                                                                                                                                                                                                                                                                                                                                                                              |     |  
|                                                                                                                                                                                                                                                                                                                                                                                          |     |  
|At beginning of year                                                                                                                                                                                                                                                                                                                                                                      | 196 |  
|                                                                                                                                                                                                                                                                                                                                                                                          |     |  
|Charge for year                                                                                                                                                                                                                                                                                                                                                                           | 35  |  
|                                                                                                                                                                                                                                                                                                                                                                                          |     |  
|Exchange adjustments                                                                                                                                                                                                                                                                                                                                                                      | (6  | )
|                                                                                                                                                                                                                                                                                                                                                                                          |     |  
|At end of year                                                                                                                                                                                                                                                                                                                                                                            | 225 |  
|                                                                                                                                                                                                                                                                                                                                                                                          |     |  
|Net book value at end 2004                                                                                                                                                                                                                                                                                                                                                                | 480 |  
|                                                                                                                                                                                                                                                                                                                                                                                          |     |  
|Net book value at end 2003                                                                                                                                                                                                                                                                                                                                                                | 532 |  
|                                                                                                                                                                                                                                                                                                                                                                                          |     |  
|Substantially all of the Groups
      goodwill arose on the purchase of Acheson Industries Inc. and of the European
      Home Improvement business of Williams Plc in 1998. The Directors estimate
      that the useful economic life of this goodwill is at least 20 years and
      it is amortised over 20 years in accordance with FRS No. 10Goodwill
      and Intangible
Assets. |    



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|ACCOUNTS |  | 79
|-------- |  | --



|12 | Tangible fixed assets
|-- | ---------------------

|                              |           |   |           |   |              |   |       |  
|----------------------------- | --------- | - | --------- | - | ------------ | - | ----- | -
|                              | Land and  |   | Plant and |   | Payments on  |   | Total |  
|                              | buildings |   | equipment |   | account and  |   |       |  
|                              |           |   |           |   | assets in    |   |       |  
|                              |           |   |           |   | course of    |   |       |  
|                              |           |   |           |   | construction |   |       |  
|                              | £m        |   | £m        |   | £m           |   | £m    |  
|                              |           |   |           |   |              |   |       |  
|Group                         |           |   |           |   |              |   |       |  
|                              |           |   |           |   |              |   |       |  
|Cost                          |           |   |           |   |              |   |       |  
|                              |           |   |           |   |              |   |       |  
|At beginning of year          | 868       |   | 2,246     |   | 115          |   | 3,229 |  
|                              |           |   |           |   |              |   |       |  
|New subsidiary undertakings   |          |   | 1         |   | 1            |   | 2     |  
|                              |           |   |           |   |              |   |       |  
|Capital expenditure           |          |   |          |   | 160          |   | 160   |  
|                              |           |   |           |   |              |   |       |  
|Transfers of assets into use  | 26        |   | 133       |   | (159         | ) |      |  
|                              |           |   |           |   |              |   |       |  
|Exchange adjustments          | (39       | ) | (74       | ) | (5           | ) | (118  | )
|                              |           |   |           |   |              |   |       |  
|Disposals and other movements | (34       | ) | (142      | ) | 9            |   | (167  | )
|                              |           |   |           |   |              |   |       |  
|At end of year                | 821       |   | 2,164     |   | 121          |   | 3,106 |  
|                              |           |   |           |   |              |   |       |  
|Depreciation                  |           |   |           |   |              |   |       |  
|                              |           |   |           |   |              |   |       |  
|At beginning of year          | 238       |   | 1,197     |   |              |   | 1,435 |  
|                              |           |   |           |   |              |   |       |  
|Charge for year               | 27        |   | 142       |   |              |   | 169   |  
|                              |           |   |           |   |              |   |       |  
|Exchange adjustments          | (12       | ) | (48       | ) |              |   | (60   | )
|                              |           |   |           |   |              |   |       |  
|Disposals and other movements | (5        | ) | (92       | ) |              |   | (97   | )
|                              |           |   |           |   |              |   |       |  
|At end of year                | 248       |   | 1,199     |   |              |   | 1,447 |  
|                              |           |   |           |   |              |   |       |  
|Net book value at end 2004    | 573       |   | 965       |   | 121          |   | 1,659 |  
|                              |           |   |           |   |              |   |       |  
|Net book value at end 2003    | 630       |   | 1,049     |   | 115          |   | 1,794 |  
|                              |           |   |           |   |              |   |       |  

Capital expenditure in the year includes capitalised finance leases of £1m; creditors for capital work done but not paid increased by £1m; the resulting cash expenditure on tangible fixed assets was
£158m.

The net book value of the tangible fixed assets of the Group includes capitalised finance leases of £7m (2003 £6m) comprising cost of £10m (2003 £8m) less depreciation of £3m (2003
£2m). The depreciation charge for the year in respect of capitalised leases was £1m (2003 £1m) and finance charges were £nil (2003 £nil).

Included in land and buildings is £125m (2003 £137m) in respect of the cost of land which is not subject to depreciation.



ICI ANNUAL REPORT
    AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|80 |  | ACCOUNTS |  | 
|-- |  | -------- |  | 
|   |  |          |  | 

Notes relating to the accounts

|12 | Tangible fixed assets (continued)
|-- | ---------------------------------
|   |                                  
|   |                                  

|                                                               |           | Land and     |         | Plant and |      | Payments on |      | Total  |  
|-------------------------------------------------------------- | --------- | ------------ | ------- | --------- | ---- | ----------- | ---- | ------ | -
|buildings                                                      | equipment | account and  |        
|                                                               |           | assets in    |        
|                                                               |           | course of    |        
|                                                               |           | construction |        
|£m                                                             | £m        | £m           | £m     
|                                                               |           |              |         |           |      |             |      |        |  
|Company                                                        |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         |           |      |             |      |        |  
|Cost                                                           |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         |           |      |             |      |        |  
|At beginning of year                                           |           | 32           |         | 179       |      | 11          |      | 222    |  
|                                                               |           |              |         |           |      |             |      |        |  
|Capital expenditure                                            |           |             |         |          |      | 11          |      | 11     |  
|                                                               |           |              |         |           |      |             |      |        |  
|Transfers of assets into use                                   |           |             |         | 10        |      | (10         | )    |       |  
|                                                               |           |              |         |           |      |             |      |        |  
|Disposals and other movements                                  |           |             |         | (2        | )    |            |      | (2     | )
|                                                               |           |              |         |           |      |             |      |        |  
|At end of year                                                 |           | 32           |         | 187       |      | 12          |      | 231    |  
|                                                               |           |              |         |           |      |             |      |        |  
|Depreciation                                                   |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         |           |      |             |      |        |  
|At beginning of year                                           |           | 16           |         | 138       |      |            |      | 154    |  
|                                                               |           |              |         |           |      |             |      |        |  
|Charge for year                                                |           | 1            |         | 12        |      |            |      | 13     |  
|                                                               |           |              |         |           |      |             |      |        |  
|Disposals and other movements                                  |           |             |         | (2        | )    |            |      | (2     | )
|                                                               |           |              |         |           |      |             |      |        |  
|At end of year                                                 |           | 17           |         | 148       |      |            |      | 165    |  
|                                                               |           |              |         |           |      |             |      |        |  
|Net book value at end 2004                                     |           | 15           |         | 39        |      | 12          |      | 66     |  
|                                                               |           |              |         |           |      |             |      |        |  
|Net book value at end 2003                                     |           | 16           |         | 41        |      | 11          |      | 68     |  
|                                                               |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         |           |      |             |      |        |  
|                                                               | Group     |              | Company |          
|                                                               |           |              |         |           |      |             |      |       
|                                                               |           | 2004         |         | 2003      | 2004 |             | 2003 |       
|                                                               |           | £m           |         | £m        |      | £m          |      | £m     |  
|                                                               |           |              |         |           |      |             |      |        |  
|The net book value of land and buildings comprises:            |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         |           |      |             |      |        |  
|Freeholds                                                      |           | 536          |         | 591       |      | 5           |      | 5      |  
|                                                               |           |              |         |           |      |             |      |        |  
|Long leases (over 50 years unexpired)                          |           | 18           |         | 19        |      |            |      |       |  
|                                                               |           |              |         |           |      |             |      |        |  
|Short leases                                                   |           | 19           |         | 20        |      | 10          |      | 11     |  
|                                                               |           |              |         |           |      |             |      |        |  
|                                                               |           | 573          |         | 630       |      | 15          |      | 16     |  
|                                                               |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         |           |      |             |      |        |  
|13   Investments in subsidiary
         undertakingsCompany   |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         | Shares    |      | Loans       |      | Total  |  
|                                                               |           |              |         | £m        | £m   | £m         
|                                                               |           |              |         |           |      |             |      |        |  
|Cost                                                           |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         |           |      |             |      |        |  
|At beginning of year                                           |           |              |         | 3,885     |      | 6,678       |      | 10,563 |  
|                                                               |           |              |         |           |      |             |      |        |  
|New investments/new loans                                      |           |              |         |          |      | 1,723       |      | 1,723  |  
|                                                               |           |              |         |           |      |             |      |        |  
|Disposals/loans repaid                                         |           |              |         | (1        | )    | (239        | )    | (240   | )
|                                                               |           |              |         |           |      |             |      |        |  
|Exchange adjustments                                           |           |              |         | (3        | )    | (117        | )    | (120   | )
|                                                               |           |              |         |           |      |             |      |        |  
|At end of year                                                 |           |              |         | 3,881     |      | 8,045       |      | 11,926 |  
|                                                               |           |              |         |           |      |             |      |        |  
|Provisions                                                     |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         |           |      |             |      |        |  
|At beginning of year                                           |           |              |         | (73       | )    | (1          | )    | (74    | )
|                                                               |           |              |         |           |      |             |      |        |  
|Exchange adjustments                                           |           |              |         | 2         |      |            |      | 2      |  
|                                                               |           |              |         |           |      |             |      |        |  
|At end of year                                                 |           |              |         | (71       | )    | (1          | )    | (72    | )
|                                                               |           |              |         |           |      |             |      |        |  
|Balance sheet value at end 2004                                |           |              |         | 3,810     |      | 8,044       |      | 11,854 |  
|                                                               |           |              |         |           |      |             |      |        |  
|Balance sheet value at end 2003                                |           |              |         | 3,812     |      | 6,677       |      | 10,489 |  
|                                                               |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         |           |      | 2004        |      | 2003   |  
|                                                               |           |              |         |           |      | £m          |      | £m     |  
|                                                               |           |              |         |           |      |             |      |        |  
|Shares in subsidiary undertakings which are listed investments |           |              |         |           |      |             |      |        |  
|                                                               |           |              |         |           |      |             |      |        |  
|Balance sheet value                                            |           |              |         |           |      | 4           |      | 4      |  
|                                                               |           |              |         |           |      |             |      |        |  
|Market value                                                   |           |              |         |           |      | 56          |      | 49     |  
|                                                               |           |              |         |           |      |             |      |        |  

|                                                                                                                                                                                                                                                                                                                              
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The Companys
        investments in its subsidiary undertakings, which are eliminated on consolidation,
        consist of either equity or long-term loans, or both. Normal trading
        balances are included in either debtors or creditors. Information on
    principal subsidiary undertakings is given on page 118.
|                                                                                                                                                                                                                                                                                                                              
|ICI ANNUAL REPORT AND
    ACCOUNTS 2004                                                                                                                                                                                                                                                                                       

---



Back to Contents to the Accounts

|   |                                                      | ACCOUNTS |  | 81
|-- | ---------------------------------------------------- | -------- |  | --
|   |                                                      |          |  |   
|14 | Investments
    in participating and other interests |          | 
|   |                                                      |          |  |   

|                                               | Associates |            | Otherinvestments |    | Total  |  
|---------------------------------------------- | ---------- | ---------- | ---------------- | -- | ------ | -
|Equity                                         |            | Non equity | Shares           |    | Loansø |  
|accounted                                      | accounted  |            |                  |    |       
|shares                                         | shares     |            |                  |   
|£m                                             | £m         | £m         |                  | £m | £m    
|                                               |            |            |                  |    |        |  
|Group                                          |            |            |                  |    |        |  
|                                               |            |            |                  |    |        |  
|Cost                                           |            |            |                  |    |        |  
|                                               |            |            |                  |    |        |  
|At beginning of year                           | 12         |            | 1                |    | 18     |  
|                                               |            |            |                  |    |        |  
|Additions                                      |           |            |                 |    | 2      |  
|                                               |            |            |                  |    |        |  
|Disposals and other movements                  |           |            |                 |    |       |  
|                                               |            |            |                  |    |        |  
|Reclassifications                              |           |            |                 |    | 1      |  
|                                               |            |            |                  |    |        |  
|Exchange adjustments                           | (1         | )          |                 |    | (3     | )
|                                               |            |            |                  |    |        |  
|At end of year                                 | 11         |            | 1                |    | 18     |  
|                                               |            |            |                  |    |        |  
|Share of post-acquisition reserves less losses |            |            |                  |    |        |  
|                                               |            |            |                  |    |        |  
|At beginning of year                           | 13         |            |                  |    |        |  
|                                               |            |            |                  |    |        |  
|Retained profits less losses                   | 2          |            |                  |    |        |  
|                                               |            |            |                  |    |        |  
|Reclassifications                              | (1         | )          |                  |    |        |  
|                                               |            |            |                  |    |        |  
|Disposals and other movements                  |           |            |                  |    |        |  
|                                               |            |            |                  |    |        |  
|Exchange adjustments                           | 1          |            |                  |    |        |  
|                                               |            |            |                  |    |        |  
|At end of year                                 | 15         |            |                  |    |        |  
|                                               |            |            |                  |    |        |  
|Provisions                                     |            |            |                  |    |        |  
|                                               |            |            |                  |    |        |  
|At beginning of year                           |           |            | (1               | )  | (1     | )
|                                               |            |            |                  |    |        |  
|Additions                                      |           |            |                 |    |       |  
|                                               |            |            |                  |    |        |  
|Disposals                                      |           |            |                 |    |       |  
|                                               |            |            |                  |    |        |  
|Exchange adjustments                           |           |            |                 |    |       |  
|                                               |            |            |                  |    |        |  
|At end of year                                 |           |            | (1               | )  | (1     | )
|                                               |            |            |                  |    |        |  
|Balance sheet value at end 2004                | 26         |            |                 |    | 17     |  
|                                               |            |            |                  |    |        |  
|Balance sheet value at end 2003                | 25         |            |                 |    | 17     |  
|                                               |            |            |                  |    |        |  

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ø | At the start of 2004 loans to other investments principally comprised the Groups loans to its investment in Ineos Chlor. Under an agreement announced in October 2004, Ineos agreed to take over ICIs outstanding funding
commitment to Ineos Chlor of £55m. As part of the agreement, ICI has written off all existing indebtedness from Ineos Chlor and transferred its 15% shareholding in Ineos Chlor to Ineos (see note 39). Of the £134m of loans advanced,
£129m had been fully provided (£30m transferred from other provisions (see note 21)). The net write off of the balance of £5m has been included as an exceptional item (see note 3).

The fair values of unlisted investments (Other investments-shares) are not materially different from their carrying values.

The Groups principal associate at 31 December 2004 is:

|                 |  | Issued share and loan capital at date
    of latest available
audited accounts |  | Held by
    a subsidiary 
    of ICI | Principal activities
|---------------- |  | ------------------------------------------------------------------------------ |  | ------------------------------------ | --------------------
|                 |  | Class of capital                                                               |  | £m                                   |                     
|                 |  |                                                                                |  |                                      |                     
|IC Insurance Ltd |  | Ordinary                                                                       |  | 20                                   |                     
|                 |  |                                                                                |  |                                      |                     

IC Insurance Ltd is incorporated in England and its principal operations are carried out in the UK.

|ICI ANNUAL REPORT AND
    ACCOUNTS 2004
|---------------------------------------

---



Back to Contents to the Accounts

|82                                 |                                                                  | ACCOUNTS |  | 
|---------------------------------- | ---------------------------------------------------------------- | -------- |  | 
|                                   |                                                                  |          |  | 
|                                   |                                                                  |          |  | 
|Notes relating to the
    accounts |                                                                  |         
|                                   |                                                                  |          |  | 
|14                                 | Investments in participating and other
    interests (continued) |          | 
|                                   |                                                                  |          | 

|                                 |        | Other |  
|-------------------------------- | ------ | ----- | -
|                                 | shares
|                                 | £m    
|                                 |        |       |  
|Company                          |        |       |  
|                                 |        |       |  
|Cost                             |        |       |  
|                                 |        |       |  
|At the beginning and end of year |        | 2     |  
|                                 |        |       |  
|Provisions                       |        |       |  
|                                 |        |       |  
|At the beginning and end of year |        | (1    | )
|                                 |        |       |  
|Balance sheet value at end 2004  |        | 1     |  
|                                 |        |       |  
|Balance sheet value at end 2003  |        | 1     |  
|                                 |        |       |  

|   |       
|-- | ------
|15 | Stocks
|   |       

|                                    |  | Group |  | Company | 
|----------------------------------- |  | ----- |  | ------- | 
|                                    |  |       |  |         | 
|                                    |  | 2004  |  | 2003    | 
|                                    |  | £m    |  | £m      | 
|                                    |  |       |  |         | 
|Raw materials and consumables       |  | 212   |  | 204     | 
|                                    |  |       |  |         | 
|Stocks in process                   |  | 19    |  | 14      | 
|                                    |  |       |  |         | 
|Finished goods and goods for resale |  | 417   |  | 408     | 
|                                    |  |       |  |         | 
|                                    |  | 648   |  | 626     | 
|                                    |  |       |  |         | 
|                                    |  |       |  |         | 

|16 | Debtors
|-- | -------

|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|--------------------------------------------- | ----- | - | --------------------------------- | - | ------- |  | ---- |  | ----- |  | ----- | 
|                                              | Group |   | Non-operating
            debtors |   | Company | 
|                                              |       |   | included
            in Group     |   |         |  |      | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|                                              | 2004  |   | 2003                              |   | 2004    |  | 2003 |  | 2004  |  | 2003  | 
|                                              | £m    |   | £m                                |   | £m      |  | £m   |  | £m    |  | £m    | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|Amounts due within one year                   |       |   |                                   |   |         |  |      |  |       |  |       | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|Trade debtors                                 | 795   |   | 818                               |   |         |  |      |  | 5     |  | 14    | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|Less: amounts set aside for doubtful accounts | (39   | ) | (47                               | ) |         |  |      |  |      |  |      | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|                                              | 756   |   | 771                               |   |         |  |      |  | 5     |  | 14    | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|Amounts owed by subsidiary undertakings       |       |   |                                   |   |         |  |      |  | 1,827 |  | 2,065 | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|Prepaid pension costs                         | 57    |   | 54                                |   |         |  |      |  | 35    |  | 30    | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|Taxation recoverable                          | 10    |   | 22                                |   | 10      |  | 22   |  |      |  |      | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|Other prepayments and accrued income          | 85    |   | 95                                |   | 9       |  | 21   |  | 13    |  | 27    | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|Other debtors                                 | 141   |   | 142                               |   | 13      |  | 5    |  | 4     |  | 5     | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|                                              | 1,049 |   | 1,084                             |   | 32      |  | 48   |  | 1,884 |  | 2,141 | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|Amounts due after more than one year          |       |   |                                   |   |         |  |      |  |       |  |       | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|Prepaid pension costs                         | 473   |   | 453                               |   |        |  |     |  | 303   |  | 297   | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|Other debtors                                 | 65    |   | 68                                |   | 40      |  | 42   |  |      |  |      | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|                                              | 538   |   | 521                               |   | 40      |  | 42   |  | 303   |  | 297   | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 
|                                              | 1,587 |   | 1,605                             |   | 72      |  | 90   |  | 2,187 |  | 2,438 | 
|                                              |       |   |                                   |   |         |  |      |  |       |  |       | 

Trade debtors includes amounts which have been securitised with a financial institution. An amount of £104m (2003 nil) is included within short-term borrowings as the Group retains the risks in relation to this
amount. Accordingly the financial institution has the rights over amounts included within trade debtors of £168m at 31 December 2004 (2003 nil) (up to a maximum of its loan).

The Company has also provided an asset-backed guarantee, via a wholly owned subsidiary, Receivables Funding Ltd (the SPV) specifically incorporated to provide the guarantee, for £250m to support its commitments for the ICI Pension Fund (see note 40). The asset-backed guarantee is secured by
way of fixed and floating charges over the trade debtors and cash of certain Group companies, which have been assigned to the SPV. At 31 December 2004, £251m of trade debtors and £80m of cash were assigned to the SPV.

Under US GAAP, the amounts due after more than one year would be shown as non-current.

|ICI ANNUAL REPORT AND
    ACCOUNTS 2004
|---------------------------------------

---



Back to Contents to the Accounts

|ACCOUNTS |  | 83
|-------- |  | --
|         |  |   

|17 | Current asset
    investments and short-term deposits
|-- | -----------------------------------------------------

|                                             | Group | 
|-------------------------------------------- | ----- | 
|                                             |       | 
|                                             | 2004  | 
|                                             | £m    | 
|                                             |       | 
|Unlisted investments and short-term deposits | 105   | 
|                                             |       | 
|Included in cash and cash equivalents        | 82    | 
|                                             |       | 

Included in unlisted investments and short-term deposits
and cash are amounts totalling £94m (2003 £99m) held by the Groups
insurance subsidiaries. At 31 December 2004 £48m (2003 £40m) was
readily available for the general purposes of the Group.

The management of current asset investments is discussed in note 37.

|18 | Short-term borrowings
|-- | ---------------------

|                                                      | Group |  | Average interest | 
|----------------------------------------------------- | ----- |  | ---------------- | 
|                                                      |       |  |                  | 
|                                                      |       |  |                  | 
|                                                      | 2004  |  | 2003             | 
|                                                      | £m    |  | £m               | 
|                                                      |       |  |                  | 
|Bank borrowings                                       |       |  |                  | 
|                                                      |       |  |                  | 
|Secured  by floating charge                          | 112   |  | 1                | 
|                                                      |       |  |                  | 
|Unsecured                                             | 10    |  | 16               | 
|                                                      |       |  |                  | 
|                                                      | 122   |  | 17               | 
|                                                      |       |  |                  | 
|Other borrowings                                      |       |  |                  | 
|                                                      |       |  |                  | 
|Unsecured                                             | 15    |  | 12               | 
|                                                      |       |  |                  | 
|                                                      | 137   |  | 29               | 
|                                                      |       |  |                  | 
|Maximum short-term borrowings outstanding during year | 140   |  | 755              | 
|                                                      |       |  |                  | 

|* | Based on borrowings outstanding
    at 31 December.
|- | ---------------------------------------------------

Various short-term lines of credit, both committed and uncommitted, are available to the Group and are reviewed regularly. There are no facility fees payable on uncommitted lines nor is there a requirement for an
equivalent deposit to be maintained with any of the banks.

|19 | Other creditors
|-- | ---------------

|                                                  | Group | Non-operating
              creditors |       | Company |     
|------------------------------------------------- | ----- | ------------------------------------- | ----- | ------- | ----
|                                                  |       | included
              in Group       |       |         |     
|                                                  |       |                                       |       |         |     
|                                                  | 2004  |                                       | 2003  |         | 2004
|                                                  | £m    |                                       | £m    |         | £m  
|                                                  |       |                                       |       |         |     
|Amounts due within one year                       |       |                                       |       |         |     
|                                                  |       |                                       |       |         |     
|Trade creditors                                   | 740   |                                       | 665   |         |     
|                                                  |       |                                       |       |         |     
|Amounts owed to subsidiary undertakings           |       |                                       |       |         |     
|                                                  |       |                                       |       |         |     
|Corporate taxation                                | 386   |                                      | 342   |         | 386 
|                                                  |       |                                       |       |         |     
|Value added and payroll taxes and social security | 27    |                                       | 30    |         |     
|                                                  |       |                                       |       |         |     
|Dividends to Ordinary Shareholders                | 46    |                                       | 42    |         | 46  
|                                                  |       |                                       |       |         |     
|Accruals                                          | 276   |                                       | 288   |         | 58  
|                                                  |       |                                       |       |         |     
|Other creditors*                                  | 300   |                                       | 296   |         | 11  
|                                                  |       |                                       |       |         |     
|                                                  | 1,775 |                                       | 1,663 |         | 501 
|                                                  |       |                                       |       |         |     
|Amounts due after more than one year              |       |                                       |       |         |     
|                                                  |       |                                       |       |         |     
|Corporate taxation                                | 1     |                                       | 1     |         |     
|                                                  |       |                                       |       |         |     
|Amounts owed to subsidiary undertakings           |       |                                       |       |         |     
|                                                  |       |                                       |       |         |     
|Pension liabilities                               | 5     |                                       |      |         |     
|                                                  |       |                                       |       |         |     
|Other creditors*                                  | 14    |                                       | 17    |         |     
|                                                  |       |                                       |       |         |     
|                                                  | 20    |                                       | 18    |         |     
|                                                  |       |                                       |       |         |     

|*                                                                                                                 | Includes obligations under finance leases (note 34).                                                                                                                                                                                                                                                                                                                                                                                                    
|----------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                 | Included within this balance
       is the current year corporate taxation charge and provision for potential
       liabilities for taxation arising in prior years and various tax exposures.
       In particular, a
provision of £84m exists for the exposures arising from the Groups
reshaping and disposal programme and a provision of £71m to cover exposures
in respect
of transfer pricing issues in various jurisdictions around the world.
|                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Under
        US GAAP, provisions for liabilities and charges (note 21) would be shown
    under other creditors.



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|84 |  | ACCOUNTS
|-- |  | --------
|   |  |         

Notes relating to the accounts

|20 | Loans
|-- | -----

|                                                                    |              |  |           |  | Group |  | Company | 
|------------------------------------------------------------------- | ------------ |  | --------- |  | ----- |  | ------- | 
|                                                                    |              |  |           |  |       |  |         | 
|                                                                    |              |  | Repayment |  | 2004  |  | 2003    | 
|                                                                    |              |  | dates     |  | £m    |  | £m      | 
|                                                                    |              |  |           |  |       |  |         | 
|Secured loans                                                       |              |  |           |  |       |  |         | 
|                                                                    |              |  |           |  |       |  |         | 
|US dollars                                                          |              |  | 2005/2016 |  | 2     |  | 6       | 
|                                                                    |              |  |           |  |       |  |         | 
|Other currencies                                                    |              |  | 2005/2006 |  | 1     |  | 41      | 
|                                                                    |              |  |           |  |       |  |         | 
|Total secured                                                       |              |  |           |  | 3     |  | 47      | 
|                                                                    |              |  |           |  |       |  |         | 
|Secured by fixed charge                                             |  bank loans |  |           |  | 1     |  | 23      | 
|                                                                    |              |  |           |  |       |  |         | 
|                                                                    |  other      |  |           |  |      |  |        | 
|                                                                    |              |  |           |  |       |  |         | 
|Secured by floating charge                                          |  bank loans |  |           |  | 2     |  | 7       | 
|                                                                    |              |  |           |  |       |  |         | 
|                                                                    |  other      |  |           |  |      |  | 17      | 
|                                                                    |              |  |           |  |       |  |         | 
|Unsecured loans                                                     |              |  |           |  |       |  |         | 
|                                                                    |              |  |           |  |       |  |         | 
|Sterling                                                            |              |  |           |  |       |  |         | 
|                                                                    |              |  |           |  |       |  |         | 
|93/4% Bonds                                                         |              |  | 2005      |  | 100   |  | 100     | 
|                                                                    |              |  |           |  |       |  |         | 
|7.625% Bonds                                                        |              |  | 2007      |  | 299   |  | 299     | 
|                                                                    |              |  |           |  |       |  |         | 
|Others                                                              |              |  | 2005      |  | 13    |  | 10      | 
|                                                                    |              |  |           |  |       |  |         | 
|                                                                    |              |  |           |  | 412   |  | 409     | 
|                                                                    |              |  |           |  |       |  |         | 
|US dollars                                                          |              |  |           |  |       |  |         | 
|                                                                    |              |  |           |  |       |  |         | 
|87/8% Debentures                                                    |              |  | 2006      |  | 130   |  | 140     | 
|                                                                    |              |  |           |  |       |  |         | 
|71/20% Notes                                                        |              |  | 2007      |  | 130   |  | 140     | 
|                                                                    |              |  |           |  |       |  |         | 
|619/20% Notes                                                       |              |  | 2004      |  |      |  | 421     | 
|                                                                    |              |  |           |  |       |  |         | 
|55/8% Notes                                                         |              |  | 2013      |  | 259   |  | 281     | 
|                                                                    |              |  |           |  |       |  |         | 
|43/8% Notes                                                         |              |  | 2008      |  | 259   |  | 281     | 
|                                                                    |              |  |           |  |       |  |         | 
|Variable rate medium-term notes                                     | 2010         |  | 26        |  | 28    |  | 26      | 
|                                                                    |              |  |           |  |       |  |         | 
|Others                                                              |              |  | 2005/2008 |  | 43    |  | 50      | 
|                                                                    |              |  |           |  |       |  |         | 
|                                                                    |              |  |           |  | 847   |  | 1,341   | 
|                                                                    |              |  |           |  |       |  |         | 
|Other currencies                                                    | 2005/2012    |  | 16        |  | 37    |  | 5       | 
|                                                                    |              |  |           |  |       |  |         | 
|Total unsecured                                                     |              |  | 1,275     |  | 1,787 |  | 131     | 
|                                                                    |              |  |           |  |       |  |         | 
|Total loans  before financial derivatives(see table on page 85)    |              |  | 1,278     |  | 1,834 |  | 131     | 
|                                                                    |              |  |           |  |       |  |         | 
|Financial derivatives                                               |              |  | 4         |  | 53    |  |         | 
|                                                                    |              |  |           |  |       |  |         | 
|Total loans  after financial
    derivatives(see table on page 85) |              |  | 1,282     |  | 1,887 |  | 131     | 
|                                                                    |              |  |           |  |       |  |         | 

The secured debt referred to in this note and
  the secured short-term borrowings referred to in note 18 were secured by property,
  plant and other assets with a net book value at 31 December 2004 of £179m.

An analysis reflecting the effects of financial instruments on the Groups
financial liabilities at 31 December 2004 is set out in note
37.



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|ACCOUNTS |  | 85
|-------- |  | --
|         |  |   

|20                                                                                                                  | Loans (continued)
|------------------------------------------------------------------------------------------------------------------- | -----------------
|                                                                                                                   
|Effects of financial derivatives                                                                                   
|                                                                                                                   
|The following analysis reflects the effects of financial derivatives on the Groups borrowings at 31
December 2004.

|                                                                          |       |  |         | Before      | After       | 
|------------------------------------------------------------------------- | ----- |  | ------- | ----------- | ----------- | 
|                                                                          |       |  |         | financial   | financial   | 
|                                                                          |       |  |         | derivatives | derivatives | 
|                                                                          |       |  |         |             | £m          | 
|                                                                          |       |  |         |             |             | 
|Sterling                                                                  |       |  |         |             | 412         | 
|                                                                          |       |  |         |             |             | 
|US Dollar                                                                 |       |  |         |             | 849         | 
|                                                                          |       |  |         |             |             | 
|Euro and Euro related currencies                                          |       |  |         |             | 9           | 
|                                                                          |       |  |         |             |             | 
|Japanese Yen                                                              |       |  |         |             | 6           | 
|                                                                          |       |  |         |             |             | 
|Others                                                                    |       |  |         |             | 2           | 
|                                                                          |       |  |         |             |             | 
|                                                                          |       |  |         |             | 1,278       | 
|                                                                          |       |  |         |             |             | 
|Fixed rate loans                                                          |       |  |         |             | 1,084       | 
|                                                                          |       |  |         |             |             | 
|Floating rate loans                                                       |       |  |         |             | 194         | 
|                                                                          |       |  |         |             |             | 
|                                                                          |       |  |         |             | 1,278       | 
|                                                                          |       |  |         |             |             | 
|                                                                          |       |  |         |             |             | 
|                                                                          |       |  |         |             |             | 
|                                                                          | Group |  | Company |            
|                                                                          |       |  |         |             |             | 
|                                                                          | 2004  |  | 2003    |             | 2004        | 
|                                                                          | £m    |  | £m      |             | £m          | 
|                                                                          |       |  |         |             |             | 
|Loan maturities                                                           |       |  |         |             |             | 
|                                                                          |       |  |         |             |             | 
|Bank loans                                                                |       |  |         |             |             | 
|                                                                          |       |  |         |             |             | 
|Loans or instalments thereof are repayable:                               |       |  |         |             |             | 
|                                                                          |       |  |         |             |             | 
|After 5 years from balance sheet date                                     |      |  |        |             |            | 
|                                                                          |       |  |         |             |             | 
|From 2 to 5 years                                                         | 19    |  | 32      |             |            | 
|                                                                          |       |  |         |             |             | 
|From 1 to 2 years                                                         | 12    |  | 13      |             |            | 
|                                                                          |       |  |         |             |             | 
|Total due after more than one year                                        | 31    |  | 45      |             |            | 
|                                                                          |       |  |         |             |             | 
|Total due within one year                                                 | 15    |  | 37      |             |            | 
|                                                                          |       |  |         |             |             | 
|                                                                          | 46    |  | 82      |             |            | 
|                                                                          |       |  |         |             |             | 
|Other loans                                                               |       |  |         |             |             | 
|                                                                          |       |  |         |             |             | 
|Loans or instalments thereof are repayable:                               |       |  |         |             |             | 
|                                                                          |       |  |         |             |             | 
|After 5 years from balance sheet date                                     | 288   |  | 312     |             | 26          | 
|                                                                          |       |  |         |             |             | 
|From 2 to 5 years                                                         | 643   |  | 863     |             |            | 
|                                                                          |       |  |         |             |             | 
|From 1 to 2 years                                                         | 155   |  | 133     |             |            | 
|                                                                          |       |  |         |             |             | 
|Total due after more than one year                                        | 1,086 |  | 1,308   |             | 26          | 
|                                                                          |       |  |         |             |             | 
|Total due within one year                                                 | 150   |  | 497     |             | 105         | 
|                                                                          |       |  |         |             |             | 
|                                                                          | 1,236 |  | 1,805   |             | 131         | 
|                                                                          |       |  |         |             |             | 
|Total loans                                                               |       |  |         |             |             | 
|                                                                          |       |  |         |             |             | 
|Loans or instalments thereof are repayable:                               |       |  |         |             |             | 
|                                                                          |       |  |         |             |             | 
|After 5 years from balance sheet date                                     | 288   |  | 312     |             | 26          | 
|                                                                          |       |  |         |             |             | 
|From 4 to 5 years                                                         | 1     |  | 287     |             |            | 
|                                                                          |       |  |         |             |             | 
|From 3 to 4 years                                                         | 267   |  | 427     |             |            | 
|                                                                          |       |  |         |             |             | 
|From 2 to 3 years                                                         | 394   |  | 181     |             |            | 
|                                                                          |       |  |         |             |             | 
|From 1 to 2 years                                                         | 167   |  | 146     |             |            | 
|                                                                          |       |  |         |             |             | 
|Total due after more than one year                                        | 1,117 |  | 1,353   |             | 26          | 
|                                                                          |       |  |         |             |             | 
|Total due within one year                                                 | 165   |  | 534     |             | 105         | 
|                                                                          |       |  |         |             |             | 
|Total loans                                                               | 1,282 |  | 1,887   |             | 131         | 
|                                                                          |       |  |         |             |             | 
|Aggregate amount of loans any instalment of which falls due after 5 years | 294   |  | 319     |             | 26          | 
|                                                                          |       |  |         |             |             | 



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



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|86 |  | ACCOUNTS
|-- |  | --------
|   |  |         

Notes relating to the accounts

|21 | Provisions
for liabilities and charges
|-- | --------------------------------------
|   |                                       

|                                     | Deferred |   | Pensions  |   | Post        |   | Environmental |   | Disposal   |   | Restructuring |   | Other      |   | Total |  
|------------------------------------ | -------- | - | --------- | - | ----------- | - | ------------- | - | ---------- | - | ------------- | - | ---------- | - | ----- | -
|                                     | taxation |   | (note 36) |   | retirement  |   | provisions    | * | provisions |   | provisions    |   | provisions |  |       |  
|                                     |          |   |           |   | health care |   |               |   | (note 22)  |   | (note 22)     |   |            |   |       |  
|                                     |          |   |           |   | (note 36)   |   |               |   |            |   |               |   |            |   |       |  
|                                     | £m       |   | £m        |   | £m          |   | £m            |   | £m         |   | £m            |   | £m         |   | £m    |  
|                                     |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|Group                                |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|                                     |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|At beginning of 2004                 | 79       |   | 134       |   | 188         |   | 35            |   | 348        |   | 148           |   | 160        |   | 1,092 |  
|                                     |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|Profit and loss account              | 38       |   | 26        |   | 17          |   | (3            | ) | 39         |   | 5             |   | (5         | ) | 117   |  
|                                     |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|Increase due to effluxion of time    |          |   |           |   |             |   |               |   | 10         |   |               |   |            |   | 10    |  
|                                     |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|Net amounts paid or becoming payable |         |   | (39       | ) | (16         | ) | (3            | ) | (85        | ) | (77           | ) | (6         | ) | (226  | )
|                                     |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|Exchange and other movements         | (35      | ) | 4         |   | (13         | ) | (4            | ) | (2         | ) | (3            | ) | (26        | ) | (79   | )
|                                     |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|At end of 2004                       | 82       |   | 125       |   | 176         |   | 25            |   | 310        |   | 73            |   | 123        |   | 914   |  
|                                     |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|Company                              |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|                                     |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|At beginning of 2004                 | 79       |   |          |   |            |   |              |   | 67         |   | 42            |   | 19         |   | 207   |  
|                                     |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|Profit and loss account              | 33       |   |          |   |            |   |              |   | 11         |   | (3            | ) |           |   | 41    |  
|                                     |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|Net amounts paid or becoming payable |         |   |          |   |            |   |              |   | (28        | ) | (25           | ) | (1         | ) | (54   | )
|                                     |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|Exchange and other movements         | (9       | ) |          |   |            |   |              |   |           |   |              |   |           |   | (9    | )
|                                     |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  
|At end of 2004                       | 103      |   |          |   |            |   |              |   | 50         |   | 14            |   | 18         |   | 185   |  
|                                     |          |   |           |   |             |   |               |   |            |   |               |   |            |   |       |  

|                                                                                                                |                                                                                                                                          
|--------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------
|Under US GAAP, provisions
      for liabilities and charges would be shown under other creditors (note
    19).
|                                                                                                                |                                                                                                                                          
|*                                                                                                               | Other than arising on disposal.                                                                                                          
|                                                                                                               | Includes £70m
      relating to provisions for the write-down of shares held under forward
    contracts to hedge employee share options.

ICI ANNUAL REPORT AND ACCOUNTS 2004

---



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|ACCOUNTS |  | 87
|-------- |  | --
|         |  |   

|22 | Disposal and legacy, and restructuring
    provisions
|-- | -----------------------------------------------------
|   |                                                      

|                               | Disposal
          provisions |   | Restructuring
          provisions |  
|------------------------------ | ----------------------------- | - | ---------------------------------- | -
|                               |                               |   |                                    |  
|                               | 2004                          |   | 2003                               |  
|                               | £m                            |   | £m                                 |  
|                               |                               |   |                                    |  
|At beginning of year           | 348                           |   | 458                                |  
|                               |                               |   |                                    |  
|Exceptional items before tax   | 39                            |   | (6                                 | )
|                               |                               |   |                                    |  
|Asset write-offs               |                              |   |                                   |  
|                               |                               |   |                                    |  
|Amounts paid                   | (85                           | ) | (105                               | )
|                               |                               |   |                                    |  
|Exchange and other adjustments | 8                             |   | 1                                  |  
|                               |                               |   |                                    |  
|At end of year                 | 310                           |   | 348                                |  
|                               |                               |   |                                    |  
|Comprising                     |                               |   |                                    |  
|                               |                               |   |                                    |  
|Severance costs                | 21                            |   | 20                                 |  
|                               |                               |   |                                    |  
|Other                          | 289                           |   | 328                                |  
|                               |                               |   |                                    |  
|                               | 310                           |   | 348                                |  
|                               |                               |   |                                    |  

Disposal and legacy provisions

ICI commenced reshaping its portfolio of businesses in 1997 consistent with plans to focus its resources on Paints and Specialty Products. In pursuit of this strategy, the Group announced that it intended to divest
  most of its Industrial Chemicals businesses.

Prior to 2002

Between 1997 and 2002 the Group sold its Polyurethanes, Tioxide and selected Petrochemicals businesses, Chlor-Chemicals, Klea and Crosfield businesses, Polyester polymer intermediates business excluding operations in
Pakistan, the Explosives operations in Canada, Latin America and Europe and the explosives distribution business in the USA, the Polyester film business, the Forest Products business based in Canada, the UK based Fertiliser business, the Teesside
Utilities and Services business, the Acrylics business, the Automotive refinish business, the Fluoropolymers business, Ethylene Oxide, the Methanol business and the Methylamines and derivatives businesses, the Groups 50% interest in Phillips-Imperial Petroleum and the
Eutech engineering consultancy.

Provisions were created for both long term residual obligations
resulting from the divestments and more immediate and direct disposal costs.
Total provisions created for the divestments prior to 2002 were £1,547m
mainly in respect of termination costs (£291m), pension costs relating to employees transferring to the purchaser (£302m), transaction costs (£90m), separation costs (£62m), IT related costs (£38m), site clearance
(£48m), asset write-downs (£74m), and long-term residual costs (£285m).

The long term residual provisions were created to cover
legacy management, legal, estates, pension administration and environmental costs
resulting from these divestments. The nature of the provisions is such that expenditure
is expected to occur over the period from 2005 to at least 2030. During 2004
revisions were made to these provisions resulting in a release of £4m. At 31 December 2004, £248m
remained to be spent.

The direct disposal provisions relating to the pre-2002
divestments were reviewed during 2004 resulting in a net charge of £23m to exceptional profit. At 31 December 2004, £37m remained to be spent relating
to pre-2002 divestments principally termination costs (£11m), transaction costs (£3m) and site costs (£4m).
These provisions are expected to be substantially utilised by the end of 2005.

2002

(i) Synetix

The Group completed the sale of its catalyst business,
Synetix, in 2002. Provisions charged were £46m, mainly in respect of transition and separation costs (£19m), pension costs relating to employees
transferring to the purchaser (£14m), termination costs (£2m) relating to 31 employees, transaction costs (£7m) and environmental costs (£2m). At 31 December 2004, £5m remained to be spent including separation costs
(£3m), termination costs (£1m) and environmental costs (£1m). During 2004, revisions were made to these provisions resulting in a release of £7m.
The majority of the provisions are expected to be utilised by the end of
2005.

(ii) Other disposals

The Group also divested some smaller businesses including
the 51% owned pharmaceutical business of ICI India, its Security Systems business
and the UK Nitrocellulose and Energetic Technologies businesses. In addition,
IFI, the Irish Fertilizer business in which the Group has a 49% interest ceased
trading. Provisions of £37m were raised for these transactions, mainly in respect of separation costs (£14m), costs relating to employees transferring to the
purchaser (£13m) and transaction related costs (£5m). At 31 December 2004, £2m remained to be spent including separation costs (£1m) and environmental costs (£1m).
Full utilisation is expected by the end of 2005.

ICI ANNUAL REPORT AND ACCOUNTS 2004

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|88 |  | ACCOUNTS
|-- |  | --------
|   |  |         

Notes relating to the accounts

|22 | Disposal and restructuring provisions (continued)
|-- | -------------------------------------------------

2003

During 2003 the Group divested the Permabond
    and Cheese Coatings businesses of National Starch and the Explosives business
    of ICI India. Provisions of £6m were charged in respect of severance
    costs (£2m) relating to 50 employees, separation costs (£1m)
    and transaction related costs (£3m). At 31 December 2004, £3m
    remained to be spent relating to transaction costs, and full utilisation
    is expected by
the end of 2005.

2004

|(i) | Food Ingredients
|--- | ----------------

The Group completed the sale of Quests
    Food Ingredients business on 30 April 2004. Provisions of £22m were charged in respect of
transaction costs (£6m), pension costs relating to employees transferring to the purchaser (£6m), separation costs (£9m) and severance costs (£1m).
As at31 December 2004, £12m remained to be spent being pension costs relating to employees transferring to the purchaser (£5m), separation costs (£6m), and severance costs (£1m).
The majority of
provisions are expected to be utilised by the end of 2005.

|(ii) | Other disposals
|---- | ---------------

During 2004 the Group closed its polyethylene business
in Argentina. Provisions of £5m were charged in respect of transaction costs (£1m), separation costs (£1m), and severance costs (£3m). At
31 December 2004, £3m remained to be spent relating to separation costs (£1m) and severance costs (£2m).
The majority of provisions are expected to be utilised by the end of 2005.

Restructuring provisions

Prior to 2002

The Group undertook a series of restructuring actions between 1999 and 2001 across its portfolio affecting the following segments: National Starch, Quest, Uniqema, Paints, Discontinued businesses, and reorganisation of
the Corporate Centre.

The total exceptional provisions before tax of £319m for these restructuring programmes was charged against profits. The total included £158m related to termination of 2,330 employees, £48m to asset
write-downs and £113m for other costs. During 2004 a review of restructuring provisions was conducted, leading to a release of £3m. At 31 December 2004, £9m of provisions remained to be spent, including £6m
relating to severance of employees. The provisions are expected to be substantially
utilised by the end of 2005.

2003

In 2003 the Group undertook a series of restructuring programs to improve cost effectiveness across each of the following segments:

|(i)   | National Starchstaff reductions mainly in administration and the restructuring of manufacturing assets,
predominantly across the Specialty Starch division.
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                             
|(ii)  | Queststaff reductions in the food business and in supporting administrative functions and the restructuring
of manufacturing assets.                       
|      |                                                                                                                                                             
|(iii) | Uniqemaa
      major reduction in support overheads and the rationalisation and relocation
      of manufacturing capabilities in the
US.                  
|      |                                                                                                                                                             
|(iv)  | Paints a
        programme to restructure supply chain activities in Europe and North
    America.                                                         
|      |                                                                                                                                                             
|(v)   | Corporate Centre staff
        reductions resulting in a smaller and more focused corporate
centre.                                                        

The plans focus on manufacturing and supply chain rationalisations and reductions in administrative support. The total exceptional charge in 2003
      included £111m relating to the termination of some 2,130 employees, £48m for asset write-downs and £42m for other costs. During 2004 an extension to the restructuring program was approved in
Quest following the disposal of the Food Ingredients business. Revisions were made to the estimated cost of the programme resulting in £8m being charged as an exceptional loss, relating to termination of employees. Further charges of
£19m relating to the termination of employees are expected in 2005, bringing the total exceptional charge for the programmes to £228m. A charge of £1m was incurred by National Starch in the year, with a further £4m expected
in 2005. A charge of £7m was incurred by Quest in the year, with a further £15m expected in 2005. Spend of £71m was incurred during the year, with the remainder expected to be substantially utilised by the end of 2005. At 31
December 2004, £75m remained to be spent including £48m relating
to the termination of 634 employees.

ICI ANNUAL REPORT AND ACCOUNTS 2004

---



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|ACCOUNTS |  | 89
|-------- |  | --
|         |  |   

|23 | Called-up share capital of
      parent company
|-- | -----------------------------------------------
|   |                                                

|                                                        | Authorised     |  | Allotted, | 
|------------------------------------------------------- | -------------- |  | --------- | 
|                                                        | called-up     
|                                                        | and fully paid
|Ordinary Shares of £1 each                              | £m             |  | £m        | 
|                                                        |                |  |           | 
|At beginning of 2002                                    | 850            |  | 728       | 
|                                                        |                |  |           | 
|Rights Issue                                            |                |  | 463       | 
|                                                        |                |  |           | 
|Increase in authorised share capital                    | 550            |  |           | 
|                                                        |                |  |           | 
|Employee share option schemes  options
      exercised |                |  |          | 
|                                                        |                |  |           | 
|At end of 2002                                          | 1,400          |  | 1,191     | 
|                                                        |                |  |           | 
|Employee share option schemes  options
      exercised |                |  |          | 
|                                                        |                |  |           | 
|At end of 2003                                          | 1,400          |  | 1,191     | 
|                                                        |                |  |           | 
|Employee share option schemes  options
      exercised |                |  |          | 
|                                                        |                |  |           | 
|At end of 2004                                          | 1,400          |  | 1,191     | 
|                                                        |                |  |           | 

Rights Issue

In 2002, the Company completed an issue of
  rights to purchase Ordinary Shares. A total of 463m Ordinary Shares of £1
  each were issued at 180p per share in a 7 for 11 rights issue. Of the total
  £807m raised, net of £27m expenses, £463m was credited to
  share capital and £344m to the share premium account.

Employees share option schemes
  and other share based plans

ICI grants share options and other market based
  units to Executive Directors and members of the Executive Management Team under
  two main plans: the Performance Growth Plan and the 2004 Executive Share Option
  Plan. These schemes are described on pages 48 to 50. The Company also operates
  a Performance Share Plan (PSP), under which grants have been made to approximately
  200 senior staff below the level of the Executive Management Team. There are
  also share options outstanding under a number of schemes under which grants
  are no longer made. These are the 1994 Share Option Scheme (Senior Staff Scheme)
  and the 1994 Stock Appreciation Rights Plan (SARP). There are also options outstanding
  from the Companys savings related share option scheme (UK  Sharesave).
  The ten year approval period for the UK Sharesave Plan has now ended and the
  last grant under this plan was made on 11 December 2003.

At 31 December 2004, the number of conditional
  awards of ordinary share equivalents outstanding under the Performance Growth
  Plan was 3,902,288 (2003 2,888,320). The number of conditional awards during
  2004 was 1,585,303 (2003 1,851,255) with lapses during the year of 546,020 (2003
  1,453,725).

Under the PSP plan awards are conditional on
  preset earnings per share targets over a three year period. Awards are delivered
  in ICI shares or for US based participants, ADSs. At 31 December 2004 the number
  of conditional awards of ordinary share equivalents outstanding under the Performance
  Share Plan was 2,133,600 (2003 nil). The number of conditional awards during
  2004 was 2,192,190 (2003 nil) with lapses during the year of 58,590 (2003 nil).

The prices at which options are granted under
  the 2004 Executive Share Option Plan must not be less than the nominal value
  of an Ordinary Share nor less than the average of the middle market quotation
  of an ICI Ordinary Share on the London Stock Exchange on the three business
  days immediately preceding the date on which the option is offered. Options
  under this scheme expire after 10 years.

The Group has acquired, or is committed to acquire
  under forward contracts, 34.7m shares or ADSs of the Company to hedge its obligations
  under the Senior Staff and Executive Share Options and Stock Appreciation Rights,
  the Performance Growth Plan and the Performance Share Plan. 8.3m shares have
  been purchased in the market by a trust. In addition, the trust has entered
  into forward commitments to purchase 26.4m shares at a weighted average cost
  of £4.78 per share (total commitment £126m) in 2005, although the
  trust has the option to roll forward these commitments for further periods if
  required. These forward commitments include collateral requirements related
  to the prevailing share price of the Company. At 31 December 2004, no collateral
  is posted with the counterparties to these transactions. These shares are intended
  to satisfy requirements for share options exercisable in the period 2005 to
  2014. In 2003 a provision of £70m was made to write-down the shares under
  forward commitments to estimated net realisable value having regard to the period
  over which the related options are exercisable.

Under the UK Sharesave Scheme the price at
  which options were granted could not be less than the greater of the nominal
  value of an Ordinary Share, or 80% of the average market value of an Ordinary
  Share on the three business days preceding the day on which the offer of options
  was made. The total purchase cost in respect of options granted under the UK
  Sharesave Scheme is deducted from salary over a period of three or five years
  at the choice of the employee. The maximum number of shares to be made available
  under this scheme for issue under option during a ten year period will not exceed
  5% of the Companys Ordinary Share Capital in issue on 21 March 1994.

Options granted to Directors are shown in the
  Remuneration report on pages 49 and 50.

ICI ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts



|90 |  | ACCOUNTS
|-- |  | --------
|   |  |         

|Notes relating to
    the accounts
|----------------------------------
|                                  
|                                  
|                                  

|23 | Called-up share capital of parent
      company (continued)
|-- | -----------------------------------------------------------
|   |                                                            
|a) | Transactions on Option Schemes                             
|   |                                                            

|                                  | Senior
      Staff Scheme |            | UK 
      Sharesave |            | SARP     |  
|--------------------------------- | ------------------------- | ---------- | -------------------- | ---------- | -------- | -
|                                  | Number                    |            | Weighted             |            | Number   |  
|of options                        | average                   | of options | average              | of options | average 
|                                  | exercise                  |            | exercise             | in ADSs    | exercise
|                                  | price                     |            | price                |            | price   
|                                  | 000                       |            | £                    |            | 000      |  
|                                  |                           |            |                      |            |          |  
|Outstanding                       |                           |            |                      |            |          |  
|                                  |                           |            |                      |            |          |  
|At beginning of 2002              | 18,442                    |            | 5.20                 |            | 12,035   |  
|                                  |                           |            |                      |            |          |  
|Granted                           | 6,272                     |            | 2.84                 |            | 3,854    |  
|                                  |                           |            |                      |            |          |  
|Exercised                         |                          |            |                     |            | (12      | )
|                                  |                           |            |                      |            |          |  
|Cancelled                         | (2,311                    | )          | 5.82                 |            | (3,630   | )
|                                  |                           |            |                      |            |          |  
|At beginning of 2003              | 22,403                    |            | 4.48                 |            | 12,247   |  
|                                  |                           |            |                      |            |          |  
|Granted                           | 15,077                    |            | 1.37                 |            | 4,399    |  
|                                  |                           |            |                      |            |          |  
|Exercised                         |                          |            |                     |            | (1)      |  
|                                  |                           |            |                      |            |          |  
|Cancelled                         | (5,694                    | )          | 4.21                 |            | (5,269   | )
|                                  |                           |            |                      |            |          |  
|At beginning of 2004              | 31,786                    |            | 3.06                 |            | 11,376   |  
|                                  |                           |            |                      |            |          |  
|Granted                           | 2,700                     |            | 2.31                 |            |         |  
|                                  |                           |            |                      |            |          |  
|Exercised                         | (778                      | )          | 1.34                 |            | (32      | )
|                                  |                           |            |                      |            |          |  
|Cancelled                         | (2,342                    | )          | 3.88                 |            | (2,665   | )
|                                  |                           |            |                      |            |          |  
|At end of 2004                    | 31,366                    |            | 2.97                 |            | 8,679    |  
|                                  |                           |            |                      |            |          |  
|Number of options exercisable at: |                           |            |                      |            |          |  
|                                  |                           |            |                      |            |          |  
|31 December 2002                  | 7,795                     |            | 5.91                 |            | 944      |  
|                                  |                           |            |                      |            |          |  
|31 December 2003                  | 7,674                     |            | 5.30                 |            | 69       |  
|                                  |                           |            |                      |            |          |  
|31 December 2004                  | 7,336                     |            | 4.62                 |            | 331      |  
|                                  |                           |            |                      |            |          |  

|   |                                                               
|-- | --------------------------------------------------------------
|b) | Summary of share options
      outstanding at 31 December 2004

|                              | Total options
          outstanding |          | Exercisable
          options |         
|----------------------------- | ----------------------------------- | -------- | ----------------------------- | --------
|at 31 December
          2004 | at 31 December
          2004      
|                              |                                     |          |                               |         
|                              | Number                              |          | Weighted                      |         
|outstanding                   | average                             | average  | exercisable                   | average 
|                              | remaining                           | exercise |                               | exercise
|                              | contractual                         | price    |                               | price   
|                              | life                                |          |                               |         
|                              | 000                                 |          | Years                         |         
|                              |                                     |          |                               |         
|Exercise price range          |                                     |          |                               |         
|                              |                                     |          |                               |         
|Senior Staff Scheme           |                                     |          |                               |         
|                              |                                     |          |                               |         
|£0  £10                      | 30,549                              |          | 7.17                          |         
|                              |                                     |          |                               |         
|£10  £20                     | 817                                 |          | 3.37                          |         
|                              |                                     |          |                               |         
|                              | 31,366                              |          |                               |         
|                              |                                     |          |                               |         
|UKSharesave                  |                                     |          |                               |         
|                              |                                     |          |                               |         
|£0  £10                      | 8,679                               |          | 2.17                          |         
|                              |                                     |          |                               |         
|£10  £20                     |                                    |          |                              |         
|                              |                                     |          |                               |         
|                              | 8,679                               |          |                               |         
|                              |                                     |          |                               |         
|SARP (ADSs)                   |                                     |          |                               |         
|                              |                                     |          |                               |         
|$0  $20                      | 3,352                               |          | 8.03                          |         
|                              |                                     |          |                               |         
|$20  $40                     | 1,858                               |          | 5.41                          |         
|                              |                                     |          |                               |         
|$40  $60                     | 78                                  |          | 2.16                          |         
|                              |                                     |          |                               |         
|$60  $80                     | 108                                 |          | 3.37                          |         
|                              |                                     |          |                               |         
|                              | 5,396                               |          |                               |         
|                              |                                     |          |                               |         
|                              |                                     |          |                               |         

At 31 December 2004 there were options outstanding
  in respect of 40.0m (2003 43.2m) Ordinary Shares of £1 each under the
  Senior Staff and UK  Sharesave Option Schemes normally exercisable in
  the period 2005 to 2014 (2003: 2004 to 2013) at subscription prices of £1.34
  to £10.08 (2003 £1.34 to £10.08). Movements in the number
  of shares under option during 2004 comprised new options 2.7m, options exercised
  0.8m, and options lapsed or waived 5.0m. The number of Ordinary Shares issued
  during the year, wholly in respect of the exercise of options, totalled 0.03m
  (2003 0.02m; 2002 0.01m). The weighted average subscription price of options
  outstanding at 31 December 2004 was £2.78. The weighted average grant
  price is equal to the weighted average exercise price detailed in the tables
  above.



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|ACCOUNTS |  | 91
|-------- |  | --
|         |  |   

|24 | Reserves
|-- | --------
|   |         

|                                                           | Share
    premium
    account |    | Retained
        earnings |    | Total                       |  
|---------------------------------------------------------- | ----------------------------- | -- | ------------------------- | -- | --------------------------- | -
|                                                           |                               |    |                           |    |                             |  
|                                                           |                               |    | Associates                |    | Profit and
    loss account |  
|£m                                                         | £m                            | £m | £m                        | £m
|                                                           |                               |    |                           |    |                             |  
|Group                                                      |                               |    |                           |    |                             |  
|                                                           |                               |    |                           |    |                             |  
|Reserves attributable to parent company
      shareholders |                               |    |                           |    |                             |  
|                                                           |                               |    |                           |    |                             |  
|At beginning of 2002                                       | 589                           |    | 22                        |    | (1,733                      | )
|                                                           |                               |    |                           |    |                             |  
|Net profit (loss) for the financial year                   |                              |    | (13                       | )  | 192                         |  
|                                                           |                               |    |                           |    |                             |  
|Dividends (note 9)                                         |                               |    |                           |    | (88                         | )
|                                                           |                               |    |                           |    |                             |  
|Transfer of goodwill                                       |                               |    |                           |    | 22                          |  
|                                                           |                               |    |                           |    |                             |  
|Movement in respect of own shares                          |                               |    |                           |    | (6                          | )
|                                                           |                               |    |                           |    |                             |  
|Movement in reserves                                       |                               |    | 2                         |    | (2                          | )
|                                                           |                               |    |                           |    |                             |  
|Amounts taken direct to reserves                           |                               |    |                           |    |                             |  
|                                                           |                               |    |                           |    |                             |  
|Share premiums
       Rights issue                        | 344                           |    |                           |    |                             |  
|                                                           |                               |    |                           |    |                             |  
|Exchange adjustments                                       |                              |    |                          |    | (57                         | )
|                                                           |                               |    |                           |    |                             |  
|                                                           | 344                           |    |                          |    | (57                         | )
|                                                           |                               |    |                           |    |                             |  
|At beginning of 2003                                       | 933                           |    | 11                        |    | (1,672                      | )
|                                                           |                               |    |                           |    |                             |  
|Net profit (loss) for the financial year                   |                              |    | 2                         |    | 18                          |  
|                                                           |                               |    |                           |    |                             |  
|Dividends (note 9)                                         |                               |    |                           |    | (74                         | )
|                                                           |                               |    |                           |    |                             |  
|Transfer of goodwill                                       |                               |    |                           |    | 27                          |  
|                                                           |                               |    |                           |    |                             |  
|Movement in respect of own shares                          |                               |    |                           |    | 5                           |  
|                                                           |                               |    |                           |    |                             |  
|Amounts taken direct to reserves                           |                               |    |                           |    |                             |  
|                                                           |                               |    |                           |    |                             |  
|Share premiums
       Share option schemes                |                              |    |                           |    |                             |  
|                                                           |                               |    |                           |    |                             |  
|Exchange adjustments                                       |                              |    |                          |    | 9                           |  
|                                                           |                               |    |                           |    |                             |  
|                                                           |                              |    |                          |    | 9                           |  
|                                                           |                               |    |                           |    |                             |  
|At beginning of 2004                                       | 933                           |    | 13                        |    | (1,687                      | )
|                                                           |                               |    |                           |    |                             |  
|Net profit (loss) for the financial year                   |                              |    | 2                         |    | 208                         |  
|                                                           |                               |    |                           |    |                             |  
|Dividends (note 9)                                         |                               |    |                           |    | (86                         | )
|                                                           |                               |    |                           |    |                             |  
|Transfer of goodwill                                       |                               |    |                           |    | 154                         |  
|                                                           |                               |    |                           |    |                             |  
|Movement in respect of own shares                          |                               |    |                           |    | 1                           |  
|                                                           |                               |    |                           |    |                             |  
|Amounts taken direct to reserves                           |                               |    |                           |    |                             |  
|                                                           |                               |    |                           |    |                             |  
|Share premiums
       Share option schemes                |                              |    |                           |    |                             |  
|                                                           |                               |    |                           |    |                             |  
|Exchange adjustments                                       |                              |    |                          |    | (8                          | )
|                                                           |                               |    |                           |    |                             |  
|                                                           |                              |    |                          |    | (8                          | )
|                                                           |                               |    |                           |    |                             |  
|At end of 2004                                             | 933                           |    | 15                        |    | (1,418                      | )
|                                                           |                               |    |                           |    |                             |  

At the end of 2004, the cumulative goodwill
  offset against profit and loss account amounted to £3,846m (2003 £4,000m;
  2002 £4,027m). The transfer of goodwill in 2004 relates to the proportion
  of goodwill transferred to the profit on disposal on the divestment of the Quest
  Food Ingredients business. £8m of the amount shown for 2003 relates to
  adjustments to the purchase price of the 1997 acquisitions, with the remainder
  of the amount shown for 2003 representing the transfer of goodwill on disposal
  of National Starchs Permabond business. Included in this cumulative goodwill
  figure was negative goodwill, the cumulative amount of which at 31 December
  2004 was £1m (2003 £1m; 2002 £1m).

The own share reserve has been reclassified
  as part of the profit and loss reserve during the year. A negative amount of
  £52m (2003: £53m) has been reclassified as at 31 December 2004.

Own shares relate to 8.3m (2003 8.8m) shares
  of the company held by Imperial Chemical Industries PLC Employee Benefits Trust
  which are under option to, or conditionally gifted to, employees under the arrangement
  described in Note 23. The shares are held at a cost of £52m (2003 £53m)
  and have a market value at 31 December 2004 of £20m (2003 £18m).



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|92 |  | ACCOUNTS
|-- |  | --------

Notes relating to the accounts

|24                                                                                                                                                                                                                                                                                                                                                                                                                     | Reserves (continued)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                       |                     
|In the Group accounts,
      £99m of net exchange gains on foreign currency loans (2003 gains £111m;
      2002 gains £157m) have been offset in reserves against exchange losses
      (2003 losses; 2002 losses) on the net investment in overseas subsidiaries
      and associates.                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                       |                     
|The cumulative
      exchange gains and losses on the translation of foreign currency financial
      statements into pounds sterling are taken into account in the above statement
      of Group reserves. US GAAP  SFAS No.52, Foreign Currency Translation,
      requires the separate disclosure of the cumulative amount of the foreign
      currency translation effects on shareholders funds, as follows:

|                     |      |   |      |   |      |  
|-------------------- | ---- | - | ---- | - | ---- | -
|                     | 2004 |   | 2003 |   | 2002 |  
|                     | £m   |   | £m   |   | £m   |  
|                     |      |   |      |   |      |  
|At beginning of year | (450 | ) | (459 | ) | (402 | )
|                     |      |   |      |   |      |  
|Exchange adjustments | (8   | ) | 9    |   | (57  | )
|                     |      |   |      |   |      |  
|At end of year       | (458 | ) | (450 | ) | (459 | )
|                     |      |   |      |   |      |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|There are no significant statutory or contractual
      restrictions on the distribution of current profits of subsidiary undertakings
      or associates; undistributed profits of prior years are, in the main, permanently
      employed in the businesses of these companies. The undistributed profits
      of Group companies overseas may be liable to overseas taxes and/or UK taxation
      (after allowing for double taxation relief) if they were to be distributed
      as dividends. No provision has been made in respect of potential taxation
      liabilities on realisation of assets at restated or revalued amounts or
      on realisation of associates at equity accounted value.                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|The Articles of Association of Imperial
      Chemical Industries PLC state that borrowings after deducting cash, current
      asset investments and short-term deposits, must not exceed two and a half
      times the shareholders equity after adding back sums, calculated in
      accordance with US GAAP, equivalent to the unamortised balance of goodwill
      arising on acquisitions made after 1 January 1986. Any borrowings, cash
      or short-term investments held by subsidiaries in their capacity as trustee
      of a Group pension fund are excluded from the calculation. For the purpose
      of calculating the basis of the borrowing limits, in accordance with the
      Articles of Association, the total of the sums standing to the credit of
      capital and revenue reserves of the Company and its subsidiary undertakings,
      to be added to the nominal amount of the share capital of the Company, was
      £2,589m at 31 December 2004 (2003 £2,543m; 2002 £2,934m).

|                                 |         |  |          |   |       |   |       |  
|-------------------------------- | ------- |  | -------- | - | ----- | - | ----- | -
|                                 | Share   |  | Profit   |   | 2004  |   | 2003  |  
|                                 | premium |  | and loss |   |       |   |       |  
|                                 | account |  | account  |   | Total |   | Total |  
|                                 | £m      |  | £m       |   | £m    |   | £m    |  
|                                 |         |  |          |   |       |   |       |  
|Company                          |         |  |          |   |       |   |       |  
|                                 |         |  |          |   |       |   |       |  
|Reserves                         |         |  |          |   |       |   |       |  
|                                 |         |  |          |   |       |   |       |  
|At beginning of year             | 933     |  | 2,393    |   | 3,326 |   | 3,066 |  
|                                 |         |  |          |   |       |   |       |  
|Net profit for the year          |         |  | 217      |   | 217   |   | 283   |  
|                                 |         |  |          |   |       |   |       |  
|Dividends                        |         |  | (86      | ) | (86   | ) | (74   | )
|                                 |         |  |          |   |       |   |       |  
|Amounts taken direct to reserves |         |  |          |   |       |   |       |  
|                                 |         |  |          |   |       |   |       |  
|Exchange and other adjustments   | –       |  | (22      | ) | (22   | ) | 51    |  
|                                 |         |  |          |   |       |   |       |  
|At end of year                   | 933     |  | 2,502    |   | 3,435 |   | 3,326 |  
|                                 |         |  |          |   |       |   |       |  

By virtue of S230 of the Companies Act 1985,
     the Company is  exempt from presenting a profit and loss account.

|25 | Net cash inflow
      from operating activities
|-- | -----------------------------------------------
|   |                                                

|                                            | 2004 |   | 2003 |   | 2002 |  
|------------------------------------------- | ---- | - | ---- | - | ---- | -
|                                            | £m   |   | £m   |   | £m   |  
|                                            |      |   |      |   |      |  
|Operating profit                            | 439  |   | 194  |   | 496  |  
|                                            |      |   |      |   |      |  
|Exceptional charges within operating profit | 5    |   | 200  |   |     |  
|                                            |      |   |      |   |      |  
|Operating profit before exceptional items   | 444  |   | 394  |   | 496  |  
|                                            |      |   |      |   |      |  
|Depreciation and amortisation of goodwill   | 204  |   | 227  |   | 233  |  
|                                            |      |   |      |   |      |  
|Stocks (increase)/decrease                  | (75  | ) | 2    |   | 11   |  
|                                            |      |   |      |   |      |  
|Debtors (increase)/decrease                 | (50  | ) | 52   |   | (35  | )
|                                            |      |   |      |   |      |  
|Creditors increase/(decrease)               | 115  |   | (59  | ) | 23   |  
|                                            |      |   |      |   |      |  
|Other movements                             | (26  | ) | (25  | ) | (37  | )
|                                            |      |   |      |   |      |  
|                                            | 612  |   | 591  |   | 691  |  
|                                            |      |   |      |   |      |  
|Outflow related to exceptional items        | (81  | ) | (52  | ) | (68  | )
|                                            |      |   |      |   |      |  
|                                            | 531  |   | 539  |   | 623  |  
|                                            |      |   |      |   |      |  

Outflow related to exceptional items includes expenditure in respect of exceptional provisions relating to business rationalisation and restructuring.

ICI ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|ACCOUNTS |  | 93
|-------- |  | --

|                                                                         |                                                       |   |      |   |      |   | 
|------------------------------------------------------------------------ | ----------------------------------------------------- | - | ---- | - | ---- | - | 
|26                                                                       | Returns on investments
      and servicing of finance |   |      |   |      |   | 
|                                                                         | 2004                                                  |   | 2003 |   | 2002 |  
|                                                                         | £m                                                    |   | £m   |   | £m   |  
|                                                                         |                                                       |   |      |   |      |  
|Interest
      received                                                  | 87                                                    |   | 95   |   | 121  |  
|                                                                         |                                                       |   |      |   |      |  
|Interest
      paid                                                      | (153                                                  | ) | (177 | ) | (285 | )
|                                                                         |                                                       |   |      |   |      |  
|Dividends
      paid by subsidiary undertakings to minority shareholders | (13                                                   | ) | (14  | ) | (21  | )
|                                                                         |                                                       |   |      |   |      |  
|                                                                         | (79                                                   | ) | (96  | ) | (185 | )
|                                                                         |                                                       |   |      |   |      |  



|27 | Capital expenditure and financial investment
|-- | --------------------------------------------
|   |                                             

|                                  | 2004 |   | 2003 |   | 2002 |  
|--------------------------------- | ---- | - | ---- | - | ---- | -
|                                  | £m   |   | £m   |   | £m   |  
|                                  |      |   |      |   |      |  
|Purchase of tangible fixed assets | (158 | ) | (154 | ) | (219 | )
|                                  |      |   |      |   |      |  
|Sale of fixed assets              | 8    |   | 16   |   | 35   |  
|                                  |      |   |      |   |      |  
|                                  | (150 | ) | (138 | ) | (184 | )
|                                  |      |   |      |   |      |  

|   |             
|-- | ------------
|28 | Acquisitions
|   |             

|                                                                 |                                | 2004                 |    | 2003       | 
|---------------------------------------------------------------- | ------------------------------ | -------------------- | -- | ---------- | 
|                                                                 |                                | Total                |    | Total      | 
|                                                                 |                                | fair
          value |    | fair value | 
|                                                                 |                                | £m                   |    | £m         | 
|                                                                 |                                |                      |    |           
|Subsidiaryundertakings
      and operations                      |                                |                      |    |           
|                                                                 |                                |                      |    |           
|Fair
      valueof net assets acquired                           | 3                              |                      | –  |           
|                                                                 |                                |                      |    |           
|Goodwill
      acquired                                          |                                | 1                    |    | 3          | 
|                                                                 |                                |                      |    |           
|Consideration for subsidiaryundertakings and operations acquired | 4                              |                      | 3  |           
|                                                                 |                                |                      |    |           
|Investmentsin
      associated undertakings                      | –                              |                      | 5  |           
|                                                                 |                                |                      |    |           
|Investments in participatinginterests and other interests        | 25                             |                      | 10 |           
|                                                                 |                                |                      |    |           
|                                                                 |                                | 29                   |    | 18         | 
|                                                                 |                                |                      |    |           
|                                                                 |                                |                      |    |            | 
|                                                                 |                                |                      |    |           
|Cash consideration                                               | – current year                 | 29                   |    | 18         | 
|                                                                 |                                |                      |    |           
|                                                                 | – previous years’ acquisitions | –                    |    | 2          | 
|                                                                 |                                |                      |    |           
|                                                                 |                                | 29                   |    | 20         | 
|                                                                 |                                |                      |    |           

|   |                               
|-- | ------------------------------
|29 | Management of liquid resources
|   |                               

|                                                                 | 2004 |   | 2003 |   | 2002 |  
|---------------------------------------------------------------- | ---- | - | ---- | - | ---- | -
|                                                                 | £m   |   | £m   |   | £m   |  
|                                                                 |      |   |      |   |      |  
|Commercial paper                                                 | 1    |   | –    |   | (2   | )
|                                                                 |      |   |      |   |      |  
|Bank deposits and certificates of
          deposit              | 229  |   | (186 | ) | (12  | )
|                                                                 |      |   |      |   |      |  
|Floating rate notes, medium rate
          notes, treasury bills | (5   | ) | (8   | ) | 1    |  
|                                                                 |      |   |      |   |      |  
|                                                                 | 225  |   | (194 | ) | (13  | )
|                                                                 |      |   |      |   |      |  

Liquid resources are current asset investments
      held as readily disposable stores of value. In these accounts they comprise
      current asset investments and short-term deposits (note 17).

ICI ANNUAL
      REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|94 |  | ACCOUNTS
|-- |  | --------

Notes relating to the
      accounts

|30 | Disposals
|-- | ---------
|   |          

|                                               | 2004 |   | 2003 |  
|---------------------------------------------- | ---- | - | ---- | -
|                                               | £m   |   | £m   |  
|                                               |      |   |      |  
|Subsidiary undertakings and operations         |      |   |      |  
|                                               |      |   |      |  
|Tangible fixed
      assets and investments    | 62   |   | 6    |  
|                                               |      |   |      |  
|Net current assets                             | 30   |   | 4    |  
|                                               |      |   |      |  
|Creditors due
      after more than one year   |     |   | (2   | )
|                                               |      |   |      |  
|Provisions for
      liabilities and charges   |     |   | (1   | )
|                                               |      |   |      |  
|Minority interests                             | 2    |   | (4   | )
|                                               |      |   |      |  
|Book value of
      net assets disposed        | 94   |   | 3    |  
|                                               |      |   |      |  
|Disposal costs and provisions                  | 31   |   | 6    |  
|                                               |      |   |      |  
|Goodwill written back on disposal              | 154  |   | 19   |  
|                                               |      |   |      |  
|Investments in participating interests         |     |   | 123  |  
|                                               |      |   |      |  
|Profits less losses on disposals               | 12   |   | 50   |  
|                                               |      |   |      |  
|Consideration received on prior year disposals |     |   | 14   |  
|                                               |      |   |      |  
|                                               | 291  |   | 215  |  
|                                               |      |   |      |  
|Outflow on divestment provisions               | (82  | ) | (111 | )
|                                               |      |   |      |  
|Cash consideration                             | 209  |   | 104  |  
|                                               |      |   |      |  
|Comprising inflow (outflow) arising on         |      |   |      |  
|                                               |      |   |      |  
|current years
      disposals                 | 278  |   | 20   |  
|                                               |      |   |      |  
|previous years
      disposals                | (69  | ) | 84   |  
|                                               |      |   |      |  
|                                               | 209  |   | 104  |  
|                                               |      |   |      |  

During 2004 the Group received gross cash
      consideration for disposals of operations of £291m (2003 £215m).
      Of this amount, £82m (2003 £111m) was paid against ongoing disposal
      costs and provisions.

Disposals by the Group during 2004 included
      the sale of Quest Food Ingredients and disposal of 18.9% of the Groups
      shares in Pakistan PTA.



ICI ANNUAL REPORT AND ACCOUNTS
      2004

---



Back to Contents to the Accounts

|ACCOUNTS |  | 95
|-------- |  | --
|         |  |   

|31 | Financing
|-- | ---------
|   |          

|                                                    |       | Financing  shares                 |   | Financing  debt |   | Total |  
|--------------------------------------------------- | ----- | ---------------------------------- | - | ---------------- | - | ----- | -
|                                                    |       |                                    |   |                  |   |       |  
|                                                    |       | Shares issued
          by Company |   | Minorities       | * | Total |  
|                                                    |       |                                    |   |                  |   |       |  
|                                                    |       | Share                              |   | Share            |   |       |  
|                                                    |       | capital                            |   | premium          |   |       |  
|                                                    | notes | 23                                 |   | 24               |   |       |  
|                                                    |       | £m                                 |   | £m               |   | £m    |  
|                                                    |       |                                    |   |                  |   |       |  
|At beginning of 2002                                |       | (728                               | ) | (589             | ) | (31   | )
|                                                    |       |                                    |   |                  |   |       |  
|Exchange adjustments                                |       |                                    |   |                  |   | 3     |  
|                                                    |       |                                    |   |                  |   |       |  
|Financing                                           |       |                                    |   |                  |   |       |  
|                                                    |       |                                    |   |                  |   |       |  
|New finance                                         |       | (463                               | ) | (344             | ) |      |  
|                                                    |       |                                    |   |                  |   |       |  
|Finance repaid                                      |       |                                    |   |                  |   |       |  
|                                                    |       |                                    |   |                  |   |       |  
|Cash flow                                           |       | (463                               | ) | (344             | ) |      |  
|                                                    |       |                                    |   |                  |   |       |  
|Acquisitions and disposals                          |       |                                   |   |                 |   |      |  
|                                                    |       |                                    |   |                  |   |       |  
|Other movements                                     |       |                                   |   |                 |   | (3    | )
|                                                    |       |                                    |   |                  |   |       |  
|At beginning of 2003                                |       | (1,191                             | ) | (933             | ) | (31   | )
|                                                    |       |                                    |   |                  |   |       |  
|Exchange adjustments                                |       |                                    |   |                  |   | 2     |  
|                                                    |       |                                    |   |                  |   |       |  
|Financing                                           |       |                                    |   |                  |   |       |  
|                                                    |       |                                    |   |                  |   |       |  
|New finance                                         |       |                                   |   |                 |   |      |  
|                                                    |       |                                    |   |                  |   |       |  
|Finance repaid                                      |       |                                    |   |                  |   |       |  
|                                                    |       |                                    |   |                  |   |       |  
|Cash flow                                           |       |                                   |   |                 |   |      |  
|                                                    |       |                                    |   |                  |   |       |  
|Acquisitions and disposals                          |       |                                   |   |                 |   |      |  
|                                                    |       |                                    |   |                  |   |       |  
|Other movements                                     |       |                                   |   |                 |   | 2     |  
|                                                    |       |                                    |   |                  |   |       |  
|At beginning of 2004                                |       | (1,191                             | ) | (933             | ) | (27   | )
|                                                    |       |                                    |   |                  |   |       |  
|Exchange adjustments                                |       |                                    |   |                  |   | 2     |  
|                                                    |       |                                    |   |                  |   |       |  
|Financing                                           |       |                                    |   |                  |   |       |  
|                                                    |       |                                    |   |                  |   |       |  
|New finance                                         |       |                                   |   |                 |   |      |  
|                                                    |       |                                    |   |                  |   |       |  
|Finance repaid                                      |       |                                    |   |                  |   |       |  
|                                                    |       |                                    |   |                  |   |       |  
|Cash flow                                           |       |                                   |   |                 |   |      |  
|                                                    |       |                                    |   |                  |   |       |  
|Acquisitions and disposals                          |       |                                   |   |                 |   | 1     |  
|                                                    |       |                                    |   |                  |   |       |  
|At end of 2004                                      |       | (1,191                             | ) | (933             | ) | (24   | )
|                                                    |       |                                    |   |                  |   |       |  
|                                                    |       |                                    |   |                  |   |       |  
|* Share capital element
      of minority interests |      

|                   |                       |           |  |          |  |         |  |        | 
|------------------ | --------------------- | --------- |  | -------- |  | ------- |  | ------ | 
|                   |                       | Repayment |  | Currency |  | Rate    |  | Amount | 
|                   |                       | dates     |  |          |  | %       |  | £m     | 
|                   |                       |           |  |          |  |         |  |        | 
|New
      finance | Bank loan             | 20042005 |  | Various  |  | Various |  | 10     | 
|                   |                       |           |  |          |  |         |  |        | 
|                   | Euro commercial paper | 2004      |  | Various  |  | Various |  | 382    | 
|                   |                       |           |  |          |  |         |  |        | 
|                   | US commercial paper   | 2004      |  | US$      |  | Various |  | 50     | 
|                   |                       |           |  |          |  |         |  |        | 
|                   | Money market loans    | 2004      |  | Various  |  | Various |  | 348    | 
|                   |                       |           |  |          |  |         |  |        | 
|                   | Others                |           |  |          |  |         |  | 118    | 
|                   |                       |           |  |          |  |         |  |        | 
|                   |                       |           |  |          |  |         |  | 908    | 
|                   |                       |           |  |          |  |         |  |        | 
|øFinance repaid    | Bank loan             |           |  |          |  |         |  | 40     | 
|                   |                       |           |  |          |  |         |  |        | 
|                   | Euro commercial paper |           |  | Various  |  | Various |  | 382    | 
|                   |                       |           |  |          |  |         |  |        | 
|                   | US commercial paper   |           |  | US$      |  | Various |  | 50     | 
|                   |                       |           |  |          |  |         |  |        | 
|                   | Bond repayments       |           |  | US$      |  | 6.95%   |  | 412    | 
|                   |                       |           |  |          |  |         |  |        | 
|                   | Money market loans    |           |  | Various  |  | Various |  | 348    | 
|                   |                       |           |  |          |  |         |  |        | 
|                   | Others                |           |  |          |  |         |  | 102    | 
|                   |                       |           |  |          |  |         |  |        | 
|                   |                       |           |  |          |  |         |  | 1,334  | 
|                   |                       |           |  |          |  |         |  |        | 



ICI ANNUAL REPORT
  AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|96 |  | ACCOUNTS
|-- |  | --------

Notes relating to the accounts

|32 | Analysis of net debt
|-- | --------------------

|                           |       |      |   |                  |   |               |   |            |  
|-------------------------- | ----- | ---- | - | ---------------- | - | ------------- | - | ---------- | -
|                           |       | Cash |   | Financing  debt |   | Current asset |   | Net debt   |  
|                           |       |      |   |                  |   |               |   |            |  
|                           |       |      |   |                  |   |               |   |            |  
|                           |       |      |   | Loans            |   | Short-term    |   | Finance    |  
|                           |       |      |   | Due after        |   | Due within    |   | borrowings |  
|                           |       |      |   | one year         |   | one year      |   | other than |  
|                           |       |      |   |                  |   |               |   | overdrafts |  
|                           | notes | 1,33 |   | 20               |   | 20            |   | 33         |  
|                           |       | £m   |   | £m               |   | £m            |   | £m         |  
|                           |       |      |   |                  |   |               |   |            |  
|At beginning of 2002       |       | 260  |   | (1,705           | ) | (1,250        | ) | (377       | )
|                           |       |      |   |                  |   |               |   |            |  
|Exchange adjustments       |       | (5   | ) | 100              |   | 57            |   | (42        | )
|                           |       |      |   |                  |   |               |   |            |  
|Cash flow                  |       | (8   | ) | (28              | ) | 963           |   | 215        |  
|                           |       |      |   |                  |   |               |   |            |  
|Acquisitions and disposals |       | (1   | ) |                 |   |              |   | (1         | )
|                           |       |      |   |                  |   |               |   |            |  
|Other non-cash changes     |       |     |   | 270              |   | (270          | ) |           |  
|                           |       |      |   |                  |   |               |   |            |  
|At beginning of 2003       |       | 246  |   | (1,363           | ) | (500          | ) | (205       | )
|                           |       |      |   |                  |   |               |   |            |  
|Exchange adjustments       |       | 11   |   | 63               |   | 48            |   | (38        | )
|                           |       |      |   |                  |   |               |   |            |  
|Cash flow                  |       | (12  | ) | (580             | ) | 443           |   | 220        |  
|                           |       |      |   |                  |   |               |   |            |  
|Acquisitions and disposals |       | (2   | ) |                 |   | 2             |   |           |  
|                           |       |      |   |                  |   |               |   |            |  
|Other non-cash changes     |       |     |   | 527              |   | (527          | ) |           |  
|                           |       |      |   |                  |   |               |   |            |  
|At beginning of 2004       |       | 243  |   | (1,353           | ) | (534          | ) | (23        | )
|                           |       |      |   |                  |   |               |   |            |  
|Exchange adjustments       |       | (8   | ) | 69               |   | 30            |   | (20        | )
|                           |       |      |   |                  |   |               |   |            |  
|Cash flow                  |       | 155  |   | 39               |   | 470           |   | (84        | )
|                           |       |      |   |                  |   |               |   |            |  
|Acquisitions and disposals |       | (4   | ) | (3               | ) |              |   |           |  
|                           |       |      |   |                  |   |               |   |            |  
|Other non-cash changes     |       |     |   | 131              |   | (131          | ) |           |  
|                           |       |      |   |                  |   |               |   |            |  
|At end of 2004             |       | 386  |   | (1,117           | ) | (165          | ) | (127       | )
|                           |       |      |   |                  |   |               |   |            |  
|                           |       |      |   |                  |   |               |   |            |  

|33 | Cash and short-term borrowings
|-- | ------------------------------

|                           | Cash    |   | Short-term borrowings |   | Net total |   | Cash         |  
|-------------------------- | ------- | - | --------------------- | - | --------- | - | ------------ | -
|                           | at bank |   | (note 18)             |   |           |   | (at bank and |  
|                           |         |   |                       |   |           |   |              |  
|                           |         |   |                       |   |           |   |              |  
|                           |         |   | Overdrafts            |   | Other     |   | Total        |  
|                           | £m      |   | £m                    |   | £m        |   | £m           |  
|                           |         |   |                       |   |           |   |              |  
|At beginning of 2002       | 301     |   | (41                   | ) | (377      | ) | (418         | )
|                           |         |   |                       |   |           |   |              |  
|Exchange adjustments       | (5      | ) |                      |   | (42       | ) | (42          | )
|                           |         |   |                       |   |           |   |              |  
|Cash flow                  | (28     | ) | 20                    |   | 215       |   | 235          |  
|                           |         |   |                       |   |           |   |              |  
|Acquisitions and disposals | (1      | ) |                      |   | (1        | ) | (1           | )
|                           |         |   |                       |   |           |   |              |  
|At beginning of 2003       | 267     |   | (21                   | ) | (205      | ) | (226         | )
|                           |         |   |                       |   |           |   |              |  
|Exchange adjustments       | 10      |   | 1                     |   | (38       | ) | (37          | )
|                           |         |   |                       |   |           |   |              |  
|Cash flow                  | (26     | ) | 14                    |   | 220       |   | 234          |  
|                           |         |   |                       |   |           |   |              |  
|Acquisitions and disposals | (2      | ) |                      |   |          |   |             |  
|                           |         |   |                       |   |           |   |              |  
|At beginning of 2004       | 249     |   | (6                    | ) | (23       | ) | (29          | )
|                           |         |   |                       |   |           |   |              |  
|Exchange adjustments       | (9      | ) | 1                     |   | (20       | ) | (19          | )
|                           |         |   |                       |   |           |   |              |  
|Cash flow                  | 160     |   | (5                    | ) | (84       | ) | (89          | )
|                           |         |   |                       |   |           |   |              |  
|Acquisitions and disposals | (4      | ) |                      |   |          |   |             |  
|                           |         |   |                       |   |           |   |              |  
|At end of 2004             | 396     |   | (10                   | ) | (127      | ) | (137         | )
|                           |         |   |                       |   |           |   |              |  

In the Statement of Group cash flow and related
  notes, cash includes cash at bank, deposits repayable on demand
  and overdrafts; deposits are repayable on demand if they are available within
  24 hours without penalty.

ICI ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|ACCOUNTS |  | 97
|-------- |  | --

|   |       
|-- | ------
|34 | Leases
|   |       

|                                                                                                 |  | 2004 |  | 2003 |  | 2002 | 
|------------------------------------------------------------------------------------------------ |  | ---- |  | ---- |  | ---- | 
|                                                                                                 |  | £m   |  | £m   |  | £m   | 
|                                                                                                 |  |      |  |      |  |      | 
|Total rentals under operating leases, charged
      as an expense in the profit and loss account |  |      |  |      |  |      | 
|                                                                                                 |  |      |  |      |  |      | 
|Continuing operations                                                                            |  |      |  |      |  |      | 
|                                                                                                 |  |      |  |      |  |      | 
|Hire of plant and machinery                                                                      |  | 8    |  | 11   |  | 10   | 
|                                                                                                 |  |      |  |      |  |      | 
|Other                                                                                            |  | 50   |  | 51   |  | 54   | 
|                                                                                                 |  |      |  |      |  |      | 
|Total                                                                                            |  | 58   |  | 62   |  | 64   | 
|                                                                                                 |  |      |  |      |  |      | 
|                                                                                                 |  |      |  |      |  |      | 

|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ |  | -------------- |  | ---- | - | ---- | -
|                                                                                                                                                                                                      | Land and buildings |  | Other assets   | 
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|                                                                                                                                                                                                      | 2004               |  | 2003           |  | 2004 |   | 2003 |  
|                                                                                                                                                                                                      | £m                 |  | £m             |  | £m   |   | £m   |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|Commitments under non-cancellable operating
      leases to pay rentals during the year followingthe
      year of these accounts, analysed according to the period in which each lease
      expires |                    |  |                |  |      |   |      |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|Expiring within
      1 year                                                                                                                                                                          | 7                  |  | 8              |  | 4    |   | 5    |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|Expiring in years
      2 to 5                                                                                                                                                                        | 17                 |  | 18             |  | 13   |   | 16   |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|Expiring thereafter                                                                                                                                                                                   | 19                 |  | 19             |  | 2    |   | 2    |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|                                                                                                                                                                                                      | 43                 |  | 45             |  | 19   |   | 23   |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|                                                                                                                                                                                                      | Operating leases   |  | Finance leases | 
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|                                                                                                                                                                                                      | 2004               |  | 2003           |  | 2004 |   | 2003 |  
|Obligations under leases comprise                                                                                                                                                                     | £m                 |  | £m             |  | £m   |   | £m   |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|Rentals due within
      1 year                                                                                                                                                                       | 62                 |  | 68             |  | 1    |   | 1    |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|Rentals due after
      more than 1 year                                                                                                                                                              |                    |  |                |  |      |   |      |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|From 1 to 2 years                                                                                                                                                                                     | 49                 |  | 55             |  |     |   | 1    |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|From 2 to 3 years                                                                                                                                                                                     | 38                 |  | 43             |  |     |   | 1    |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|From 3 to 4 years                                                                                                                                                                                     | 28                 |  | 31             |  |     |   |     |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|From 4 to 5 years                                                                                                                                                                                     | 22                 |  | 23             |  |     |   |     |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|After 5 years
      from balance sheet date                                                                                                                                                           | 102                |  | 114            |  | 1    |   | 1    |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|                                                                                                                                                                                                      | 239                |  | 266            |  | 1    |   | 3    |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|                                                                                                                                                                                                      | 301                |  | 334            |  | 2    |   | 4    |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|Less amounts
      representing interest                                                                                                                                                              |                    |  |                |  |     |   |     |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|Present value
      of net minimum lease payments                                                                                                                                                     |                    |  |                |  | 2    |   | 4    |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|Less current
      lease obligations                                                                                                                                                                  |                    |  |                |  | (1   | ) | (1   | )
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  
|Non current lease
      obligations                                                                                                                                                                   |                    |  |                |  | 1    |   | 3    |  
|                                                                                                                                                                                                      |                    |  |                |  |      |   |      |  

Obligations under finance leases are included in other creditors (note 19).

The Group had no commitments under finance leases at the balance sheet date which were due to commence thereafter.



ICI ANNUAL REPORT
  AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|98 |  | ACCOUNTS
|-- |  | --------
|   |  |         

Notes relating to the accounts

|35 | Employee numbers and costs
|-- | --------------------------

Average number of people employed
  by the Group

Classes of business

|                                                                      | 2004   |   |  | 2003   |   | 2002   |  
|--------------------------------------------------------------------- | ------ | - |  | ------ | - | ------ | -
|                                                                      |        |   |  |        |   |        |  
|Continuing operations                                                 |        |   |  |        |   |        |  
|                                                                      |        |   |  |        |   |        |  
|National Starch                                                       | 9,410  |   |  | 9,670  |   | 9,710  |  
|                                                                      |        |   |  |        |   |        |  
|Quest                                                                 | 3,730  |   |  | 4,590  |   | 4,690  |  
|                                                                      |        |   |  |        |   |        |  
|Uniqema                                                               | 2,800  |   |  | 2,950  |   | 3,800  |  
|                                                                      |        |   |  |        |   |        |  
|Paints                                                                | 15,330 |   |  | 15,610 |   | 15,740 |  
|                                                                      |        |   |  |        |   |        |  
|Regional and
      Industrial                                         | 2,220  |   |  | 3,010  |   | 3,690  |  
|                                                                      |        |   |  |        |   |        |  
|Corporate                                                             |        |   |  |        |   |        |  
|                                                                      |        |   |  |        |   |        |  
|Board
      support                                                   | 110    |   |  | 110    |   | 130    |  
|                                                                      |        |   |  |        |   |        |  
|Group
      technical resources and other shared services             | 220    |   |  | 270    |   | 270    |  
|                                                                      |        |   |  |        |   |        |  
|                                                                      | 33,820 |   |  | 36,210 |   | 38,030 |  
|                                                                      |        |   |  |        |   |        |  
|                                                                      |        |   |  |        |   |        |  
|                                                                      |        |   |  |        |   |        |  
|Geographic areas                                                      |        |   |  |        |   |        |  
|                                                                      |        |   |  |        |   |        |  
|Continuing operations                                                 | 2004   |   |  | 2003   |   | 2002   |  
|                                                                      |        |   |  |        |   |        |  
|United Kingdom                                                        | 4,790  |   |  | 5,250  |   | 6,250  |  
|                                                                      |        |   |  |        |   |        |  
|Continental Europe                                                    | 5,660  |   |  | 6,190  |   | 6,340  |  
|                                                                      |        |   |  |        |   |        |  
|USA                                                                   | 9,530  |   |  | 10,070 |   | 10,410 |  
|                                                                      |        |   |  |        |   |        |  
|Other Americas                                                        | 4,890  |   |  | 5,170  |   | 5,310  |  
|                                                                      |        |   |  |        |   |        |  
|Asia Pacific                                                          | 8,640  |   |  | 9,230  |   | 9,420  |  
|                                                                      |        |   |  |        |   |        |  
|Other countries                                                       | 310    |   |  | 300    |   | 300    |  
|                                                                      |        |   |  |        |   |        |  
|Total employees                                                       | 33,820 |   |  | 36,210 |   | 38,030 |  
|                                                                      |        |   |  |        |   |        |  
|                                                                      |        |   |  |        |   |        |  
|                                                                      |        |   |  |        |   |        |  
|Number of people employed by the Group
      at the year end          |        |   |  |        |   |        |  
|                                                                      |        |   |  |        |   |        |  
|                                                                      | 2004   |   |  | 2003   |   | 2002   |  
|                                                                      |        |   |  |        |   |        |  
|                                                                      |        |   |  |        |   |        |  
|Continuing operations                                                 | 33,300 |   |  | 35,030 |   | 36,660 |  
|                                                                      |        |   |  |        |   |        |  
|                                                                      |        |   |  |        |   |        |  
|                                                                      |        |   |  |        |   |        |  
|                                                                      |        |   |  |        |   |        |  
|Employee costs                                                        |        |   |  |        |   |        |  
|                                                                      | 2004   |   |  | 2003   |   | 2002   |  
|Continuing operations                                                 | £m     |   |  | £m     |   | £m     |  
|                                                                      |        |   |  |        |   |        |  
|Salaries                                                              | 893    |   |  | 958    |   | 1,009  |  
|                                                                      |        |   |  |        |   |        |  
|Social security costs                                                 | 88     |   |  | 92     |   | 95     |  
|                                                                      |        |   |  |        |   |        |  
|Pension costs                                                         |        |   |  |        |   |        |  
|                                                                      |        |   |  |        |   |        |  
|Defined benefit
      plans                                           | 112    |   |  | 105    |   | 78     |  
|                                                                      |        |   |  |        |   |        |  
|Defined contribution
      plans                                      | 16     |   |  | 15     |   | 11     |  
|                                                                      |        |   |  |        |   |        |  
|Other defined benefit plans  post-retirement
      healthcare plans  | 15     |   |  | 13     |   | 11     |  
|                                                                      |        |   |  |        |   |        |  
|Other employment costs                                                | 14     |   |  | 20     |   | 16     |  
|                                                                      |        |   |  |        |   |        |  
|                                                                      | 1,138  |   |  | 1,203  |   | 1,220  |  
|                                                                      |        |   |  |        |   |        |  
|Less amounts allocated to capital                                     | (4     | ) |  | (6     | ) | (4     | )
|                                                                      |        |   |  |        |   |        |  
|Severance costs charged in arriving at
      profit (loss) before tax | 11     |   |  | 113    |   | 37     |  
|                                                                      |        |   |  |        |   |        |  
|Employee costs charged in arriving at profit
      (loss) before tax  | 1,145  |   |  | 1,310  |   | 1,253  |  
|                                                                      |        |   |  |        |   |        |  



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



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|ACCOUNTS |  | 99
|-------- |  | --
|         |  |   

|36 | Retirement benefits
|-- | -------------------

The Group accounts for employee retirement
  benefits in accordance with the UK Standard SSAP 24Accounting
  for Pension Costsand, for post-retirement
  healthcare in compliance with UITF Abstract 6 Accounting for Post-Retirement
  Benefits other than Pensions. Additional analysis is also provided in accordance
  with FRS No. 17 Retirement Benefits. Although none of the amounts calculated
  in accordance with this latter Standard are required to be recognised in the
  primary statements until accounting periods beginning on or after 1 January
  2005, full disclosure in accordance with this Standard, is included in this
  note.

Analysis is also provided in note 42 of the
     aggregate net periodic benefits cost and funded status of the Groups
     major  post-retirement schemes restated in accordance with US GAAP and in
     compliance
  with the requirements of SFAS No.87Employers
  Accounting for Pensions,SFAS No. 88 Employers Accounting
  for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination
  Benefits,
  SFAS No.106 Employers Accounting for Post-Retirement Benefits other
  than Pensionsand SFAS No.132 Employers Disclosures about Pensions
  and Other Post-Retirement Benefits(revised 2003).

Pensions (SSAP 24)  GroupThe Company and most of its subsidiaries operate
  retirement schemes which cover the majority of employees (including Directors)
  of the Group. ICI policy, where practicable, is to provide retirement benefits
  for new employees on a defined contribution basis. The Company pays pension
  contributions for each employee into an individual retirement account, which
  is used to provide pension benefits at retirement. This policy is now in place
  in the majority of countries in which ICI operates. However, retirement plans
  for most existing employees are generally of the defined benefit type under
  which benefits are based on employees years of service and average final
  remuneration and are funded through separate trustee-administered funds. Formal
  valuations of the Groups main defined benefit schemes are undertaken regularly,
  by independent qualified actuaries, normally at least triennially and adopting
  the projected unit method.

The actuarial assumptions used to calculate
  the projected benefit obligation of the Groups pension schemes vary according
  to the economic conditions of the country in which they are situated. For the
  Groups major plans the principal weighted average rates used were:

|                                                                                                | 2004  |  |  | 2003  | 
|----------------------------------------------------------------------------------------------- | ----- |  |  | ----- | 
|                                                                                                | %p.a. |  |  | %p.a. | 
|                                                                                                |       |  |  |       | 
|Discount rate used in determining the actuarial
      present values of the benefit obligations | 5.6   |  |  | 5.7   | 
|                                                                                                |       |  |  |       | 
|Expected long-term rate of return on investments                                                | 5.8   |  |  | 5.8   | 
|                                                                                                |       |  |  |       | 
|Rate of increase of future earnings                                                             | 3.7   |  |  | 3.7   | 
|                                                                                                |       |  |  |       | 
|Increase in pensions in payment                                                                 | 2.1   |  |  | 2.1   | 
|                                                                                                |       |  |  |       | 

In arriving at the valuations of the Groups
  major defined benefit schemes, fund assets were valued at market values on the
  date of valuation of each fund. The value of these assets was £7,127m
  (2003 £7,083m) and was sufficient to cover 92% (2003 91%) of the benefits
  that had accrued to members after allowing for expected future increases in
  earnings.

The total pension cost for the Group for 2004
  was £128m (2003 £120m; 2002 £89m). Accrued pension costs,
  which are included in other creditors (note 19), amounted to £33m (2003
  £37m). Provisions mainly for the benefit obligations of a small number
  of unfunded plans amounted to £125m (2003 £134m) and are included
  in provisions for liabilities and charges  pensions (note 21). Prepaid
  pension costs amounting to £530m (2003 £507m) are included in debtors
  (note 16).

ICI Pension FundThe ICI Pension Fund accounts for approximately
  85% of the Groups major plans in terms of asset values and projected benefit
  liabilities.

The latest actuarial valuation of the Fund,
  as at 31 March 2003, disclosed a solvency ratio of 93% and the Company has agreed
  to make a further nine annual payments into the Fund of £62m per annum
  from 2004 to 2012, subject to a review at the next valuation. As from September
  2004, the Company has also provided an asset-backed guarantee, via a wholly
  owned subsidiary, Receivables Funding Ltd, specifically incorporated to provide
  the guarantee for £250m to support its commitments to the Fund (see note
  40). The deficit, together with the prepayment, is taken into account in arriving
  at the employers pension costs charged in the accounts by being amortised
  as a percentage of pensionable emoluments over the expected working lifetime
  of existing members. In 2004 this gave rise to a SSAP 24 charge of £52m
  (2003 £42m).

Healthcare (UITF Abstract 6)The Group provides in North America, and to a
  lesser extent in some other countries, unfunded healthcare and life assurance
  benefits for retired employees. At 31 December 2004 approximately 18,000 (2003
  18,000) current and retired employees were eligible to benefit from these schemes.
  The liabilities in respect of these benefits are fully accrued over the expected
  working lifetime of the existing members.

The total post-retirement healthcare cost for
  the Groups major post-retirement benefit schemes for 2004 was £14m
  (2003 £15m; 2002 £12m) and the provision at the year end was £160m
  (2003 £167m). The total post-retirement healthcare provision at the year
  end, including the Groups minor post-retirement benefit schemes, was £176m
  (2003 £188m).

In accordance with UITF Abstract 6, the Group
  has adopted the measurement basis of the US Standard, SFAS No.106 as the basis
  of its UK GAAP reporting. Costs and provisions were determined on an actuarial
  basis. The assumptions relating to the schemes are set out in the table in note
  42.

The healthcare cost trend has a significant
  effect on the amounts reported. For the Group, increasing the assumed healthcare
  cost for the major schemes by 1% in every year would increase the accumulated
  post-retirement benefit obligation as of 31 December 2004 by £12m (2003
  £11m) and the aggregate of the service and interest cost components of
  net periodic post-retirement benefit cost for the year ended 31 December 2004
  by £1m (2003 £1m).



ICI ANNUAL REPORT
  AND ACCOUNTS 2004

---



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Notes relating to the accounts

|100 |  | ACCOUNTS
|--- |  | --------
|    |  |         



|36 | Retirement benefits
      (continued)
|-- | -------------------------------------

Retirement benefits  Pensions
  and healthcare (FRS No. 17)

The most recent actuarial valuations of the
  Groups defined benefit pension schemes and post-retirement healthcare
  schemes have been updated to 31 December 2004 to take account of the transitional
  requirements of FRS No. 17. The FRS No.17 financial information presented in
  the Groups 2003 Annual Report and Accounts was based on the Groups
  major defined benefit schemes. As a result of the transition to International
  Financial Reporting Standards and to provide a more complete presentation, the
  Group has collected information on all the Groups global defined benefit
  schemes from 1 January 2004. The disclosures for 2003 and 2002 are based upon
  the major schemes only.

Financial assumptions to calculate
  the projected benefit obligations of Group schemes

The principal weighted average rates used were:

|                                                                                 | 2004            |   |  | 2003      |   | 2002      | 
|-------------------------------------------------------------------------------- | --------------- | - |  | --------- | - | --------- | 
|                                                                                 | %
      p.a.    |   |  | % p.a.    |   | % p.a.    | 
|                                                                                 |                 |   |  |           |   |           | 
|Discount rate                                                                    | 5.3             |   |  | 5.5       |   | 5.7       | 
|                                                                                 |                 |   |  |           |   |           | 
|Inflation rate                                                                   | 2.6             |   |  | 2.4       |   | 2.3       | 
|                                                                                 |                 |   |  |           |   |           | 
|Long-term rate of increase in future earnings                                    | 4.0             |   |  | 3.9       |   | 3.8       | 
|                                                                                 |                 |   |  |           |   |           | 
|Increase in pensions in payment                                                  | 2.4             |   |  | 2.2       |   | 2.1       | 
|                                                                                 |                 |   |  |           |   |           | 
|Post-retirement healthcare cost inflation
      rate                             | 9.7             |   |  | 8.9       |   | 8.0       | 
|                                                                                 |                 |   |  |           |   |           | 
|                                                                                 |                 |   |  |           |   |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Expected rates of return, assets,
      liabilities and net (liabilities) assets |                 |   |  |           |   |           | 
|                                                                                 | At
      31 Dec |   |  | At 31 Dec |   | At 31 Dec | 
|                                                                                 | 2004            |   |  | 2003      |   | 2002      | 
|                                                                                 | %               |   |  | %         |   | %         | 
|                                                                                 |                 |   |  |           |   |           | 
|Expected rates of return                                                         |                 |   |  |           |   |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Equities                                                                         | 8.2             |   |  | 8.3       |   | 8.6       | 
|                                                                                 |                 |   |  |           |   |           | 
|Bonds                                                                            | 4.9             |   |  | 5.0       |   | 4.7       | 
|                                                                                 |                 |   |  |           |   |           | 
|Other                                                                            | 4.6             |   |  | 5.3       |   | 5.5       | 
|                                                                                 |                 |   |  |           |   |           | 
|                                                                                 | £m              |   |  | £m        |   | £m        | 
|                                                                                 |                 |   |  |           |   |           | 
|Assets in schemes                                                                |                 |   |  |           |   |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Equities                                                                         | 1,398           |   |  | 1,769     |   | 1,659     | 
|                                                                                 |                 |   |  |           |   |           | 
|Bonds                                                                            | 5,770           |   |  | 5,312     |   | 5,216     | 
|                                                                                 |                 |   |  |           |   |           | 
|Other                                                                            | 470             |   |  | 269       |   | 177       | 
|                                                                                 |                 |   |  |           |   |           | 
|Total fair value of assets                                                       | 7,638           |   |  | 7,350     |   | 7,052     | 
|                                                                                 |                 |   |  |           |   |           | 
|Present value of scheme liabilities                                              | 8,762           |   |  | 8,337     |   |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Net (deficit) in the schemes                                                     | (1,124          | ) |  | (987      | ) |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Less: Unrecognisable surpluses                                                   | (2              | ) |  | (3        | ) |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Net recognised (deficit)                                                         | (1,126          | ) |  | (990      | ) |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Deferred tax asset                                                               | 138             |   |  | 122       |   |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Net liabilities                                                                  | (988            | ) |  | (868      | ) |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Represented by                                                                   |                 |   |  |           |   |           | 
|                                                                                 |                 |   |  |           |   |           | 
|(Deficits)                                                                       | (994            | ) |  | (874      | ) |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Surpluses                                                                        | 6               |   |  | 6         |   |           | 
|                                                                                 |                 |   |  |           |   |           | 
|                                                                                 |                 |   |  |           |   |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Analysis of net recognised (deficit)                                             |                 |   |  |           |   |           | 
|                                                                                 |                 |   |  |           |   |           | 
|ICI UK Pension Fund                                                              | (387            | ) |  | (432      | ) |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Other funded pension schemes                                                     | (317            | ) |  | (289      | ) |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Total funded schemes                                                             | (704            | ) |  | (721      | ) |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Unfunded pension schemes                                                         | (181            | ) |  | (77       | ) |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Post-retirement healthcare schemes                                               | (241            | ) |  | (192      | ) |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Total unfunded schemes                                                           | (422            | ) |  | (269      | ) |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Net recognised (deficit)                                                         | (1,126          | ) |  | (990      | ) |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Represented by                                                                   |                 |   |  |           |   |           | 
|                                                                                 |                 |   |  |           |   |           | 
|(Deficits)                                                                       | (1,135          | ) |  | (999      | ) |           | 
|                                                                                 |                 |   |  |           |   |           | 
|Surpluses                                                                        | 9               |   |  | 9         |   |           | 
|                                                                                 |                 |   |  |           |   |           | 



ICI ANNUAL REPORT AND ACCOUNTS
  2004

---



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|ACCOUNTS |  | 101
|-------- |  | ---
|         |  |    

|36                                                                                                                                                                                                                                                                                                                                                                                               | Retirement benefits (continued)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                 |                                
|Retirement
           benefits  Pensions and healthcare (FRS No. 17)
(continued)                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                 |                                
|Set out below is an analysis
       of the amounts that would be charged to the profit and loss account and
       the statement of total recognised gains and losses in respect of the
Groups defined benefit pension schemes and post-retirement healthcare schemes
in accordance with the transitional requirements of FRS No. 17. The disclosures
for 2003
are based on major schemes only.

|                                                                                                       |        |   |      |  
|------------------------------------------------------------------------------------------------------ | ------ | - | ---- | -
|Analysis of the amounts that would be charged to profit and loss account in accordance with FRS No. 17 |        |   |      |  
|                                                                                                       |        |   |      |  
|                                                                                                       | 2004   |   | 2003 |  
|                                                                                                       | £m     |   | £m   |  
|                                                                                                       |        |   |      |  
|Current service cost                                                                                   | (64    | ) | (54  | )
|                                                                                                       |        |   |      |  
|Past service cost                                                                                      | (19    | ) | (14  | )
|                                                                                                       |        |   |      |  
|Gains on curtailments                                                                                  | 2      |   |     |  
|                                                                                                       |        |   |      |  
|Gains on settlements                                                                                   | 15     |   |     |  
|                                                                                                       |        |   |      |  
|                                                                                                       | (66    | ) | (68  | )
|                                                                                                       |        |   |      |  
|                                                                                                       |        |   |      |  
|                                                                                                       |        |   |      |  
|Other finance costs                                                                                    |        |   |      |  
|                                                                                                       |        |   |      |  
|Expected return on assets in schemes                                                                   | 419    |   | 391  |  
|                                                                                                       |        |   |      |  
|Interest on liabilities in schemes                                                                     | (450   | ) | (442 | )
|                                                                                                       |        |   |      |  
|Restriction relating to recoverable surplus                                                            | (1     | ) | (1   | )
|                                                                                                       |        |   |      |  
|Net finance cost                                                                                       | (32    | ) | (52  | )
|                                                                                                       |        |   |      |  
|Amounts that would be charged to the profit and loss account in accordance with FRS No. 17             | (98    | ) | (120 | )
|                                                                                                       |        |   |      |  
|                                                                                                       |        |   |      |  
|Analysis of amount that would be recognised in statement of total recognised gains and losses          |        |   |      |  
|in accordance with FRS No. 17                                                                          |        |   |      |  
|                                                                                                       | 2004   |   | 2003 |  
|                                                                                                       | £m     |   | £m   |  
|                                                                                                       |        |   |      |  
|Actual return less expected return on assets (deficit)                                                 | 225    |   | 321  |  
|                                                                                                       |        |   |      |  
|Experience gains and (losses) arising on liabilities                                                   | (72    | ) | (36  | )
|                                                                                                       |        |   |      |  
|Changes in demographic and financial assumptions underlying                                            |        |   |      |  
|the present value of the liabilities (loss)                                                            | (231   | ) | (458 | )
|                                                                                                       |        |   |      |  
|Adjustments to unrecognised scheme surplus                                                             | 1      |   | (3   | )
|                                                                                                       |        |   |      |  
|Net actuarial (loss) that would be recognised in statement of total recognised gains and losses        |        |   |      |  
|in accordance with FRS No. 17                                                                          | (77    | ) | (176 | )
|                                                                                                       |        |   |      |  
|                                                                                                       |        |   |      |  
|Movement in net deficit during the year                                                                |        |   |      |  
|                                                                                                       | 2004   |   | 2003 |  
|                                                                                                       | £m     |   | £m   |  
|                                                                                                       |        |   |      |  
|Net deficit recognised at beginning of
    year  major schemes                                        | (990   | ) | (814 | )
|                                                                                                       |        |   |      |  
|Increase in reported population  minor
    schemes recognised at 1 January 2004                       | (171   | ) |      |  
|                                                                                                       |        |   |      |  
|                                                                                                       | (1,161 | ) |      |  
|                                                                                                       |        |   |      |  
|Movement in year:                                                                                      |        |   |      |  
|                                                                                                       |        |   |      |  
|Current service cost                                                                                   | (64    | ) | (54  | )
|                                                                                                       |        |   |      |  
|Past service costs                                                                                     | (19    | ) | (14  | )
|                                                                                                       |        |   |      |  
|Gains on curtailments                                                                                  | 2      |   |     |  
|                                                                                                       |        |   |      |  
|Gains on settlements                                                                                   | 15     |   |     |  
|                                                                                                       |        |   |      |  
|Net finance cost                                                                                       | (32    | ) | (52  | )
|                                                                                                       |        |   |      |  
|Contributions                                                                                          | 178    |   | 122  |  
|                                                                                                       |        |   |      |  
|Actuarial loss                                                                                         | (77    | ) | (176 | )
|                                                                                                       |        |   |      |  
|Exchange adjustment gains                                                                              | 32     |   | 24   |  
|                                                                                                       |        |   |      |  
|Change in population                                                                                   |       |   | (26  | )
|                                                                                                       |        |   |      |  
|Net (deficit) at end of year                                                                           | (1,126 | ) | (990 | )
|                                                                                                       |        |   |      |  

At 31 December 2004 the difference between the expected
and actual return on assets was a gain of £225m (2003 gain £321m; 2002 deficit £519m) or 3% (2003 4%; 2002 7%) of the scheme assets. The
experience losses arising on scheme liabilities at 31 December 2004 were £72m (2003 losses £36m; 2002 gains £201m) or 1% (2003 0%; 2002 3%) of scheme liabilities. The net actuarial loss at 31 December 2004, that would be charged in
the statement of total recognised gains and losses, was £77m (2003 £176m; 2002 £400m)
or 1% (2003 2%; 2002 5%) of the scheme liabilities.

ICI ANNUAL REPORT AND ACCOUNTS 2004

---



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|102                                |  | ACCOUNTS
|---------------------------------- |  | --------
|                                   |  |         
|Notes
    relating to the accounts



|37                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Financial risk management
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                          
|The
         Groups treasury objectives
         and policies are discussed in the Operating and Financial Review on
    pages 22 to 24.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                          
|(a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Interest rate risk       
|The interest rate profile of the Groups
       financial assets and financial liabilities at 31 December 2004, after
       taking into account the effect of interest rate and currency swaps, is
       set out in the tables below. Further quantitative analysis of the sensitivity
       to movements in interest rates is
reported in the Operating and Financial Review on pages 22 to 24. Disclosures
       dealt with in this note exclude short-term debtors and creditors where
       permitted by the accounting standard on derivatives and other financial
    instruments.

|                                                      |          |             |               |          |          |    |          |             |               |       |  
|----------------------------------------------------- | -------- | ----------- | ------------- | -------- | -------- | -- | -------- | ----------- | ------------- | ----- | -
|Financial assets                                      |          |             |               |          |          |    |          |             |               |       |  
|                                                      | 2004     |             |               | 2003     |         
|                                                      |          |             |               |          |         
|                                                      | At fixed | At floating | Interest free | Total    |          |    | At fixed | At floating | Interest free | Total |  
|interest                                              | interest |             |               | interest | interest |    |         
|rates                                                 | rates    |             |               | rates    | rates    |    |         
|£m                                                    | £m       | £m          | £m            | £m       | £m       | £m | £m      
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Current asset investments, short-term                 |          |             |               |          |          |    |          |             |               |       |  
|deposits and cash                                     |          |             |               |          |          |    |          |             |               |       |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Sterling                                              |         | 82          | 16            | 98       |          |    |         | 77          | 15            | 92    |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|US Dollar                                             |         | 39          | 60            | 99       |          |    |         | 140         | 40            | 180   |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Euro                                                  |         | 3           | 42            | 45       |          |    |         | 3           | 56            | 59    |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Japanese Yen                                          |         |            | 3             | 3        |          |    |         | 1           | 4             | 5     |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Other currencies                                      |         | 37          | 125           | 162      |          |    |         | 39          | 120           | 159   |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|                                                      |         | 161         | 246           | 407      |          |    |         | 260         | 235           | 495   |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Fixed asset investments and debtors                   |          |             |               |          |          |    |          |             |               |       |  
|due after more than one year                          |          |             |               |          |          |    |          |             |               |       |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Sterling                                              |          |             |               |         |          |    |          |             |               | 11    |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|US Dollar                                             |          |             |               | 41       |          |    |          |             |               | 40    |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Euro                                                  |          |             |               | 1        |          |    |          |             |               |      |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Other currencies                                      |          |             |               | 19       |          |    |          |             |               | 8     |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Total financial assets                                |          |             |               | 468      |          |    |          |             |               | 554   |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|At 31 December 2004 the financial assets
       ofthe |          |             |               |          |          |    |          |             |               |       |  
|Group comprised:                                      |          |             |               |          |          |    |          |             |               |       |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Investments in participating and                      |          |             |               |          |          |    |          |             |               |       |  
|other investments                                     |          |             |               |          |          |    |          |             |               |       |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Other investments                                     |          |             |               |          |          |    |          |             |               |       |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Shares                                                |          |             |               | 17       |          |    |          |             |               | 17    |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Loans                                                 |          |             |               | 18       |          |    |          |             |               | 15    |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Debtors due after more than one year                  |          |             |               | 26       |          |    |          |             |               | 27    |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Current asset investments and short-termdeposits      |          |             |               | 105      |          |    |          |             |               | 345   |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Cash                                                  |          |             |               | 396      |          |    |          |             |               | 249   |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|Less financial assets of insurance subsidiaries       |          |             |               | (94      | )        |    |          |             |               | (99   | )
|                                                      |          |             |               |          |          |    |          |             |               |       |  
|                                                      |          |             |               | 468      |          |    |          |             |               | 554   |  
|                                                      |          |             |               |          |          |    |          |             |               |       |  

Floating rate financial assets comprise bank deposits bearing interest at rates fixed in advance for periods ranging from 1 month to 6 months by reference to the relevant inter-bank rate.



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



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|ACCOUNTS |  | 103
|-------- |  | ---
|         |  |    

|37                    | Financial risk management (continued)
|--------------------- | -------------------------------------
|                      |                                      
|(a)                   | Interest rate risk (continued)       
|                      |                                      
|Financial liabilities

|                                                            |          |    | 2004        |          |          |    |  |          |  | 2003        |   |       | 
|----------------------------------------------------------- | -------- | -- | ----------- | -------- | -------- | -- |  | -------- |  | ----------- | - | ----- | 
|                                                            |          |    |             |          |         
|                                                            | At fixed |    | At floating |          | Total    |    |  | At fixed |  | At floating |   | Total | 
|interest                                                    | interest |    |             | interest | interest |   
|rates                                                       | rates    |    |             | rates    | rates    |   
|£m                                                          | £m       | £m |             | £m       | £m       | £m
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|Sterling                                                    | 11       |    | (62         | )        | (51      | )  |  | 112      |  | (47         | ) | 65    | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|US Dollar                                                   | 259      |    | 545         |          | 804      |    |  | 431      |  | 622         |   | 1,053 | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|Euro                                                        | 7        |    | 460         |          | 467      |    |  | 81       |  | 434         |   | 515   | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|Japanese Yen                                                |         |    | 98          |          | 98       |    |  | 212      |  | (63         | ) | 149   | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|Other currencies                                            |         |    | 115         |          | 115      |    |  | 16       |  | 135         |   | 151   | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|                                                            | 277      |    | 1,156       |          | 1,433    |    |  | 852      |  | 1,081       |   | 1,933 | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|At 31 December 2004 the financial
       liabilities of the |          |    |             |          |          |    |  |          |  |             |   |      
|Group
    comprised:                                        |          |    |             |          |          |    |  |          |  |             |   |       | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|Short-term borrowings                                       |          |    |             |          | 137      |    |  |          |  |             |   | 29    | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|Current instalments of loans                                |          |    |             |          | 165      |    |  |          |  |             |   | 534   | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|Loans                                                       |          |    |             |          | 1,117    |    |  |          |  |             |   | 1,353 | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|Other creditors due after more than one year                |          |    |             |          |          |    |  |          |  |             |   |       | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|Other creditors                                             |          |    |             |          | 13       |    |  |          |  |             |   | 14    | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|Finance leases                                              |          |    |             |          | 1        |    |  |          |  |             |   | 3     | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 
|                                                            |          |    |             |          | 1,433    |    |  |          |  |             |   | 1,933 | 
|                                                            |          |    |             |          |          |    |  |          |  |             |   |       | 

The applicable weighted average interest rates for fixed rate financial liabilities are: Sterling n/a% (2003 9.7%); US dollar 7.8% (2003 6.9%); Euro 3.3% (2003 4.3%); Japanese yen n/a% (2003 0.5%); other currencies
n/a% (2003 12.0%). Floating rate financial liabilities bear interest based upon short-term inter-bank rates.

The applicable weighted average period for which rates are fixed are: Sterling n/a years (2003 3 years); US dollar 2 years (2003 3 years); Euro 8 years (2003 4 years); Japanese yen n/a years (2003 2 years) and other
currencies n/a years (2003 3 years).

The figures shown above take into account various interest rate swaps, currency swaps and forward exchange contracts used to manage the interest rate and currency profile of financial assets and liabilities.

|(b)                                                                                                                                                                                                                                                                                  | Currency exposures on monetary
    assets and liabilities
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------
|As explained in the Operating
            and Financial Review, on page 22, the Groups
            policy is, where practicable, to hedge all exposures on monetary
            assets and liabilities. As a result there are no significant non
    functional currency exposures.

|                                                                                                                                             |                                  
|-------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------
|(c)                                                                                                                                          | Maturity of financial liabilities
|The maturity profile of the Group s
        financial liabilities, as defined in section (a) above, at 31 December
    2004 was as follows:

|                                                    | 2004  |  | 2003  | 
|--------------------------------------------------- | ----- |  | ----- | 
|£m                                                  | £m   
|                                                    |       |  |       | 
|In one year or less                                 | 302   |  | 563   | 
|                                                    |       |  |       | 
|In more than one year but not more than two years   | 172   |  | 151   | 
|                                                    |       |  |       | 
|In more than two years but not more than five years | 670   |  | 907   | 
|                                                    |       |  |       | 
|In more than five years                             | 289   |  | 312   | 
|                                                    |       |  |       | 
|                                                    | 1,433 |  | 1,933 | 
|                                                    |       |  |       | 



ICI ANNUAL REPORT AND ACCOUNTS 2004

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|104 |  | ACCOUNTS
|--- |  | --------
|    |  |         

Notes relating to the accounts

|37                                                                                                                                                                              | Financial risk management (continued)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------
|                                                                                                                                                                                |                                      
|(d)                                                                                                                                                                             | Borrowing facilities                 
|Committed undrawn facilities
        available to the Group at 31 December 2004 in respect of which all conditions
        precedent had been met at
that date were as follows:

|                                                       |      |  |      | 
|------------------------------------------------------ | ---- |  | ---- | 
|                                                       | 2004 |  | 2003 | 
|                                                       | £m   |  | £m   | 
|                                                       |      |  |      | 
|Expiring in one year or less                           |     |  | 100  | 
|                                                       |      |  |      | 
|Expiring in more than one year but less than two years | 355  |  |     | 
|                                                       |      |  |      | 
|Expiring in more than two years                        | 363  |  | 777  | 
|                                                       |      |  |      | 
|                                                       | 718  |  | 877  | 
|                                                       |      |  |      | 
|                                                       |      |  |      | 

|(e)                                                                                                                                                                                                                                                                                  | Net debt management
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------
|The Group manages the currency
        and interest rate exposure which arises on borrowings and cash not immediately
        required by the business on a net basis through the use of currency swaps,
    forward exchange contracts, interest rate swaps and interest rate caps.

The most significant consequences of this approach are:

| | to manage the currency exposures arising from loans by holding cash and through currency swaps.                                                          
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                          
| | to reduce the proportion of
       the Groups fixed interest rate liabilities arising from loans through
       the use of fixed
to floating rate swaps.

The financial instruments used in debt management are accounted for as described in the Groups
accounting policies on pages 58 and
59.

The notional principal amounts and fair values, net of associated hedges, of the Groups
financial assets and financial liabilities were
as follows:

|                                                                          | Notional           |   |                  |   |                |   |        |   |        |  
|------------------------------------------------------------------------- | ------------------ | - | ---------------- | - | -------------- | - | ------ | - | ------ | -
|                                                                          | principal amounts* |   | Carrying values* |   | Fair values*   |  
|                                                                          | At 31 December     |   | At 31 December   |   | At 31 December |  
|                                                                          |                    |   |                  |   |                |   |        |   |        |  
|                                                                          | 2004               |   | 2003             |   | 2004           |   | 2003   |   | 2004   |  
|                                                                          | £m                 |   | £m               |   | £m             |   | £m     |   | £m     |  
|                                                                          |                    |   |                  |   |                |   |        |   |        |  
|Interests in participating and other investments  other
    investments | 35                 |   | 32               |   | 35             |   | 32     |   | 35     |  
|                                                                          |                    |   |                  |   |                |   |        |   |        |  
|Current asset investments and short-term deposits                        | 81                 |   | 260              |   | 81             |   | 260    |   | 81     |  
|                                                                          |                    |   |                  |   |                |   |        |   |        |  
|Cash                                                                     | 326                |   | 235              |   | 326            |   | 235    |   | 326    |  
|                                                                          |                    |   |                  |   |                |   |        |   |        |  
|Other financial assets                                                   | 26                 |   | 27               |   | 26             |   | 27     |   | 26     |  
|                                                                          |                    |   |                  |   |                |   |        |   |        |  
|Short-term borrowings                                                     | (135               | ) | (28              | ) | (137           | ) | (29    | ) | (137   | )
|                                                                          |                    |   |                  |   |                |   |        |   |        |  
|Loans                                                                     | (1,279             | ) | (1,836           | ) | (1,278         | ) | (1,834 | ) | (1,355 | )
|                                                                          |                    |   |                  |   |                |   |        |   |        |  
|Other financial liabilities                                               | (14                | ) | (18              | ) | (14            | ) | (17    | ) | (14    | )
|                                                                          |                    |   |                  |   |                |   |        |   |        |  
|Currency swaps                                                            | (3                 | ) | (605             | ) | (4             | ) | (53    | ) | (2     | )
|                                                                          |                    |   |                  |   |                |   |        |   |        |  
|Interest rate swaps                                                       | 1,860              |   | 3,215            |   |               |   |       |   | 12     |  
|                                                                          |                    |   |                  |   |                |   |        |   |        |  
|Total net liabilities                                                     |                    |   |                  |   | (965           | ) | (1,379 | ) | (1,028 | )
|                                                                          |                    |   |                  |   |                |   |        |   |        |  
|Financial assets                                                          |                    |   |                  |   | 468            |   |        |   |        |  
|                                                                          |                    |   |                  |   |                |   |        |   |        |  
|Financial liabilities                                                     |                    |   |                  |   | (1,433         | ) |        |   |        |  
|                                                                          |                    |   |                  |   |                |   |        |   |        |  
|                                                                          |                    |   |                  |   | (965           | ) |        |   |        |  
|                                                                          |                    |   |                  |   |                |   |        |   |        |  

*( ) = liability

 The Group has assumed that the fair value approximates to the carrying value.

The fair value of the Groups
long-term publicly quoted debt is based upon quoted market prices. The fair value
of the Groups non-publicly quoted debt, all swaps, and caps have been estimated
from discounted anticipated cash flows utilising a zero coupon yield curve.

The total decrease in the fair value of long-term debt
net of associated hedges for the year ended 31 December 2004 of £585m arose from the net repayment of loans (£474m), favourable movements on foreign
exchange (£85m) and favourable movements due to changes in interest rates (£26m).

A portfolio approach is adopted to create the Groups
target proportion of fixed and floating rate debt by currency. The maturity profile
of the net fixed rate exposure is spread over several years to reduce re-pricing
risk. Short-term borrowings include balances relating to forward exchange contracts.
These balances are further analysed in section (g).

Where interest rate and currency instruments are designated to a group of borrowings or cash and cash equivalents with similar characteristics, altering their interest rate or currency profile, the net cash amounts to
be received or paid on the agreements are accrued in current assets or liabilities and recognised as an adjustment to interest income or expense (accrual
accounting).



ICI ANNUAL REPORT AND ACCOUNTS 2004

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|ACCOUNTS |  | 105
|-------- |  | ---
|         |  |    



|37                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Financial risk management (continued)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                      
|(e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Net debt management (continued)      
|The Group is exposed to credit related losses in the event that counterparties to off balance sheet financial instruments do not perform according to the terms of the contract. In the
opinion of management, the counterparties to the financial instruments are creditworthy parties and the Group does not expect any significant loss to result from non-performance. The immediate credit exposure of financial instruments is represented
by those financial instruments that have a positive fair value at 31 December 2004.

At 31 December 2004 the aggregate value of all
  financial instruments with a positive fair value (assets) was £49m for currency swaps, £22m for interest rate swaps, £2m for forward contracts,
£nil for interest rate caps and £nil for currency options.

|(f) | Hedges
|--- | ------

|The table below analyses movements in the fair values of derivatives used to hedge financial assets and liabilities:
|--------------------------------------------------------------------------------------------------------------------
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|value                                                                                                               
|assets                                                                                                              
|£m                                                                                                                  
|                                                                                                                    
|Unrecognised gains and losses on hedges at 1 January                                                                
|                                                                                                                    
|Gains and losses arising in previous years that were recognised                                                     
|during the year                                                                                                     
|                                                                                                                    
|Gains and losses arising before 1 January that were not                                                             
|recognised during the year                                                                                          
|                                                                                                                    
|Gains and losses arising in the year that were not                                                                  
|recognised during the year                                                                                          
|                                                                                                                    
|Unrecognised gains and losses on hedges at 31 December                                                              
|                                                                                                                    
|Of which:                                                                                                           
|                                                                                                                    
|Gains and losses expected to be recognised within 1 year                                                            
|                                                                                                                    
|Gains and losses to be recognised after more than 1 year                                                            
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    

|(g)                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Currency management
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------
|The Group hedges its
          net transactional currency exposure arising on stocks, trade debtors
          and creditors (trade working capital) fully through the use of forward
          foreign exchange contracts. The Group selectively hedges its anticipated
          currency cash flow exposures for up to 12 months ahead through the
          use of forward foreign exchange contracts and selective purchase of
    currency options.

Surplus funds are invested in instruments in a variety of currencies. Forward foreign exchange contracts are used to hedge these back to the currencies that are appropriate for the net debt portfolio.

The financial instruments used in currency management are accounted for as described in the Groups
accounting policies on pages 58 and
59.

The notional principal amounts and fair values of forward exchange contracts used in currency management are as follows:

|                                    | Notional           |                  |                |   |      |   |      |   |      |  
|----------------------------------- | ------------------ | ---------------- | -------------- | - | ---- | - | ---- | - | ---- | -
|                                    | principal amounts* | Carrying values* | Fair values*  
|                                    | At 31 December     | At 31 December   | At 31 December
|                                    |                    |                  |                |   |      |   |      |   |      |  
|                                    | 2004               |                  | 2003           |   | 2004 |   | 2003 |   | 2004 |  
|                                    | £m                 |                  | £m             |   | £m   |   | £m   |   | £m   |  
|                                    |                    |                  |                |   |      |   |      |   |      |  
|Hedging working capital             |                    |                  |                |   | 1    |   | 1    |   | 1    |  
|                                    |                    |                  |                |   |      |   |      |   |      |  
|Forward contracts to buy currency   | 67                 |                  | 118            |   |      |   |      |   |      |  
|                                    |                    |                  |                |   |      |   |      |   |      |  
|Forward contracts to sell currency  | (58                | )                | (118           | ) |      |   |      |   |      |  
|                                    |                    |                  |                |   |      |   |      |   |      |  
|Hedging anticipated cash flows      |                    |                  |                |   |     |   | 3    |   |     |  
|                                    |                    |                  |                |   |      |   |      |   |      |  
|Currency contracts to buy currency  |                   |                  | 92             |   |      |   |      |   |      |  
|                                    |                    |                  |                |   |      |   |      |   |      |  
|Currency contracts to sell currency |                   |                  | (84            | ) |      |   |      |   |      |  
|                                    |                    |                  |                |   |      |   |      |   |      |  
|Hedging debt                        |                    |                  |                |   | (13  | ) | (12  | ) | (12  | )
|                                    |                    |                  |                |   |      |   |      |   |      |  
|Forward contracts to buy currency   | 470                |                  | 1,018          |   |      |   |      |   |      |  
|                                    |                    |                  |                |   |      |   |      |   |      |  
|Forward contracts to sell currency  | (483               | )                | (1,030         | ) |      |   |      |   |      |  
|                                    |                    |                  |                |   |      |   |      |   |      |  
|                                    |                    |                  |                |   |      |   |      |   |      |  
|* ( ) = liability                   |                    |                  |                |   |      |   |      |   |      |  

The carrying values of currency hedging instruments do not materially differ from the fair values based on quoted market prices.



ICI ANNUAL REPORT AND ACCOUNTS 2004

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|106 |  | ACCOUNTS
|--- |  | --------
|    |  |         

Notes relating to the accounts



|37                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Financial risk management (continued)  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                        
|(h)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Management of current asset investments
|Surplus funds are invested in high quality liquid marketable investments, including money market instruments, government securities and asset backed securities. Investments are of a
plain vanilla nature with no embedded interest rate options. The majority of asset-backed securities have some risk of early redemption, but are of a floating rate nature and hence have minimal fixed interest rate risk. There are no investments of a
fixed rate nature with maturity greater than one year and consequently the fair value of investments is considered to be materially the same as the value in the Groups
balance sheet. Investments are classified as available for sale.

The Groups exposure to credit risk is
  controlled by setting a policy for limiting credit exposure to counterparties,
  which is reviewed annually, and reviewing credit ratings and limiting individual
  aggregate credit exposures accordingly. The Group considers the possibility
  of material loss in the event of non-performance by a financial counterparty
  to be unlikely.

The notional amounts of financial instruments used in debt and currency management do not represent amounts exchanged by the parties and, thus, are not a measure of the credit risk to the Group arising through the use
of these instruments. The immediate credit risk of these instruments is represented by the fair value of contracts with a positive fair value.

|38                                                                                                                                        | Statutory and other information
|----------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------
|                                                                                                                                         
|Remuneration of the AuditorRemuneration of the Auditor for each of the three years ending 31 December 2004, 2003 and 2002 was as
follows:

|                                                                                 |    |      |      |    |     |  |     | 
|-------------------------------------------------------------------------------- | -- | ---- | ---- | -- | --- |  | --- | 
|2004                                                                             |    | 2003 | 2002
|notes                                                                            | £m |      | £m   | £m
|                                                                                 |    |      |      |    |     |  |     | 
|Statutory audit of the Group  Remuneration
    of Auditor                       | 1  |      | 3.1  |    | 3.1 |  | 2.8 | 
|                                                                                 |    |      |      |    |     |  |     | 
|                                                                                 |    |      |      |    |     |  |     | 
|                                                                                 |    |      |      |    |     |  |     | 
|Services other than statutory
    audit  Remuneration of Auditor and associates |    |      |      |    |     |  |     | 
|                                                                                 |    |      |      |    |     |  |     | 
|Audit related services                                                           | 2  |      | 1.2  |    | 0.9 |  | 2.1 | 
|                                                                                 |    |      |      |    |     |  |     | 
|Tax services                                                                     | 3  |      | 0.7  |    | 0.8 |  | 1.1 | 
|                                                                                 |    |      |      |    |     |  |     | 
|Other services                                                                   |    |      |     |    | 0.1 |  | 0.1 | 
|                                                                                 |    |      |      |    |     |  |     | 
|                                                                                 |    |      | 1.9  |    | 1.8 |  | 3.3 | 
|                                                                                 |    |      |      |    |     |  |     | 
|                                                                                 |    |      |      |    |     |  |     | 
|Notes                                                                            |    |      |      |    |     |  |     | 

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Remuneration of the Auditor
       for statutory audit of the Group includes remuneration and expenses of
       the Auditor in respect of the statutory report to the members of the Company
       for the year 2004
amounting to £65,000 (2003 £65,000; 2002 £61,000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|2. | Expenditure on audit related
       services in 2004 related principally to the transition to IFRS reporting,
       employee benefit plans and the review of interim financial statements.
       The expenditure for 2004
comprised audit related regulatory reporting £0.4m and further assurance services £0.8m. Expenditure in 2003 related principally to employee benefit plans, the issuance of Guaranteed Loan Notes 2008 and 2013 and the review of interim
financial statements. The expenditure for 2003 comprised audit related regulatory reporting £0.6m and further assurance services £0.3m. Expenditure in 2002 related principally to the rights issue, employee benefit plans, divestment
transactions and the review of interim financial statements. The expenditure for 2002 comprised audit related regulatory reporting £1.5m and further assurance services £0.6m.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3. | Tax services for 2004 comprised
       compliance services £0.3m and advisory services £0.4m. Tax services for 2003 comprised compliance services £0.6m and advisory services £0.2m.
Tax services for 2002 comprised compliance services £0.9m and advisory services £0.2m.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Loans and guarantees to officersAt
31 December 2004 an interest free housing loan to an officer of the Company amounting
to £100,000 (2003 £100,000; 2002 £nil)
was outstanding.

In accordance with the Companys
policy of providing housing assistance to staff on international assignment,
a subsidiary has guaranteed
a housing loan for an officer to the extent of £143,000 (2003 £143,000; 2002 £131,000).
The year on year movement in the sterling equivalent value of this loan is solely
due to translation at the spot exchange rate at the end of
each year.



ICI ANNUAL REPORT AND ACCOUNTS 2004

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|ACCOUNTS |  | 107
|-------- |  | ---



|39 | Commitments and contingent liabilities
|-- | --------------------------------------

|                                                                      |       |  |         | 
|--------------------------------------------------------------------- | ----- |  | ------- | 
|                                                                      | Group |  | Company | 
|                                                                      |       |  |         | 
|                                                                      | 2004  |  | 2003    | 
|                                                                      | £m    |  | £m      | 
|                                                                      |       |  |         | 
|Commitments
        for capital expenditure not provided for in these |       |  |         | 
|accounts
        (including acquisitions)                             |       |  |         | 
|                                                                      |       |  |         | 
|Contracts
        placed for future expenditure                       | 25    |  | 28      | 
|                                                                      |       |  |         | 
|Expenditure
        authorised but not yet contracted                 | 98    |  | 104     | 
|                                                                      |       |  |         | 
|                                                                      | 123   |  | 132     | 
|                                                                      |       |  |         | 

Contingent liabilities existed at 31
      December 2004 in connection with guarantees of borrowings and uncalled
      capital relating to subsidiary and other undertakings and guarantees relating
      to pension funds, including the solvency of pension funds. There was no
      contingent liability in respect of guarantees of borrowings and uncalled
      capital for the Group at 31 December 2004 (31 December 2003: £nil);
      the maximum contingent liability for the Company, mainly on guarantees
      of borrowings by subsidiaries, was £1,123m (2003 £1,357m).
      In particular, the Company has fully and unconditionally guaranteed the
      debt securities of its wholly owned subsidiary ICI Wilmington, Inc. From
      time to time, the Company, in the ordinary course of business, also provides
guarantees to its wholly owned subsidiaries. The Group is also subject to contingencies
      pursuant to requirements that subsidiaries comply with relevant laws, regulations
      and standards. However, violations of applicable laws, regulations and
      standards, in particular provisions of environmental, health and safety
      laws (including spills or other releases of hazardous substances to the
      environment) or of permit or approval requirements, could result in restrictions
      on the operation of the Groups
      facilities, damages, fines or other sanctions, increased costs of compliance
      as well as reputational damage. ICI is also subject to environmental laws
      and regulations, principally in respect of soil and groundwater remediation,
      that in the future may require it to take action to correct effects on
      the environment of prior disposal or release of chemical substances by
      the Group or other parties. ICI has established provisions in
      respect of future environmental, health and safety liabilities that are
      not covered by enforceable indemnities from third parties, for which expenditure
      is probable and the cost of which can be estimated within a reasonable
      range of outcomes. These actual and potential liabilities, however, are
      inherently difficult to predict and to quantify. Existing provisions could
      therefore be inadequate to cover these liabilities, and additional costs
      to meet such actual and potential obligations could have an adverse effect
      on the Groups results
      of operations, cash flow and financial condition. The Glidden Company (Glidden),
    a wholly owned subsidiary of ICI, is a defendant, along with former lead
    paint and pigment producers as well as other lead product manufacturers and
    their trade associations, in a number of law suits in the United States.
    These suits seek damages for alleged personal injury caused by lead-based
    paint or the costs of removing lead-based paint. An alleged predecessor of
    Glidden manufactured lead pigments until the 1950s and lead-based consumer
    paint until the 1960s. Glidden is currently a defendant in four active suits
    and is also named in three unserved cases. Glidden continues to believe that
    it has strong defences to all of the pending cases and has denied all liability
    and will continue to defend all actions. Following ICIs
    trading statement on 25 March 2003, three purported class action lawsuits
    were filed in the US Federal District Court for the Southern District of
    New York on behalf of ICI shareholders who purchased ICI ADRs and Ordinary
    Shares between August 2002 and March 2003. The lawsuits, which have now been
    consolidated into a single action, allege that prior to the trading statement
    ICI failed to disclose properly the extent of customer service problems




at Quest following the implementation of new
      enterprise resource planning systems in 2002. In September 2004 the court
      dismissed a number of the plaintiffs claims. ICI continues to contest
      the remaining claims. In July 2004 ICI received a request for information covering the period 1990 to 2003 in connection with a European Commission investigation into alleged cartel activity in the European Methacrylates market. The request
concerns ICIs former Acrylics business which was sold in November 1999. ICIs policy
is to co-operate with the Commission as fully as it can. With respect to each of the proceedings described above, ICI is unable to make estimates within a reasonable range of outcomes of the loss to which the proceedings may give rise. Disclosure of the amount sought by
plaintiffs (where known) is not considered meaningful with respect to these proceedings. The Group is also involved in various other legal proceedings, principally in the United Kingdom and United States including the following: In May 2003, the Kanagawa City Health and Medical Bureau in Japan required Quest Japan to recall flavours containing an ingredient known as WS3. The Japanese health authorities acknowledged that WS3 posed no risk to
human health, but nevertheless argued that technically it was not approved for use in Japan. Three customers were affected by the recall, including Coca Cola (Japan) Company Limited (Coca Cola Japan). On 8 August 2003 The Coca Cola Company and Coca Cola Japan filed a lawsuit in the state court of Fulton County, Georgia USA seeking
damages to be determined at trial for costs allegedly arising from their recall. In December 2004, Quest, without admission of liability, settled the dispute with the Coca Cola Company and Coca Cola Japan. Quest has also settled its dispute with one
of the other affected customers. It remains possible that the third affected customer may seek to recover alleged damages. From the early 1970s until 1999 ICI Americas Inc (ICIA), a subsidiary, operated and maintained, on behalf of the US Army, two manufacturing facilities. Employees at each facility were employed by
ICIA and were members of ICIA pension schemes. The US Army reimbursed to ICIA the cost of contributions to each pension scheme. Upon termination of the contract in 1999 each of the schemes carried a surplus. In September 2004 the US Army Contracting
Officer issued a final determination holding that termination of the contract triggered a refund to the US Government of an amount equal to the value of the 1999 pension surplus. ICIA is appealing the final determination to the Armed Services Board
of Contract Appeals. The Directors do not believe that the outcome of these other proceedings will have a material effect on the Groups financial
position. In recent years, the Group has carried out a programme of strategic disposals, in the course of which the Group has given other parties certain indemnities, warranties and guarantees, including indemnities, warranties
and guarantees relating to known and potential latent




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39
    Commitments
      and contingent liabilities (continued) environmental, health and safety liabilities.
        There are also a number of contracts relating to businesses which the
    Group exited as part of its disposal programme which have not been novated
    to the
    purchasers of these businesses. The Groups 50% interest in Teesside Gas
    Transportation Ltd (TGT) was sold, during 1996, to a subsidiary
    of its other shareholder, Enron Europe Ltd (Enron) which is currently
    in administration. TGT contracted with the owners of a distribution network
    (the CATS parties) for pipeline capacity for North Sea gas and the commitment
    is guaranteed severally on a 50:50 basis by ICI and Enron (the present value
    of the commitment guaranteed by ICI at 31 December 2004 was estimated at £126m).
    On the sale of the Groups interest in TGT to Enron, ICI received the
    benefit
of a counter guarantee from Enrons parent, Enron Corp. Enron Corp. sought
Chapter 11 bankruptcy protection in the USA on 2 December 2001. The Groups interest in Teesside Power
    Ltd (TPL) was sold on 31 December 1998 to Enron Teesside Operations
    Ltd (ETOL). TPL had previously contracted with certain gas sellers
    for the purchase of gas. Enron Corp. and ICI had guaranteed on a several
    basis the liability of TPL to the gas sellers in the proportions 70% and
    30% respectively. On the sale of the Groups interest in TPL to ETOL,
    ICI received the benefit of a counter indemnity from ETOL and a guarantee
    from Enron Corp. in respect of ICIs 30% guarantee commitment to the
    gas sellers. As mentioned above, Enron Corp. has sought Chapter 11 bankruptcy
    protection in the USA. ETOL went into administrative receivership in April
    2003, and sold its business and assets to Sembcorp Utilities Teesside Ltd
    (Sembcorp); however, the counter indemnity to ICI was not transferred
    to Sembcorp and remains a liability of ETOL. The present value of the gas
    purchase commitment guaranteed by ICI at 31 December 2004 was estimated at £186m.
    The numbers quoted above are ICIs current estimates of its maximum
potential liability.


ICIs
          original disposal of the Chlor-Chemicals business to Ineos Chlor included an
          agreement for ICI to provide Ineos Chlor with a £100m loan facility. As part of an overall refinancing package for Ineos Chlor, ICI agreed on 31 July 2003 to make available new funding of £60m alongside £45m of new funding from the Ineos Group and £50m
          of Regional
          Selective Assistance (RSA) from the UK Government. As a consequence
          of this, the £65m claim previously notified to ICI by Ineos Chlor in connection with the original sale of the business was withdrawn. By October 2004 ICI had advanced £105m out of its total funding commitment of £160m. On 25 October 2004 Ineos agreed to take over ICIs
outstanding funding commitment to Ineos Chlor of £55m. ICI wrote off all
existing indebtedness from Ineos Chlor (£99m was provided as at 31 December 2002 and a further exceptional charge of £30m was taken in 2003) and took an exceptional charge of £5m
before tax in its third quarter results in
2004. The only significant take-or-pay contract entered into by subsidiaries is for
the purchase of electric power in the UK, which commenced in the second quarter
of 1998, for 15 years. The present value of this commitment
is estimated at £121m. The ultimate outcome of the matters described above is subject to many uncertainties,
including future events and the uncertainties inherent in litigation. The Group
has made provision in its financial statements for such matters to the extent
losses are presently considered probable and estimable. However, these matters
involve substantial sums, and an unfavourable outcome of one or more of these
matters could have a material effect on the Groups results of operations, liquidity or financial
position.




40
    Related party transactions Related party transactionsThe
      following information is provided in accordance with FRS No. 8 Related
      Party Transactions, as being material transactions with related parties
during 2004. Related party: IC Insurance Ltd and its subsidiaries,
disclosed as a principal associate on page 81. Transactions: Funds on deposit with ICI Finance
PLC amounted to £10m (2003 £10m; 2002 £10m). Related party: ICI Pension Trustees Ltd Transactions: In recognition of a deficit for
    funding purposes of £443m and a solvency ratio of 93% at 31 March 2003
    identified as a result of the completion of the triennial valuation of the
    ICI UK Pension Fund (the Fund) the Company has agreed to make
    top-up
contributions to the Fund of £62m per annum for nine years from 2004. As
from September 2004, the Company has also provided an asset-backed guarantee,
via a wholly owned subsidiary, Receivables Funding Ltd (the SPV)
specifically incorporated to provide the guarantee, for £250m to support
its commitments to the Fund. The asset-backed guarantee is secured by way of
fixed and floating charge over the 41
    Post balance sheet events On 7 February 2005 the Group completed the
    disposal of its US, Canadian and European Vinamul Polymers business to Celanese
    for £111m (US$208m). The transaction resulted in a profit after tax
    of £5m before the recycling of £140m of previously written off
goodwill.






receivables of Group companies, which have
    been assigned to the SPV and by way of cash deposited with the SPV. At 31
    December 2004, £251m of trade debtors and £80m of cash were assigned
    to the SPV. Related party: Mr C F Knott, an officer of the Company from 28 March 2003 until
31 August 2004. Transactions: In accordance with a standard Group policy of providing assistance
to staff who relocate at its request, an arrangement was entered into between
Mr C F Knott and Quest International on the occasion of his appointment as Chairman
and Chief Executive of that business at its headquarters in the Netherlands.
Under the arrangement an external relocation company facilitated the sale of
Mr Knotts
home in the US, where he had been President and Chief Operating Officer of National
Starch. Mr Knott received fair market value of $1.55m for his US property, being
the average of two independent valuations by qualified appraisers. The property
was sold by the relocation company in July 2004 at a price agreed by Quest International
and approved by ICI. The total cost incurred by the Group, wholly in 2004, was
$0.49m.






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42
    Differences between UK and US accounting
      principles The accompanying Group financial statements included in this report are prepared
in accordance with United Kingdom Generally Accepted Accounting Principles (UK
GAAP). The significant differences between UK GAAP and US Generally Accepted
Accounting Principles (US GAAP) which affect the Groups
net income and shareholders equity are set out below: (a)
    Accounting for pension costsThere are five
        significant differences between UK GAAP as set out in SSAP 24 and US
      GAAP in accounting for pension costs that impact ICI:(i)
    SFAS No. 87Employers Accounting
            for Pensionsrequires measurements
            of plan assets and obligations to be made as at the date of financial
            statements or a date not more than three months prior to that date.
            Under UK GAAP, calculations may be based on the results of the latest
      actuarial valuation.(ii)
    SFAS No. 87 requires that each significant
        assumption necessary to determine annual pension cost reflects best estimates
        solely with regard to that individual assumption. UK GAAP does not mandate
        a particular method, but requires that the method and assumptions, taken
        as a whole, should be compatible and lead to a companys best estimate
        of the cost of providing
the benefits promised.(iii)
    Under SFAS No. 87 a negative pension cost
        may arise where a significant unrecognised net asset or gain exists at
        the time of implementation. This is required to be amortised on a straight-line
        basis over the average remaining service life of employees. Under UK
        GAAP, the Groups policy is to not recognise pension credits in
        its financial statements unless a refund of, or reduction in, contributions
      is likely.(iv)
    Under SFAS No. 87, where the unfunded
        accumulated benefit obligation (being the actuarial present value of
        benefits attributed by the pension benefit formula to employee service
        rendered prior to that date and based on current and past compensation
        levels) exceeds the fair value of plan assets, a liability must be recognised
        in the statement of financial position. If this liability exceeds the
        unrecognised prior service cost, the excess is recorded as a reduction
        in shareholders equity, net of tax. Under UK GAAP, this liability
        is usually recognised on a systematic basis over the remaining average
      service lives of the employees by way of increased contribution rates.(v)
    SFAS No. 88Employers Accounting
            for Settlements and Curtailments of Defined Benefit Pension Plans
            and for Termination Benefits,requires
            immediate recognition of previously unrecognised gains or losses
            when certain events meeting the definition of a plan settlement or
            curtailment occur. Under UK GAAP, such gains or losses are recognised
      over the expected service life of the remaining employees.(b)
    Purchase accounting adjustments,
      including the amortisation and impairment of goodwill and intangiblesIn the Groups financial
          statements, prepared in accordance with UK GAAP, goodwill arising on
          acquisitions accounted for under the purchase method after 1 January
          1998 is capitalised and amortised. Prior to that date such goodwill
          arising on acquisitions by the Group was and remains eliminated against
          retained earnings. Values were not placed on intangible assets. Additionally,
          UK GAAP requires that on subsequent disposal or closure of a previously
          acquired
asset, any goodwill previously taken directly to shareholders equity is
then charged in the income statement against the income or loss on disposal or
closure.Prior to the
        adoption of SFAS No. 142 Goodwill and other Intangible Assets,on
      1 January 2002, under US GAAP all goodwill was






capitalised and amortised through the income
    statement over its estimated life not exceeding 40 years. Also, under US
    GAAP, it was normal practice to ascribe fair values to identifiable intangibles
    and for the purpose of the adjustments to US GAAP, included in the tables
    below, identifiable intangible assets of the Group were amortised to income
    over the lower of their estimated lives or 40 years. Provision under US GAAP
    was made where there was a permanent impairment to the carrying value of
    capitalised goodwill and intangible assets, based on a projection of future
    undiscounted cash flows. The Group adopted the provisions of SFAS No. 142 from 1 January 2002. The standard
requires that intangible assets with finite lives be amortised over their estimated
useful lives. Intangible assets with indefinite lives are tested for impairment
annually in lieu of being amortised. Goodwill is no longer amortised on a straight-line
basis over its estimated useful life but instead is tested for impairment annually
and whenever indicators of impairment
arise. At 31 December 2004 the Group had intangible assets with a gross carrying amount
of £278m less accumulated amortisation of £209m under US GAAP. The
related amortisation expense for the period was £29m. The amortisation
expense for the 5 succeeding years is estimated as follows: 2005 £28m,
2006 £28m, 2007 £13m, 2008 £nil, 2009 £nil. The goodwill balance under US GAAP at 31 December 2004
amounted to £2,827m (2003 £3,173m). The segmental analysis of this
goodwill, based on the Groups
defined segments is as follows: National
   
   Quest
   
   Paints
   
   Regional
   
   TotalStarch
   
   
   
   
   
   andIndustrial£m
   
   £m
   
   £m
   
   £m
   
   £mCost at
   1,915
   
   736
   
   504
   
   18
   
   3,173beginningof yearAcquisitions
   
   
   
   
   1
   
   
   
   1Disposals
   (57
   )
   (163
   )
   
   
   
   
   (220
   )Exchange
   (80
   )
   (26
   )
   (19
   )
   (2
   )
   (127
   )At endof year
   1,778
   
   547
   
   486
   
   16
   
   2,827 (c)
    Capitalisation of interestThere is no
        requirement in the UK to capitalise interest and the Group does not capitalise
        interest in its Group financial statements. Under US GAAP, SFAS No. 34 Capitalization
        of Interest Costrequires interest incurred as part of the cost of
        constructing fixed assets to be capitalised and amortised over the life
      of the asset.(d)
    Derivative instruments and hedging
      activitiesIn June
          1998 the Financial Accounting Standards Board (FASB) issued SFAS No.
          133, Accounting for Derivative Instruments and Certain Hedging Activities.
      In June 2000 the FASB issued SFAS No. 138,  Accounting
      for Certain Derivative Instruments and Certain Hedging Activities, an Amendment
      of SFAS No. 133. SFAS No. 133 and SFAS
      No. 138 require that all derivative instruments be recorded on the balance
      sheet at their respective fair values. SFAS No. 133 and SFAS No. 138 are
      effective for all fiscal quarters of all fiscal years beginning after 30
      June 2000; the Group adopted SFAS No. 133 and SFAS No. 138 on 1 January
      2001. In accordance with the transition provisions of SFAS No.133, the
      Group recorded, at 1 January 2001, a net-of-tax cumulative-effect-type
      increase
of £4m in accumulated other comprehensive income within shareholders equity to recognise at fair value all derivatives
that were previously designated as cash flow hedging instruments. A fair value
adjustment increased debt by £35m which was offset by a corresponding amount
to record derivatives previously designated as fair value hedging instruments.
All of the transition adjustment that was recorded in accumulated other comprehensive
income has been reclassified into
earnings as
of


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    UK and US accounting principles (continued)
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31 December 2001. The fair value adjustment to debt is being
    amortised over the period of the debt in accordance with the transitional
    rules. Upon adoption, the Groups management decided not to designate any of its derivative instruments as hedges for US GAAP accounting purposes. Derivatives previously designated as cash flow and fair value hedges are
now marked to market. Consequently, the Groups earnings under US GAAP may be more volatile because of the effect of derivative instruments. Under US GAAP, the forward
contracts to purchase the Companys Ordinary Shares by the employee share
trust in order to hedge obligations in respect of options issued under certain
employee share option schemes are recognised in the balance sheet at fair value,
with changes in the fair value recognised in net income. SFAS No. 149 Amendments to Statement 133 on Derivative Instruments and Hedging Activities,was
issued in April 2003 and amends and clarifies reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. This standard applies to contracts entered into or modified
after 30 June 2003 and for hedging
relationships designated after 30 June 2003. Adoption of this standard had no
effect on the Groups
results. SFAS No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equitywas
issued in May 2003 and amends the accounting and classification for certain financial
instruments, such as those used in most share buy-backs that previously were
accounted for and classified as equity. SFAS No. 150 requires that certain types
of freestanding
financial instruments that have characteristics of both liabilities and equity
be classified as liabilities with, in most cases, changes in fair value recorded
through the income statement. The statement is effective for financial instruments
entered into or modified after 31 May 2003, and otherwise is effective at the
beginning of the first interim period beginning after 15 June 2003. The adoption
of SFAS No. 150 has not had an impact on the Groups
financial statements. (e) Restructuring costsThe Group has historically
incurred various restructuring costs that have primarily included costs such
as employee termination benefits, contract termination costs and costs to consolidate
or close facilities or  relocate employees. Under UK GAAP, liabilities for
restructuring costs are recognised once a detailed formal plan is in place and
valid expectations
have been raised in those affected that the restructuring will be carried out.
A liability is
recognised for voluntary redundancy payments to the extent that it is expected
that volunteers will come forward. Under US GAAP, restructuring costs are accounted
for as follows: (i) Prior to the adoption of SFAS No. 146 Accounting for Costs Associated with Exit or Disposal Activitieson
1 January 2003, involuntary employee termination benefits were recognised as
a liability in accordance with EITF 943
in the period management committed the Group to a plan contingent upon a number
of factors including the prior communication of termination benefits to affected
employees. SFAS No. 146 requires some one-time benefit arrangements to be recorded
as one-time charges following a fair value model on the communication
date to employees. Accretion expense is recorded for discounting over the payment
period. Other one-time benefits are recognised rateably over the future service
period. Ongoing benefit arrangements are accounted for under SFAS No. 88 or SFAS
No. 112 Employers Accounting for Post-employment Benefitsand are accrued
once they become probable and estimable.


(ii) Under US GAAP, voluntary termination benefits are accrued when the terms are accepted by the individual employee. (iii) Prior to the adoption of SFAS No. 146, other
    costs associated with an exit activity were recognised as a liability in
    accordance with EITF
    943 when the Groups
management committed to execute an exit plan that would result in costs that
would have no future economic benefit. SFAS No. 146 requires that a liability for a cost
    associated with an exit or disposal activity be measured at fair value and
    first be recognised when
    the liability is irrevocably incurred. The restructuring programs announced
    during 2003 gave rise to a difference between UK and US GAAP in the amount
    of £8m in respect of contract termination provisions that did not yet meet the criteria of a liability under SFAS No. 146. In 2004, an amount of £10m
  was recognised as a contract termination provision under US GAAP. (iv) Under UK GAAP, assets to be abandoned are written
    down to the higher of net realisable value and value in use. Under US GAAP
    assets to be abandoned
    are classified as held for use. A preliminary review of tangible fixed assets
    is carried out using undiscounted cash flows. If the undiscounted cash flows
    are less than the assets carrying value, an impairment loss must be
recognised. The impairment loss is calculated using discounted future cash flows. The asset is subsequently depreciated over its remaining useful economic life. An adjustment in this respect amounting to £2m has been included in the US GAAP
reconciliation under the heading Restructuring. (f) Foreign exchange
Under UK GAAP, on the sale of a foreign enterprise cumulative foreign exchange differences within reserves are not considered in arriving at a gain or loss on disposal. Under US GAAP, on the sale of a foreign
enterprise the cumulative foreign currency differences within reserves are taken to net income in arriving at the gain or loss on disposal. (g) Discontinued operationsUnder UK GAAP, discontinued operations are defined as material, clearly separate
operations which have been sold or permanently terminated. UK GAAP further states
that for an operation to be classified as discontinued, its disposal should have
a material effect on the nature and focus of a reporting entitys
operations and represent a material reduction in operating facilities. A list
of businesses which have been treated as discontinued operations under UK GAAP
is included in note 1. Under SFAS No. 144 a discontinued operation is now defined
as a component of an entity that has been disposed of or although still operating
is
subject to a formal plan for disposal. This component must have operations and
cash flows that can be clearly distinguished, operationally and for financial
reporting purposes, from the rest of the entity. Under US GAAP, the Quest Food
Ingredients disposal during 2004 met the SFAS No. 144 conditions and was classified
as a discontinued operation. The disposal of the National Starch Vinamul Polymers
business that completed on the 7 February 2005 is treated as continuing under
US GAAP as Vinamul will continue to be a supplier to National Starch and the
cash flows of Vinamul will not be eliminated from the ongoing operations of National
Starch
following the disposal transaction. Accordingly, under US GAAP, the profit of the Quest
    Food Ingredients operations of £5m and the loss on the disposal of £44m are classified within discontinued operations. Prior period results have been
restated. Under UK GAAP, the loss on sale in 2004 amounted to £27m which included goodwill previously included in reserves of £154m.




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2004

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|42 | Differences between
            UK and US accounting principles (continued)
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Under US GAAP the goodwill in respect of this business
    is included on the balance sheet. SFAS No. 142 requires that, where part
    of a reporting unit is disposed, the goodwill written off should be based
    on the relative fair values of the business being disposed and the portion
    of the reporting unit to be retained. The goodwill allocated to Quest Food
    Ingredients under US GAAP is £163m. In addition to goodwill, Quest Food Ingredients had an intangible asset
with a net book value of £7m under US GAAP that was not recognised under UK GAAP. US GAAP also requires the cumulative foreign currency gain of £4m held in reserves to be recycled in the profit/loss on disposal calculation. Consequently,
the loss reported under US GAAP amounted to £39m. These adjustments have
been disclosed in the US GAAP reconciliation under the headings to which they
relate. Quest Food Ingredients sales were £50m for 2004 and £148m for 2003. The pre-tax profit was £7m for 2004 and £20m
    for 2003. The disposal of the Vinamul Polymers business completed
    on the 7 February 2005. Sales for the business
were £163m and pre-tax profit £9m for 2004. A loss of £57m
has been recognised on initial write-down of the assets to fair value at the
date it was classified
as held for sale. This has been included under the heading Disposals and other adjustments. The major classes of assets and liabilities included within the disposal
group of the Vinamul Polymers business are as follows; goodwill and intangible assets £4m, tangible fixed assets £90m, inventory £12m, debtors £14m, creditors due within one year £21m and provisions £6m. Under UK GAAP, neither the disposal of Quest Food Ingredients or National Starch Vinamul Polymers business had a material effect on the nature or focus of operations nor did they represent a material reduction in
operating facilities. As a result, they were both classified as continuing under UK GAAP. (h) Disposal adjustmentsIn
    2000, the Group recorded the disposal of its Chlor-Chemicals business. The
    disposal, for UK financial reporting purposes, was classified as a discontinued
    operation. However, under US GAAP Staff Accounting Bulletin (SAB) Topic 5E,
    due principally to the continuing 15% equity interest of the Group in the
    disposed operations and a commitment by the Group to provide additional funding
    to finance the Ineos Chlor business, the entity could not be deconsolidated.
    On
25 October 2004, Ineos agreed to take over ICIs outstanding funding commitment to Ineos Chlor of £55m. As a result, ICI has written off all existing indebtedness
from Ineos Chlor and transferred its 15% equity interest to Ineos. A charge of £5m was incurred in the UK GAAP results for this transaction. Under US GAAP, the results of the operations of Ineos Chlor up to the date of disposal, and the loss
on disposal of £5m are included within continuing operations. In 2002, the Group entered into an agreement to dispose
  of its investment in Notes and equity of Huntsman International Holdings LLC
  (HIH) to Matlin Patterson Global Opportunities Partners, for completion by
  15 May 2003. Under UK GAAP, the Group discontinued the application of the equity
  method of accounting on reaching this agreement and deferred recognition of
  the loss on sale of the HIH Notes and gain on sale of the equity until completion
  of the
transaction on 9 May 2003, at which time a profit before tax of £50m was
recognised. Under US GAAP, the Notes transaction and the equity
  transaction were accounted for as separate transactions since they were not
  interdependent. Accordingly, under US GAAP, a pre-tax loss was recognised on
  the sale of
the HIH Notes (approximately £40m) in 2002, and the pre-tax gain on the equity transaction (approximately £121m)
has been recognised in 2003. Additionally, under US GAAP, the Group has continued
to account for its equity investment in
HIH


under the equity method of accounting, and
    therefore has continued to recognise its proportionate share of HIHs
    operating results until completion. The equity accounted results in 2003
    up to the date of completion (a pre-tax loss of £14m) have been included
    in the US GAAP net income reconciliation. The adjustments in respect of HIH
    have been included in the US GAAP
reconciliation under the heading Disposals and other adjustments. During 2003 the Group disposed of its Permabond business. Under UK GAAP this
  gave rise to a loss on disposal of £19m which included goodwill previously
  written off to reserves of £19m. Under US GAAP the goodwill in respect
  of this business is included on the balance sheet. SFAS No. 142 requires that,
  where part of a reporting unit is disposed, the goodwill written off should
  be based on the relative fair values of the business being disposed and the
  portion of the reporting unit to be retained. Consequently, the loss reported
  in 2003 under US GAAP amounted to £4m and the adjustment of £15m
  has been disclosed in the US GAAP reconciliation under the heading Disposals
  and other adjustments. (i) Ordinary dividendsUnder UK GAAP, the proposed dividends on Ordinary
  Shares, as recommended by the directors, are deducted from shareholders equity
  and shown as a liability in the balance sheet at the end of the period to which
  they relate. Under US GAAP, such dividends are only deducted from shareholders equity
  upon
declaration of the dividend. (j) TaxationBoth UK and US GAAP require full provision
  for deferred tax, and consequently the adjustment in respect of taxation primarily
  relates to the deferred tax effect of other US GAAP adjustments. (k) Share compensation expenseIn the Groups consolidated financial
  statements prepared under UK GAAP, no compensation expense is recognised in
  respect of the
Groups share option schemes. Under US GAAP, compensation cost has been
recognised for all options, including arrangements under the Groups UK
Sharesave scheme. The cost is calculated as the difference between the option
price and the market price at the end of the reporting period for all option
plans including performance
related criteria. In the Groups UK Sharesave scheme, the cost is calculated
as the difference between the option price and the market price at date of grant.
The cost is amortised over the period from the date the options are granted to
the date they are first exercisable, that is, the vesting date. At 31 December
2004, the Group had a number of share-based compensaton plans, which are described
in Note 23. FASB
No. 148 Accounting for Stock Based Compensation  Transitional and Disclosure,was
issued in December 2002 and amends SFAS No. 123 Accounting for Stock-Based
Compensation. SFAS No. 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this statement amends the disclosure requirements
of SFAS No. 123 to require prominent disclosures in financial statements about
the method of accounting for stock-based employee compensation and the effect
of the method used on reported results. Pursuant to SFAS No. 123, the Group has elected to apply APB Opinion No. 25, Accounting
  for Stock Issued to Employees,and related interpretations in accounting
  for its stock-based compensation plans. The following table illustrates recorded
  compensation expense




ICI ANNUAL REPORT AND ACCOUNTS 2004

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|112 |  | ACCOUNTS
|--- |  | --------

Notes relating to the accounts

|42 | Differences between
            UK and US accounting principles (continued)
|-- | ---------------------------------------------------------------------------
|   |                                                                            

and the effect on net income and earnings per share if the Group had adopted the fair value based accounting method prescribed by SFAS No. 123: 2004
   
   2003
   
   2002£m
   
   £m
   
   £mNet income (loss) as reported
   105
   
   (166
   )
   9Add: Stock-based employee compensationcost included in determining net income
      (loss)
   7
   
   7
   
   3Less: Stock-based compensation cost if thefair value based method had been applied
   (8
   )
   (10
   )
   (9
   )Pro-forma net income (loss)
   104
   
   (169
   )
   3Earnings per share:Basic and diluted  as reported
   8.9
   p
   (14.0
   )p
   0.8
   pBasic and diluted  pro-forma
   8.8
   p
   (14.3
   )p
   0.3
   p The fair value of each option grant is estimated on the date of grant using a
    Black-Scholes option pricing model with the following weighted average assumptions
    used for grants in 2004 and 2003, respectively: dividend yields of 3.3% and
    4.1%; expected volatility of 58% and 72%, risk-free interest rates of 4.8%
    and 4.2%, and expected lives of 4 years and 4 years. (l) Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of OthersFIN No. 45 was issued
in November 2002 and addresses the disclosure to be made by a guarantor in its
financial statements about its obligations under guarantees. FIN No. 45 also
requires the guarantor to recognise a  liability for the non-contingent component
of the guarantee, that is the obligation to stand ready to perform in the event
that specified triggering events or conditions occur. The initial measurement
of this liability is the fair value of the
guarantee at inception. The Group adopted the disclosure requirements of FIN
No. 45 in 2002 and has adopted the recognition and measurement provisions for
all guarantees entered into or modified after 31 December 2002. Note 39 discloses the nature and circumstances of the material guarantees together
    with their present value. The maximum potential amount of future undiscounted
    payments under all ICIs guarantees as defined by FIN No.45, including those
disclosed in Note 39, with terms ranging between 1 to 14 years, amounted to £636m at 31 December 2004 (2003 £775m). After
taking into account various mitigating and recourse factors, mainly the ability to procure products from other sources and to onward sell the various products and services, the maximum potential amount of future undiscounted payments is reduced to
£150m (2003 £150m). No guarantees have been entered into or modified after
31 December 2002 that would require recognition of a liability under FIN No. 45. (m) Variable Interest EntitiesFIN No. 46 (revised) Consolidation of Variable Interest Entitieswas issued in December 2003 and clarifies the application of the
consolidation rules to certain variable interest entities. Consolidation based on variable interest is required by the primary beneficiary if the equity investors lack essential characteristics of a controlling financial interest or if the equity
investment at risk is not sufficient for the entity to finance its activities without additional subordinate financial support from other parties. FIN No. 46 (revised) also provides disclosure requirements related to significant investment in
variable interest entities, whether or not those entities are consolidated. The Interpretation contains exemption for entities deemed to be a business subject to certain other criteria being met.


The Interpretation applies to reporting periods
  ending 15 March 2004, except for entities considered to be special-purpose
  entities, to which this Interpretation applies for reporting periods ending
  after 15 December 2003. The Group does not hold an interest in any entity considered
  to be a special-purpose entity. The adoption of FIN No. 46 (revised) did not
  have a material impact on the Groups results. (n) New US Accounting Standards implemented in the periodSFAS No. 132 (revised) Employers disclosures
about pensions and other post
retirement benefitsSFAS No. 132 (revised) was issued in December 2003 and revises the employers
    disclosures about pensions and other post-retirement benefit plans. It retains
    the recognition and measurement as required by SFAS No. 87, SFAS No. 88 and
    SFAS No. 106 Employers Accounting for Post-retirement
Benefits other than Pensions,and the disclosure requirements of SFAS No. 132. It requires additional disclosures which are included within the pension and other post-retirement benefits section of this note. The statement was effective
for years ending after 15 June 2004. (o) New US Accounting Standards not yet implementedSFAS No. 123 (revised) Share-based PaymentSFAS
No. 123 (revised) addresses the accounting for share-based payment transactions
in which an enterprise receives employees
    services in
    exchange for financial
    instruments which may be classified as (a) equity instruments of the enterprise
    or (b) liabilities that are based on the fair value of the enterprises
instruments. SFAS No. 123 (revised) requires the grant-date fair value of the
award to be recognised in the income statement over the requisite service period
(usually the vesting period). SFAS No. 123 (revised) removes an entitys
ability to account for such awards using the intrinsic value method of accounting
allowed in APB Opinion No. 25, which was permitted under SFAS No. 123, as originally
issued. The statement is effective for years ending after 15 June 2005. The Group
has not yet completed evaluating the effect of this standard on its financial
statement. SFAS No. 151 Inventory Costs  amendments to
ARB No. 43, Chapter 4SFAS No. 151 was issued in November 2004 and clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and spoilage. The standard requires these items to be recognised as current
period cost and requires that allocation of fixed production overheads to the costs of conversion to be based on the normal capacity of production facilities. The standard applies to inventory costs incurred during reporting periods beginning
after 15 June 2005. Adoption of this standard will not have any significant impact on the results of the Group. SFAS No. 153 Exchange of Non-monetary Assets  an
amendment of APB Opinion No
29SFAS No. 153 was issued in December 2004 and addresses the accounting for
non-monetary exchange of productive assets, allowing exchanges that do not have
commercial substance to be exempt from fair value measurement and eliminating
the previous exemption from fair value measurement for non-monetary exchanges
of similar productive assets. The standard applies to non-monetary asset exchanges
occurring during reporting periods beginning after 15 June 2005.
Adoption of this standard is not expected to have an effect on the Groups
financial statements.




ICI ANNUAL REPORT AND ACCOUNTS
2004

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| |  | ACCOUNTS |  | 113
| |  | -------- |  | ---
| |  |          |  |    

|   |                                                                    
|-- | -------------------------------------------------------------------
|42 | Differences between UK and US accounting
    principles (continued)

The following is a summary of the material
    adjustments to net income and shareholdersequity
    which would have been required if US GAAP had been applied instead of UK
GAAP:

|                                                                                        |    | 2004  |   | 2003  |   | 2002  |  
|--------------------------------------------------------------------------------------- | -- | ----- | - | ----- | - | ----- | -
|£m                                                                                      | £m | £m   
|                                                                                        |    |       |   |       |   |       |  
|Net income (loss) after exceptional items  UK GAAP                                     |    | 210   |   | 20    |   | 179   |  
|                                                                                        |    |       |   |       |   |       |  
|Continuing operations                                                                   |    | 224   |   | 23    |   | 166   |  
|                                                                                        |    |       |   |       |   |       |  
|Discontinued operations                                                                 |    | (14   | ) | (3    | ) | 13    |  
|                                                                                        |    |       |   |       |   |       |  
|Adjustments to conform with US GAAP                                                     |    |       |   |       |   |       |  
|                                                                                        |    |       |   |       |   |       |  
|Pension expense                                                                         |    | (24   | ) | (7    | ) | (14   | )
|                                                                                        |    |       |   |       |   |       |  
|Purchase accounting adjustments                                                         |    |       |   |       |   |       |  
|                                                                                        |    |       |   |       |   |       |  
|Amortisation/impairment of goodwill and amortisation of intangibles                     |    | (10   | ) | (249  | ) | (117  | )
|                                                                                        |    |       |   |       |   |       |  
|Disposals and other adjustments                                                         |    | (67   | ) | 72    |   | (31   | )
|                                                                                        |    |       |   |       |   |       |  
|Capitalisation of interest less amortisation and disposals                              |    | (4    | ) | (5    | ) | (5    | )
|                                                                                        |    |       |   |       |   |       |  
|Derivative instruments and hedging activities                                           |    | (10   | ) | (15   | ) | (41   | )
|                                                                                        |    |       |   |       |   |       |  
|Restructuring costs                                                                     |    | (47   | ) | 46    |   | (6    | )
|                                                                                        |    |       |   |       |   |       |  
|Share compensation expense                                                              |    | (7    | ) | (7    | ) | (3    | )
|                                                                                        |    |       |   |       |   |       |  
|Others                                                                                  |    |      |   |      |   | (2    | )
|                                                                                        |    |       |   |       |   |       |  
|Tax effect of US GAAP adjustments                                                       |    | 64    |   | (21   | ) | 49    |  
|                                                                                        |    |       |   |       |   |       |  
|Total US GAAP adjustments                                                               |    | (105  | ) | (186  | ) | (170  | )
|                                                                                        |    |       |   |       |   |       |  
|Net income (loss)  US GAAP                                                             |    | 105   |   | (166  | ) | 9     |  
|                                                                                        |    |       |   |       |   |       |  
|Continuing operations                                                                   |    | 129   |   | (181  | ) | (124  | )
|                                                                                        |    |       |   |       |   |       |  
|Discontinued operations                                                                 |    | (24   | ) | 15    |   | 133   |  
|                                                                                        |    |       |   |       |   |       |  
|                                                                                        |    | pence |   | pence |   | pence |  
|                                                                                        |    |       |   |       |   |       |  
|Basic and diluted net earnings (net loss) per Ordinary Share in accordance with US GAAP |    | 8.9   |   | (14.0 | ) | 0.8   |  
|                                                                                        |    |       |   |       |   |       |  
|Continuing operations                                                                   |    | 10.9  |   | (15.3 | ) | (11.1 | )
|                                                                                        |    |       |   |       |   |       |  
|Discontinued operations                                                                 |    | (2.0  | ) | 1.3   |   | 11.9  |  
|                                                                                        |    |       |   |       |   |       |  

The dilutive effect on earnings per £1 Ordinary Share of all outstanding options (note 23) would not be material.

For US GAAP purposes, the segmentation follows that of UK GAAP. Adjustments have been made between Continuing and Discontinued operations so that the disclosure under US GAAP satisfies SFAS No. 144.

For the purposes of segmental disclosures under UK GAAP, reference should be made to page 67 where there is a description of each class of business.

Under US GAAP, sales and cost of sales/administrative expenses as reported under UK GAAP are reduced by £32m (2003 £53m; 2002 £55m) on application of EITF 01-09, which requires that certain
advertising co-operative allowances paid to customers are deducted from sales.

|                                           
|-------------------------------------------
|ICI ANNUAL REPORT AND
        ACCOUNTS
2004

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|114 |  | ACCOUNTS |  | 
|--- |  | -------- |  | 
|    |  |          |  | 

Notes relating to the accounts

|42 | Differences between UK and US accounting
    principles (continued)
|-- | -------------------------------------------------------------------
|   |                                                                    

|                                                                                  |      |    |      |       |   |       |  
|--------------------------------------------------------------------------------- | ---- | -- | ---- | ----- | - | ----- | -
|Balance sheet                                                                     | 2004 |    | 2003
|line item                                                                         |      |   
|note*                                                                             |      |   
|                                                                                  | £m   | £m
|                                                                                  |      |    |      |       |   |       |  
|Shareholders funds  equity,
      as shown in the Group balance sheet  UK GAAP |      |    |      | 721   |   | 450   |  
|                                                                                  |      |    |      |       |   |       |  
|Adjustments to conform with US GAAP                                               |      |    |      |       |   |       |  
|                                                                                  |      |    |      |       |   |       |  
|Pension costs                                                                     |      | 2  |      | (510  | ) | (482  | )
|                                                                                  |      |    |      |       |   |       |  
|Pension costsminimum pension liability                                           |      | 4  |      | (582  | ) | (601  | )
|                                                                                  |      |    |      |       |   |       |  
|Purchase accounting adjustments,
      including goodwill and intangibles         |      | 1  |      | 2,489 |   | 2,778 |  
|                                                                                  |      |    |      |       |   |       |  
|Disposal accounting adjustments                                                   |      | 4  |      | (100  | ) | (29   | )
|                                                                                  |      |    |      |       |   |       |  
|Capitalisation of interest
      less amortisation and disposals                  |      | 1  |      | 27    |   | 31    |  
|                                                                                  |      |    |      |       |   |       |  
|Derivative instruments
      and hedging activities                               |      | 2  |      | 24    |   | 25    |  
|                                                                                  |      |    |      |       |   |       |  
|Restructuring
      contractterminations                                         |      | 4  |      | (2    | ) | 8     |  
|                                                                                  |      |    |      |       |   |       |  
|Restructuring
      assetimpairment                                              |      | 1  |      | 2     |   | 39    |  
|                                                                                  |      |    |      |       |   |       |  
|Ordinary dividends                                                                |      | 3  |      | 46    |   | 42    |  
|                                                                                  |      |    |      |       |   |       |  
|Deferred taxation and
      tax effects of US GAAP adjustments                    |      | 4  |      | (225  | ) | (421  | )
|                                                                                  |      |    |      |       |   |       |  
|Deferred taxation and
      tax effects of US GAAP adjustments                    |      | 2  |      | 389   |   | 519   |  
|                                                                                  |      |    |      |       |   |       |  
|Total US GAAP adjustments                                                         |      |    |      | 1,558 |   | 1,909 |  
|                                                                                  |      |    |      |       |   |       |  
|Shareholders equity in accordance
      with US GAAP                             |      |    |      | 2,279 |   | 2,359 |  
|                                                                                  |      |    |      |       |   |       |  

|  |                                                                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Relevant balance sheet line items included above to facilitate comparison between UK GAAP and US GAAP: 1 Fixed assets; 2 Debtors; 3 Creditors;4Provision for liabilities and charges.

The effect of applying US GAAP to items other than those directly affecting net income or shareholdersequity is dealt with in other
notes relating to the accounts. The disclosures required by SFAS No. 130Reporting Comprehensive Incomehave been made in the Groups financial statements in the statement of total recognised gains and losses, in note 24 and in the disclosure relating to pensions and other post-retirement benefits (US GAAP) on pages
115 to 117.

Statement of Group cash flow: Basis of preparation

The Statement of Group cash flow is prepared in accordance with UK FRS No.1 (Revised 1996)Cash Flow Statements,the objective of which is similar to that set out in the US Standard SFAS No. 95Statements of Cash Flows.The two statements differ, however, in their definitions of cash and their presentation of the main constituent items of cash flow.

The definition of cash in the UK Standard is limited to cash plus deposits less overdrafts/borrowings repayable on demand without penalty. In the US, the definition in SFAS No. 95 excludes overdrafts but is widened to
include cash equivalents, comprising short-term highly liquid investments that are both readily convertible to known amounts of cash and so near their maturities that they present insignificant risk of changes in value: generally, only investments
with original maturities of 3 months or less qualify for inclusion. Calculated in accordance with SFAS No. 95, cash and cash equivalents at 31 December 2002, 2003 and 2004 and the movements during the years ending on those dates were as
follows:

|                                                                                                 | 2004 |    | 2003 |   | 2002 |  
|------------------------------------------------------------------------------------------------ | ---- | -- | ---- | - | ---- | -
|£m                                                                                               | £m   | £m
|                                                                                                 |      |    |      |   |      |  
|Cash and cash equivalents                                                                        |      |    |      |   |      |  
|                                                                                                 |      |    |      |   |      |  
|Cash                                                                                             | 396  |    | 249  |   | 267  |  
|                                                                                                 |      |    |      |   |      |  
|Investments and short-term
        deposits which were within 3 months of maturity when acquired | 82   |    | 345  |   | 158  |  
|                                                                                                 |      |    |      |   |      |  
|                                                                                                 | 478  |    | 594  |   | 425  |  
|                                                                                                 |      |    |      |   |      |  
|                                                                                                 |      |    |      |   |      |  
|Change in the balance of cash and cash equivalents                                               |      |    |      |   |      |  
|                                                                                                 |      |    |      |   |      |  
|At beginning of year                                                                             | 594  |    | 425  |   | 436  |  
|                                                                                                 |      |    |      |   |      |  
|Exchange adjustments                                                                             | (20  | )  | 3    |   | (12  | )
|                                                                                                 |      |    |      |   |      |  
|Cash inflow (outflow) during year                                                                | (92  | )  | 168  |   | 2    |  
|                                                                                                 |      |    |      |   |      |  
|Acquisitions and disposals                                                                       | (4   | )  | (2   | ) | (1   | )
|                                                                                                 |      |    |      |   |      |  
|At end of year                                                                                   | 478  |    | 594  |   | 425  |  
|                                                                                                 |      |    |      |   |      |  

The format of the UK GAAP statement employs some nine headings compared with three in SFAS No. 95. The cash flows within the UK GAAP headings ofOperating activities,Returns on investments and servicing of
financeandTaxationwould all be included within the heading ofNet cash provided by operating activitiesunder SFAS No. 95. Likewise, the UK GAAP headings ofCapital expenditure and financial investmentandAcquisitions and disposalscorrespond withCash flows from investing activitiesunder SFAS
No. 95, andEquity dividends paid,Management of liquid resourcesandFinancingin UK GAAP, subject to adjustments for cash equivalents, correspond withCash flows from financing activitiesunder US GAAP.

|                                       
|---------------------------------------
|ICI ANNUAL REPORT AND
    ACCOUNTS 2004

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| |  | ACCOUNTS |  | 115
| |  | -------- |  | ---
| |  |          |  |    

|   |                                                                
|-- | ---------------------------------------------------------------
|42 | Differences between UK and US accounting principles (continued)
|  

Pensions and other post-retirement benefitsUS
      GAAPFor the purposes of the disclosure
      in accordance with US GAAP, the pension cost of the major UK retirement
      plans and of the retirement plans of the Companys
      major non-UK subsidiaries have been presented in the following tables,
      on a Group basis, in accordance with the requirements of SFAS No. 87Accounting
      for Pensions, SFAS No. 106
EmployersAccounting
for Post-Retirement Benefits other than Pensionsand
of SFAS No. 132 (revised 2003)EmployersDisclosures
about Pensions and Other Post-Retirement Benefits.
The actuarial liabilities of these plans comprise a substantial portion of the
Group total.

Assumptions
  Assumed weighted discount rates and rates of increase in remuneration used in calculating benefit obligations together with long-term rates of return on plan assets used in the Groups major pension plans for SFAS No. 87 purposes in the Group are shown in the table below, together with the assumptions relating to other post-retirement benefit plans for SFAS No.
106.

|                                                                 | Pension
        benefits |  | Other
        post-retirementbenefits | 
|---------------------------------------------------------------- | ------------------------ |  | ------------------------------------- | 
|                                                                 |                          |  |                                       | 
|                                                                 | 2004                     |  | 2003                                  | 
|                                                                 | %                        |  | %                                     | 
|                                                                 |                          |  |                                       | 
|Weighted average assumptions used to determine                   |                          |  |                                       | 
|benefit obligations at 31 December                               |                          |  |                                       | 
|                                                                 |                          |  |                                       | 
|Discount rate                                                    | 5.3                      |  | 5.5                                   | 
|                                                                 |                          |  |                                       | 
|Long-term rate of increase in remuneration                       | 3.9                      |  | 3.9                                   | 
|                                                                 |                          |  |                                       | 
|Weighted average assumptions used to determine net cost for year |                          |  |                                       | 
|                                                                 |                          |  |                                       | 
|Discount rate                                                    | 5.4                      |  | 5.6                                   | 
|                                                                 |                          |  |                                       | 
|Expected long-term rate of return on assets                      | 5.9                      |  | 6.2                                   | 
|                                                                 |                          |  |                                       | 
|Long-term rate increase in remuneration                          | 3.9                      |  | 3.9                                   | 
|                                                                 |                          |  |                                       | 
|Assumed health care cost trend rates at 31 December              |                          |  |                                       | 
|                                                                 |                          |  |                                       | 
|Health care cost trend rate assumed for next year                |                          |  |                                       | 
|                                                                 |                          |  |                                       | 
|Rate that cost trend gradually declines to                       |                          |  |                                       | 
|                                                                 |                          |  |                                       | 
|Year that rate reaches the rate it is assumed to remain at       |                          |  |                                       | 
|                                                                 |                          |  |                                       | 

The overall expected long-term rate of return on asset assumptions is determined on a country-by-country (and Euro-zone) basis. The rates are based on market expectations by asset classes, at the beginning of the
period, for returns over the entire life of the related obligation. The assumption setting process is based on short- and long-term historical analysis and investment managersforecasts for equities, hedge funds and private equity, and the available market yields for bonds.

The measurement date used to determine pension and other post-retirement benefit measurements for the pension plans and other post-retirement benefit plans is the last day of the financial year.

Components of net periodic benefit cost
  The net periodic benefit cost under SFAS No. 87 and SFAS No. 88 for the Groups
  major pension benefit plans, and under SFAS No. 106 in respect of other post-retirement
  benefit plans comprised:

|                                                          | Pension benefits |      | Other post-retirement benefits |     
|--------------------------------------------------------- | ---------------- | ---- | ------------------------------ | ----
|                                                          |                  |      |                                |     
|2004                                                      |                  | 2003 |                                | 2002
|£m                                                        | £m               | £m   | £m                             | £m  
|                                                          |                  |      |                                |     
|Components of net periodic benefit cost                   |                  |      |                                |     
|                                                          |                  |      |                                |     
|Service cost                                              | 73               |      | 64                             |     
|                                                          |                  |      |                                |     
|Interest cost                                             | 432              |      | 429                            |     
|                                                          |                  |      |                                |     
|Expected return on plan assets for period                 | (421             | )    | (400                           | )   
|                                                          |                  |      |                                |     
|Amortisation of prior service cost                        | 7                |      | 11                             |     
|                                                          |                  |      |                                |     
|Amortisation of unrecognised transition obligation        | 1                |      | 4                              |     
|                                                          |                  |      |                                |     
|Amortisation of net actuarial loss (gain)                 | 39               |      | (6                             | )   
|                                                          |                  |      |                                |     
|Recognised on termination/curtailment/settlement benefits | (6               | )    | (3                             | )   
|                                                          |                  |      |                                |     
|Net periodic benefit cost                                 | 125              |      | 99                             |     
|                                                          |                  |      |                                |     

There are no charges in 2003 or 2004 for contractual terminations included in net periodic benefit costs, which are included within the relevant UK GAAP statutory headings.

The healthcare cost trend has a significant effect on the amounts reported. For the Group, increasing the assumed health care cost rates for the major schemes by 1% in every year would increase the accumulated
post-retirement benefit obligation as of 31 December 2004 by £12m (2003 £11m) and the aggregate of the service and interest cost components of net periodic post-retirement cost for the year ended 31 December 2004 by £1m (2003
£1m).

Other comprehensive income

|                                                                            | 2004 |  | 2003 |   | 2002 |   | 
|--------------------------------------------------------------------------- | ---- |  | ---- | - | ---- | - | 
|                                                                            | £m   |  | £m   |   | £m   |   | 
|                                                                            |      |  |      |   |      |   | 
|Amounts included in other comprehensive
    income (arising from            |      |  |      |   |      |   | 
|change
    in additional minimum pension liability recognised) (net of tax) | 3    |  | (216 | ) | (281 | ) | 
|                                                                            |      |  |      |   |      |   | 

|                                       
|---------------------------------------
|ICI ANNUAL REPORT AND
    ACCOUNTS 2004
|                                       

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|116 |  | ACCOUNTS
|--- |  | --------
|    |  |         

Notes relating to the accounts

|42 | Differences between UK
      and US accounting principles (continued)
|-- | ---------------------------------------------------------------------

Pensions and other post-retirement benefits
   US GAAP (continued)

Obligations and funded statusThe funded status of the Groups
  major post-retirement defined benefit pension plans and other post-retirement
  benefit plans, covering both continuing and discontinued operations, under SFAS
  No. 87 and SFAS No. 106 is as follows:

|                                                     | Pension benefits
    at 31 December |   |  | Other post-retirement
      benefits at 31 December |  
|---------------------------------------------------- | ----------------------------------- | - |  | --------------------------------------------------- | -
|                                                     |                                     |   |  |                                                     |  
|                                                     | 2004                                |   |  | 2003                                                |  
|                                                     | £m                                  |   |  | £m                                                  |  
|                                                     |                                     |   |  |                                                     |  
|Change in benefit obligations                        |                                     |   |  |                                                     |  
|                                                     |                                     |   |  |                                                     |  
|Benefit obligation at beginning of year              | 8,186                               |   |  | 7,748                                               |  
|                                                     |                                     |   |  |                                                     |  
|Service cost                                         | 73                                  |   |  | 64                                                  |  
|                                                     |                                     |   |  |                                                     |  
|Interest cost                                        | 432                                 |   |  | 429                                                 |  
|                                                     |                                     |   |  |                                                     |  
|Participants
      contributions                    | 4                                   |   |  | 5                                                   |  
|                                                     |                                     |   |  |                                                     |  
|Plan amendments                                      | (1                                  | ) |  | 3                                                   |  
|                                                     |                                     |   |  |                                                     |  
|Actuarial loss                                       | 274                                 |   |  | 489                                                 |  
|                                                     |                                     |   |  |                                                     |  
|Divestitures                                         | (19                                 | ) |  |                                                    |  
|                                                     |                                     |   |  |                                                     |  
|Settlements                                          | (21                                 | ) |  | (1                                                  | )
|                                                     |                                     |   |  |                                                     |  
|Termination benefits                                 | 2                                   |   |  |                                                    |  
|                                                     |                                     |   |  |                                                     |  
|Benefit payments                                     | (521                                | ) |  | (529                                                | )
|                                                     |                                     |   |  |                                                     |  
|Population change                                    |                                    |   |  | 2                                                   |  
|                                                     |                                     |   |  |                                                     |  
|Exchange                                             | (46                                 | ) |  | (24                                                 | )
|                                                     |                                     |   |  |                                                     |  
|Benefit obligation at end of year                    | 8,363                               |   |  | 8,186                                               |  
|                                                     |                                     |   |  |                                                     |  
|Change in plan assets                                |                                     |   |  |                                                     |  
|                                                     |                                     |   |  |                                                     |  
|Fair value of plan assets at beginning
      of year | 7,343                               |   |  | 7,049                                               |  
|                                                     |                                     |   |  |                                                     |  
|Actual return
      on plan assets                   | 639                                 |   |  | 712                                                 |  
|                                                     |                                     |   |  |                                                     |  
|Business combinations                                | 2                                   |   |  |                                                    |  
|                                                     |                                     |   |  |                                                     |  
|Divestitures                                         | (11                                 | ) |  |                                                    |  
|                                                     |                                     |   |  |                                                     |  
|Settlements                                          | (14                                 | ) |  |                                                    |  
|                                                     |                                     |   |  |                                                     |  
|Employer
      s contributions                      | 153                                 |   |  | 105                                                 |  
|                                                     |                                     |   |  |                                                     |  
|Participants
      contributions                    | 4                                   |   |  | 5                                                   |  
|                                                     |                                     |   |  |                                                     |  
|Benefit payments                                     | (521                                | ) |  | (529                                                | )
|                                                     |                                     |   |  |                                                     |  
|Population change                                    |                                    |   |  | 3                                                   |  
|                                                     |                                     |   |  |                                                     |  
|Exchange                                             | (31                                 | ) |  | (2                                                  | )
|                                                     |                                     |   |  |                                                     |  
|Fair value of plan assets at end of year             | 7,564                               |   |  | 7,343                                               |  
|                                                     |                                     |   |  |                                                     |  
|Funded status                                        |                                     |   |  |                                                     |  
|                                                     |                                     |   |  |                                                     |  
|Funded status at end of year                         | (799                                | ) |  | (843                                                | )
|                                                     |                                     |   |  |                                                     |  
|Unrecognised
      net actuarial loss (gain)         | 845                                 |   |  | 854                                                 |  
|                                                     |                                     |   |  |                                                     |  
|Unrecognised
      transition amount                 | 8                                   |   |  | 23                                                  |  
|                                                     |                                     |   |  |                                                     |  
|Unrecognised
      prior service cost                | 7                                   |   |  | 17                                                  |  
|                                                     |                                     |   |  |                                                     |  
|Other                                                |                                    |   |  |                                                    |  
|                                                     |                                     |   |  |                                                     |  
|Net amount recognised                                | 61                                  |   |  | 51                                                  |  
|                                                     |                                     |   |  |                                                     |  
|Prepaid benefit cost                                 | 18                                  |   |  | 22                                                  |  
|                                                     |                                     |   |  |                                                     |  
|Accrued benefit cost                                 | (639                                | ) |  | (676                                                | )
|                                                     |                                     |   |  |                                                     |  
|Intangible assets                                    | 17                                  |   |  | 32                                                  |  
|                                                     |                                     |   |  |                                                     |  
|Accumulated other comprehensive income               | 665                                 |   |  | 673                                                 |  
|                                                     |                                     |   |  |                                                     |  
|Net amount recognised                                | 61                                  |   |  | 51                                                  |  
|                                                     |                                     |   |  |                                                     |  



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|ACCOUNTS |  | 117
|-------- |  | ---
|         |  |    



|42 | Differences between UK
      and US accounting principles (continued)
|-- | ---------------------------------------------------------------------

Pensions and other post-retirement benefits US GAAP (continued)

|                                                                                    | Pension benefits
      At 31 December                           | 
|----------------------------------------------------------------------------------- | --------------------------------------------------------------- | 
|                                                                                    |                                                                 | 
|                                                                                    | 2004                                                            | 
|                                                                                    | £m                                                              | 
|                                                                                    |                                                                 | 
|Supplementary analysis of pension plans                                             |                                                                 | 
|                                                                                    |                                                                 | 
|All plans                                                                           |                                                                 | 
|                                                                                    |                                                                 | 
|Accumulated benefit
      obligation                                                | 8,189                                                           | 
|                                                                                    |                                                                 | 
|Pension plans with an accumulated benefit
      obligation in excess of plan assets |                                                                 | 
|                                                                                    |                                                                 | 
|Projected benefit
      obligation                                                  | 8,324                                                           | 
|                                                                                    |                                                                 | 
|Accumulated benefit
      obligation                                                | 8,151                                                           | 
|                                                                                    |                                                                 | 
|Fair value of
      plan assets                                                     | 7,517                                                           | 
|                                                                                    |                                                                 | 
|                                                                                    |                                                                 | 
|                                                                                    |                                                                 | 
|Asset allocations                                                                   |                                                                 | 
|                                                                                    | Percentage
      of fair value
      plan assets at 31 December | 
|                                                                                    |                                                                 | 
|                                                                                    | 2004                                                            | 
|                                                                                    | %                                                               | 
|                                                                                    |                                                                 | 
|Equity securities                                                                   | 19                                                              | 
|                                                                                    |                                                                 | 
|Debt securities                                                                     | 76                                                              | 
|                                                                                    |                                                                 | 
|Property                                                                            |                                                                | 
|                                                                                    |                                                                 | 
|Other assets                                                                        | 5                                                               | 
|                                                                                    |                                                                 | 
|                                                                                    | 100                                                             | 
|                                                                                    |                                                                 | 
|                                                                                    |                                                                 | 
|                                                                                    |                                                                 | 
|Estimated future benefit payments                                                   |                                                                 | 
|                                                                                    |                                                                 | 
|                                                                                    |                                                                 | 
|                                                                                    |                                                                 | 
|                                                                                    |                                                                 | 
|                                                                                    |                                                                 | 
|                                                                                    |                                                                 | 
|Benefits expected to be paid, reflecting
      future service, as appropriate       |                                                                 | 
|                                                                                    |                                                                 | 
|Payable in the year 31 December                                                     |                                                                 | 
|                                                                                    |                                                                 | 
|2005                                                                                |                                                                 | 
|                                                                                    |                                                                 | 
|2006                                                                                |                                                                 | 
|                                                                                    |                                                                 | 
|2007                                                                                |                                                                 | 
|                                                                                    |                                                                 | 
|2008                                                                                |                                                                 | 
|                                                                                    |                                                                 | 
|2009                                                                                |                                                                 | 
|                                                                                    |                                                                 | 
|2010 to 2014                                                                        |                                                                 | 
|                                                                                    |                                                                 | 

Investment policies and strategiesICI has established a set of best
  practice principles for pension fund investment so as to ensure a globally
  consistent approach. These principles, which have been determined and adopted
  by the fiduciaries
  of ICIs pension funds worldwide, include guidelines in the areas of governance,
  risk budgeting, strategic asset allocation and benchmarks, manager structure
  and selection, monitoring and other investment issues (such as derivatives and
  self investment). The over-arching principle clearly states that strategic asset
  allocation should be determined through explicit consideration of each plans
  specific liability profile and funding level and not by local common practice.
  Furthermore, all plans must establish a strategic asset allocation benchmark,
  a relevant total plan performance benchmark and a process for controlling deviations
  from the strategic asset allocation benchmark. Pension funds are expected to
  invest in a diversified range of asset classes and investment managers. These
  assets may include derivatives up to a maximum of 10% of the individual fund
  unless a higher percentage is agreed after consultation with the Company. However,
  no self-investment is permitted. Whilst the Company expects to be consulted
  on these strategic (and other) matters, it recognises that final responsibility
  for establishing investment strategy often rests with local fiduciaries, who
  do not publish target allocations to asset classes.

Expected contributions The best estimate of amounts expected to be contributed
  to pension plans during 2005 is £133m.

The best estimate of amounts expected to be
  contributed to other post-retirement benefit plans in 2005 is £10m.



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



42(a) Differences between UK and US accounting principles     (continued)

Reformatted condensed UK GAAP income statement

The following income statement has been prepared in accordance with Article 10 of Regulation S-X using the Group’s UK GAAP profit and loss account numbers.

|                                                            |  |  | Year ended 31 December |  
|----------------------------------------------------------- |  |  | ---------------------- | -
|                                                            |  |  | 2004                   |  
|                                                            |  |  | £m                     |  
|Net revenue                                                 |  |  | 5,601                  |  
|                                                            |  |  |                        |  
|Operating expenses                                          |  |  |                        |  
|Cost of sales                                               |  |  | (3,528                 | )
|Research and development                                    |  |  | (147                   | )
|Sales, general
    and administrative expenses              |  |  | (1,522                 | )
|Other general
    income                                    |  |  | 35                     |  
|Profit (loss)
    on sale of businesses and fixed assets    |  |  | 22                     |  
|                                                            |  |  |                        |  
|Operating income                                            |  |  | 461                    |  
|                                                            |  |  |                        |  
|Net interest                                                |  |  | (86                    | )
|Associate income                                            |  |  | 4                      |  
|Loss
    on investments                                     |  |  |                       |  
|                                                            |  |  |                        |  
|Income from continuing operations before income tax expense |  |  | 379                    |  
|                                                            |  |  |                        |  
|Income tax expense                                          |  |  | (122                   | )
|Minority interest                                           |  |  | (33                    | )
|                                                            |  |  |                        |  
|Income(loss) from continuing operations                     |  |  | 224                    |  
|Discontinued
    operations                                 |  |  | (14                    | )
|                                                            |  |  |                        |  
|Net Income in accordance with UK GAAP                       |  |  | 210                    |  
|                                                            |  |  |                        |  
|                                                            |  |  |                        |  
|                                                            |  |  |                        |  
|                                                            |  |  |                        |  
|Earnings per share                                          |  |  | pence                  |  
|Basic                                                       |  |  |                        |  
|Continuing operations                                       |  |  | 18.9                   |  
|Discontinued operations                                     |  |  | (1.1                   | )
|                                                            |  |  |                        |  
|Net income in accordance with UK GAAP                       |  |  | 17.8                   |  
|                                                            |  |  |                        |  
|                                                            |  |  |                        |  
|Diluted                                                     |  |  |                        |  
|Continuing
    operations                                   |  |  | 18.8                   |  
|Discontinued
    operations                                 |  |  | (1.1                   | )
|                                                            |  |  |                        |  
|Net
    income in accordance with UK GAAP                   |  |  | 17.7                   |  
|                                                            |  |  |                        |  

The Group’s presentation of the Group profit and loss account for the three years ended December 31, 2004, on pages 60, 61a and 61b of the Company’s Annual Report and Accounts 2004 included in this Item 18 “Financial Statements” of this Annual Report on Form 20-F, separately disclosing exceptional items, has been prepared in accordance with FRS No. 3.  The above presentation provides a sufficient degree of prominence in respect to the exceptional items necessary, under UK GAAP, to give a true and fair view of the results of the Group in the three years ended December 31, 2004.

117A     ICI ANNUAL REPORT AND ACCOUNTS
    2004

---



43      Valuation and qualifying accounts

|                                                                   |  |  | Balance at
  January 1, |  |  | Additions charged
      to |  |  | Deductions |  |  | Balance at
  December 31, |  
|------------------------------------------------------------------ |  |  | ----------------------- |  |  | -------------------------- |  |  | ---------- |  |  | ------------------------- | -
|Cost and
  expenses                                                |  |  | Other
  accounts       
|                                                                   |  |  | £m                      |  |  | £m                         |  |  | £m         |  |  | £m                        |  
|                                                                   |  |  |                         |  |  |                            |  |  |            |  |  |                           |  
|2002                                                               |  |  |                         |  |  |                            |  |  |            |  |  |                           |  
|Allowance for stocks                                               |  |  | 43                      |  |  | 11                         |  |  |            |  |  | (21                       | )
|Allowance for doubtful accounts                                    |  |  | 67                      |  |  | 8                          |  |  |            |  |  | (27                       | )
|Allowance for investments in participating and other interests     |  |  | 2                       |  |  | 99                         |  |  |            |  |  |                          |  
|                                                                   |  |  |                         |  |  |                            |  |  |            |  |  |                           |  
|                                                                   |  |  | 112                     |  |  | 118                        |  |  |           |  |  | (48                       | )
|                                                                   |  |  |                         |  |  |                            |  |  |            |  |  |                           |  
|                                                                   |  |  |                         |  |  |                            |  |  |            |  |  |                           |  
|2003                                                               |  |  |                         |  |  |                            |  |  |            |  |  |                           |  
|Allowance for stocks                                               |  |  | 33                      |  |  | 27                         |  |  |            |  |  | (15                       | )
|Allowance for doubtful accounts                                    |  |  | 48                      |  |  | 4                          |  |  |            |  |  | (5                        | )
|Allowance for investments in participating and other interests     |  |  | 101                     |  |  |                           |  |  |            |  |  |                          |  
|                                                                   |  |  |                         |  |  |                            |  |  |            |  |  |                           |  
|                                                                   |  |  | 182                     |  |  | 31                         |  |  |           |  |  | (20                       | )
|                                                                   |  |  |                         |  |  |                            |  |  |            |  |  |                           |  
|                                                                   |  |  |                         |  |  |                            |  |  |            |  |  |                           |  
|2004                                                               |  |  |                         |  |  |                            |  |  |            |  |  |                           |  
|Allowance for stocks                                               |  |  | 45                      |  |  | 11                         |  |  |            |  |  | (20                       | )
|Allowance for doubtful accounts                                    |  |  | 47                      |  |  | 8                          |  |  |            |  |  | (16                       | )
|Allowance for investments in participating
    and other interests |  |  | 101                     |  |  |                           |  |  | 30         |  |  | (129                      | )
|                                                                   |  |  |                         |  |  |                            |  |  |            |  |  |                           |  
|                                                                   |  |  | 193                     |  |  | 19                         |  |  | 30         |  |  | (165                      | )
|                                                                   |  |  |                         |  |  |                            |  |  |            |  |  |                           |  

117B     ICI
ANNUAL REPORT AND ACCOUNTS 2004

---



44         Remuneration of the
      Auditor set out in accordance with SEC Regulations

Remuneration of the Auditor for each of the three years ending December 31, 2004, 2003 and 2002 set out in accordance with SEC Regulations was as follows:

|                       |       |  | Year ended December 31, | 
|---------------------- | ----- |  | ----------------------- | 
|                       | notes |  | 2004                    | 
|                       |       |  | £m                      | 
|Audit                  | 1     |  | 3.3                     | 
|Audit related services | 2     |  | 1.0                     | 
|Tax services           | 3     |  | 0.7                     | 
|Other services         |       |  |                        | 

|     
|-----
|Notes
|1.   

|   |                                                                                                                                                                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Expenditure in 2004 related principally to the transition to IFRS reporting and employee benefit plans. Expenditure in 2003 related principally to the employee benefit plans. Expenditure in 2002 related principally to the employee benefit plans and divestment transactions.

|   |                                                                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3. | Tax services for 2004 comprised compliance services £0.3m
and advisory services £0.4m. Tax services for 2003 comprised compliance
services £0.6m and advisory services £0.2m. Tax services for 2002
comprised compliance services £0.9m and advisory services £0.2m.

| | Included within fees for taxation
        services in prior periods are aggregate payments of £114,000 in
        respect of findings based fee arrangements entered into or paid by ICI
        after February
    5, 2001.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

117C     ICI
ANNUAL REPORT AND ACCOUNTS 2004

---



Back to Contents to the Accounts

|118 |  | ACCOUNTS
|--- |  | --------
|    |  |         

Principal subsidiary undertakings



at 31 December 2004

|                                           | Class of  |  | Held by ICI |   | Principal activities in
          2004                         
|------------------------------------------ | --------- |  | ----------- | - | ---------------------------------------------------------------
|                                           | capital   |  | %           |   |                                                                
|                                           |           |  |             |   |                                                                
|UNITED KINGDOM                             |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|ICI Finance PLC                            | Ordinary  |  | 100         |  | Financial services                                             
|England                                    |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|Quest International (Fragrances, Flavours, | Ordinary  |  | 100         |  | Manufacture of flavours and fragrances                         
|Food Ingredients)
      UK Limited         |           |  |             |   |                                                                
|England                                    |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|CONTINENTAL EUROPE                         |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|Deutsche ICI GmbH                          | Ordinary  |  | 100         |  | Manufacture of paints, adhesives and oleochemicals             
|Germany                                    |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|Quest International Nederland BV           | Ordinary  |  | 100         |  | Manufacture of flavours                                        
|The Netherlands                            |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|Unichema Chemie BV                         | Ordinary  |  | 100         |  | Manufacture of specialty oleochemicals
      and derivatives   
|The Netherlands                            |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|THE AMERICAS                               |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|ICI American Holdings Inc                  | Common    |  | 100         |  | Holding company                                                
|USA                                        |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|The Glidden Company                        | Common    |  | 100         |  | Manufacture of paints                                          
|USA                                        |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|Indopco Inc                                | Common    |  | 100         |  | Manufacture of adhesives, industrial starches,
      electronic
|USA                                        |           |  |             |   | materials, flavourings, fragrances, oleochemicals,
      resins
|                                           |           |  |             |   | and specialty chemicals                                        
|                                           |           |  |             |   |                                                                
|ICI Canada Inc                             | Common    |  | 100         |  | Manufacture of paints; merchanting of ICI
      and            
|Canada                                     |           |  |             |   | other products                                                 
|                                           |           |  |             |   |                                                                
|Tintas Coral Ltda                          | Ordinary  |  | 100         |  | Manufacture of paints                                          
|Brazil                                     |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|ASIA PACIFIC                               |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|ICI India Ltd                              | Equity*   |  | 51          |   | Manufacture of paints, surfactants, flavours
      and         
|India                                      |           |  |             |   | fragrances, rubber chemicals and adhesives                     
|(Accounting date 31 March;                 |           |  |             |   |                                                                
|reporting date 31 December)                |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|ICI Pakistan Ltd                           | Ordinary* |  | 76          |  | Manufacture of polyester staple fibre,
      POY chips,        
|Pakistan                                   |           |  |             |   | soda ash, paints, specialty chemicals,
      sodium            
|                                           |           |  |             |   | bicarbonate and polyurethanes; marketing
      of seeds,       
|                                           |           |  |             |   | toll manufactured and imported pharmaceuticals
      and       
|                                           |           |  |             |   | animal health products; merchanting of
      general chemicals 
|                                           |           |  |             |   |                                                                
|Pakistan PTA Ltd                           | Ordinary* |  | 75          |  | Manufacture of pure terephthalic acid                          
|Pakistan                                   |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|Nippon NSC Ltd                             | Common    |  | 100         |  | Manufacture of adhesives and specialty
      synthetic         
|Japan                                      |           |  |             |   | polymers; merchanting of starch products                       
|                                           |           |  |             |   |                                                                
|National Starch and Chemical               | Ordinary  |  | 100         |  | Manufacture of food and industrial starches                    
|(Thailand) Ltd                             |           |  |             |   |                                                                
|Thailand                                   |           |  |             |   |                                                                
|                                           |           |  |             |   |                                                                
|* ListedHeld by subsidiaries              |           |  |             |   |                                                                

The country of principal operations and registration
  or incorporation is stated below each company. The accounting dates of principal
  subsidiary undertakings are 31 December unless otherwise stated.

The companies listed above are those whose
  results, in the opinion of the Directors, principally affected the profits or
  assets of the Group. A full list of subsidiary and associated undertakings at
  31 December will be annexed to the next annual return of the Company to be filed
  with the Registrar of Companies.



ICI ANNUAL REPORT AND ACCOUNTS 2004

---



ITEM 19  EXHIBITS

|1.1 | Memorandum and Articles of Association of Imperial Chemical Industries PLC incorporated herein by reference to Exhibit 1.1 to Form 20-F filed by Imperial Chemical Industries PLC on April 29, 2002.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|    |                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1 | Employment Agreement (Technical) between National Starch and Chemical Corporation and  William H. Powell dated August 11, 1976, incorporated herein by reference to Exhibit 4.15 to Form 20-F filed by Imperial Chemical Industries PLC on April 13, 2001.

|    |                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2 | Employment Agreement (Non-Sales) between National Starch and Chemical Corporation and William H. Powell dated June 24, 1986, incorporated herein by reference to Exhibit 4.14 to Form 20-F filed by Imperial Chemical Industries PLC on April 13, 2001.

|    |                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.3 | Supplementary Retirement and Savings Plan of National Starch and Chemical Corporation, as amended December 23, 1988, incorporated herein by reference to Exhibit 4.22 to Form 20-F filed by Imperial Chemical Industries PLC on April 13, 2001.

|    |                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.4 | Letter Agreement between National Starch and Chemical Company and W. H. Powell dated October 21, 1997, incorporated herein by reference to Exhibit 4.13 to Form 20-F filed by Imperial Chemical Industries PLC on April 13, 2001.

|    |                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.5 | Letter Agreement between Imperial Chemical Industries PLC and W H Powell dated February 17, 2000, incorporated herein by reference to Exhibit 4.8 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|    |                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.6 | Service Agreement between  Imperial Chemical Industries PLC  and Timothy A. Scott dated May 11, 2001, incorporated herein by reference to Exhibit 10.2 to Form 6-K filed by Imperial Chemical Industries PLC on February 4, 2002.

|    |                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.7 | Compromise Agreement between Imperial Chemical Industries PLC and Dr B R O’Neill dated May 22, 2003, incorporated herein by reference to Exhibit 4.12 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|    |                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.8 | Compromise Agreement between Imperial Chemical Industries PLC and Mr P J Drechsler dated June 18, 2003, incorporated herein by reference to Exhibit 4.13 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|    |                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.9 | Letter of Engagement between Imperial Chemical Industries PLC and Peter B Ellwood dated July 1, 2003, incorporated herein by reference to Exhibit 4.16 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|     |                                                                                                                                                                                                                                                                                                                                                                               
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.10 | An agreement among Imperial Chemical Industries PLC, Imperial Chemical Industries Chemicals and Polymers Limited, Ineos Chlor Holdings Limited and Ineos Chlor Limited dated July 31, 2003, detailing an overall refinancing package for Ineos Chlor, incorporated herein by reference to Exhibit 4.3 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|     |                                                                                                                                         
|---- | ----------------------------------------------------------------------------------------------------------------------------------------
|4.11 | Performance Growth Plan (Rules applying to awards made on or after January 1, 2003) dated April 28, 2000, as amended September 24, 2003.

|     |                                                                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.12 | Agreement for Services between Imperial Chemical Industries PLC and John David Gibson McAdam dated October 14, 2003, incorporated herein by reference to Exhibit 4.7 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|     |                                                                                                                                                                                                                                 
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.13 | Service Agreement between Imperial Chemical Industries PLC and David C M Hamill dated October 28, 2003, incorporated herein by reference to Exhibit 4.6 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|     |                                                                                                                                                                                                                                                                                                                   
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.14 | Underwriting Agreement between ICI Wilmington Inc, Imperial Chemical Industries PLC, Barclays Capital Inc, Citigroup Global Markets Inc and UBS Securities LLC dated  November 18, 2003, incorporated herein by reference to Exhibit 1 to Form 6-K filed by Imperial Chemical Industries PLC on December 11, 2003.

47

---



|4.15 | Letter of Engagement between Imperial Chemical Industries PLC and Peter B Ellwood dated December 15, 2003, incorporated herein by reference to Exhibit 4.17 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     |                                                                                                           
|---- | ----------------------------------------------------------------------------------------------------------
|4.16 | Letter of Appointment between Imperial Chemical Industries
PLC and Baroness Noakes dated February 6, 2004.

|     |                                                                                                                                                                                                                                         
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.17 | A Sale and Purchase Agreement between Imperial Chemical Industries PLC and Kerry Group plc dated March 1, 2004, incorporated herein by reference to Exhibit 4.5 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|     |                                                                       
|---- | ----------------------------------------------------------------------
|4.18 | Rules of the ICI Executive Share Option Plan 2004, dated May 26, 2004.

|     |                                                                                                            
|---- | -----------------------------------------------------------------------------------------------------------
|4.19 | Letter of Appointment between Imperial Chemical Industries PLC and Charles F Knott dated September 2, 2004.

|     |                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------
|4.20 | Employment Agreement between Quest International Services BV and Charles Knott dated September 2, 2004.

|     |                                                                                                                             
|---- | ----------------------------------------------------------------------------------------------------------------------------
|4.21 | Employment Agreement between Quest International (Fragrances, Flavours, Food Ingredients) UK Limited date September 2, 2004.

|     |                                                                                                                                                                                                                                                                      
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.22 | An agreement among Imperial Chemical Industries PLC, Imperial Chemical Industries Chemicals and Polymers Limited, Ineos Chlor Holdings Limited and Ineos Chlor Limited dated October 25, 2004, detailing the write off of all existing indebtedness from Ineos Chlor.

|     |                                                                                                                            
|---- | ---------------------------------------------------------------------------------------------------------------------------
|4.23 | Sale and Purchase Agreement between Ergon Investments UK Limited and Celanese Americas Corporation dated November 23, 2004.

|    |                                                                                                
|--- | -----------------------------------------------------------------------------------------------
|7.1 | Statement explaining calculation of ratio of earnings
to fixed charges  continuing operations.

|    |                                  
|--- | ---------------------------------
|8.1 | List of significant subsidiaries.

|     |                                                                                                                                                                                                                                                                                          
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|12.1 | Rule 13a-14(a) Certification
    of John D G McAdam.                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                          
|12.2 | Rule 13a-14(a) Certification
    of Timothy A Scott.                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                          
|13.1 | Rule 13a-14(b) Certification
    of John D G McAdam and Timothy A Scott.                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                          
|14.1 | Pursuant to Rule 12b-23(a) of the Securities Exchange
Act of 1934, as amended, the information incorporated into this report by reference
to the Company’s report on Form 6-K dated March 16, 2004, which contains
its Annual Report and Accounts 2004, is attached as an Exhibit hereto.
|     |                                                                                                                                                                                                                                                                                          
|14.2 | Consent of KPMG Audit
    Plc.                                                                                                                                                                                                                                                           

48

---



SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

| | IMPERIAL CHEMICAL INDUSTRIES
    PLC
| | ------------------------------------
| |                                     
| | By:                                 
| |                                     
| |                                     
| |                                     

London, England

March 31, 2005

49

---



EXHIBIT INDEX

|1.1 | Memorandum and Articles of Association of Imperial Chemical Industries PLC incorporated herein by reference to Exhibit 1.1 to Form 20-F filed by Imperial Chemical Industries PLC on April 29, 2002.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|    |                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1 | Employment Agreement (Technical) between National Starch and Chemical Corporation and  William H. Powell dated August 11, 1976, incorporated herein by reference to Exhibit 4.15 to Form 20-F filed by Imperial Chemical Industries PLC on April 13, 2001.

|    |                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2 | Employment Agreement (Non-Sales) between National Starch and Chemical Corporation and William H. Powell dated June 24, 1986, incorporated herein by reference to Exhibit 4.14 to Form 20-F filed by Imperial Chemical Industries PLC on April 13, 2001.

|    |                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.3 | Supplementary Retirement and Savings Plan of National Starch and Chemical Corporation, as amended December 23, 1988, incorporated herein by reference to Exhibit 4.22 to Form 20-F filed by Imperial Chemical Industries PLC on April 13, 2001.

|    |                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.4 | Letter Agreement between National Starch and Chemical Company and W. H. Powell dated October 21, 1997, incorporated herein by reference to Exhibit 4.13 to Form 20-F filed by Imperial Chemical Industries PLC on April 13, 2001.

|    |                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.5 | Letter Agreement between Imperial Chemical Industries PLC and W H Powell dated February 17, 2000, incorporated herein by reference to Exhibit 4.8 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|    |                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.6 | Service Agreement between  Imperial Chemical Industries PLC  and Timothy A. Scott dated May 11, 2001, incorporated herein by reference to Exhibit 10.2 to Form 6-K filed by Imperial Chemical Industries PLC on February 4, 2002.

|    |                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.7 | Compromise Agreement between Imperial Chemical Industries PLC and Dr B R O’Neill dated May 22, 2003, incorporated herein by reference to Exhibit 4.12 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|    |                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.8 | Compromise Agreement between Imperial Chemical Industries PLC and Mr P J Drechsler dated June 18, 2003, incorporated herein by reference to Exhibit 4.13 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|    |                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.9 | Letter of Engagement between Imperial Chemical Industries PLC and Peter B Ellwood dated July 1, 2003, incorporated herein by reference to Exhibit 4.16 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|     |                                                                                                                                                                                                                                                                                                                                                                               
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.10 | An agreement among Imperial Chemical Industries PLC, Imperial Chemical Industries Chemicals and Polymers Limited, Ineos Chlor Holdings Limited and Ineos Chlor Limited dated July 31, 2003, detailing an overall refinancing package for Ineos Chlor, incorporated herein by reference to Exhibit 4.3 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|     |                                                                                                                                         
|---- | ----------------------------------------------------------------------------------------------------------------------------------------
|4.11 | Performance Growth Plan (Rules applying to awards made on or after January 1, 2003) dated April 28, 2000, as amended September 24, 2003.

|     |                                                                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.12 | Agreement for Services between Imperial Chemical Industries PLC and John David Gibson McAdam dated October 14, 2003, incorporated herein by reference to Exhibit 4.7 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|     |                                                                                                                                                                                                                                 
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.13 | Service Agreement between Imperial Chemical Industries PLC and David C M Hamill dated October 28, 2003, incorporated herein by reference to Exhibit 4.6 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|     |                                                                                                                                                                                                                                                                                                                   
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.14 | Underwriting Agreement between ICI Wilmington Inc, Imperial Chemical Industries PLC, Barclays Capital Inc, Citigroup Global Markets Inc and UBS Securities LLC dated  November 18, 2003, incorporated herein by reference to Exhibit 1 to Form 6-K filed by Imperial Chemical Industries PLC on December 11, 2003.



---



|4.15 | Letter of Engagement between Imperial Chemical Industries PLC and Peter B Ellwood dated December 15, 2003, incorporated herein by reference to Exhibit 4.17 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     |                                                                                                           
|---- | ----------------------------------------------------------------------------------------------------------
|4.16 | Letter of Appointment between Imperial Chemical Industries PLC and Baroness Noakes dated February 6, 2004.

|     |                                                                                                                                                                                                                                         
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.17 | A Sale and Purchase Agreement between Imperial Chemical Industries PLC and Kerry Group plc dated March 1, 2004, incorporated herein by reference to Exhibit 4.5 to Form 20-F filed by Imperial Chemical Industries PLC on April 6, 2004.

|     |                                                                       
|---- | ----------------------------------------------------------------------
|4.18 | Rules of the ICI Executive Share Option Plan 2004, dated May 26, 2004.

|     |                                                                                                            
|---- | -----------------------------------------------------------------------------------------------------------
|4.19 | Letter of Appointment between Imperial Chemical Industries PLC and Charles F Knott dated September 2, 2004.

|     |                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------
|4.20 | Employment Agreement between Quest International Services BV and Charles Knott dated September 2, 2004.

|     |                                                                                                                              
|---- | -----------------------------------------------------------------------------------------------------------------------------
|4.21 | Employment Agreement between Quest International
(Fragrances, Flavours, Food Ingredients) UK Limited dated September 2, 2004.

|     |                                                                                                                                                                                                                                                                      
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.22 | An agreement among Imperial Chemical Industries PLC, Imperial Chemical Industries Chemicals and Polymers Limited, Ineos Chlor Holdings Limited and Ineos Chlor Limited dated October 25, 2004, detailing the write off of all existing indebtedness from Ineos Chlor.

|     |                                                                                                                            
|---- | ---------------------------------------------------------------------------------------------------------------------------
|4.23 | Sale and Purchase Agreement between Ergon Investments UK Limited and Celanese Americas Corporation dated November 23, 2004.

|    |                                                                                                
|--- | -----------------------------------------------------------------------------------------------
|7.1 | Statement explaining calculation of ratio of earnings
to fixed charges  continuing operations.

|    |                                  
|--- | ---------------------------------
|8.1 | List of significant subsidiaries.

|     |                                                                                                                                                                                                                                                                                          
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|12.1 | Rule 13a-14(a) Certification
    of John D G McAdam.                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                          
|12.2 | Rule 13a-14(a) Certification
    of Timothy A Scott.                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                          
|13.1 | Rule 13a-14(b) Certification
      of John D G McAdam and Timothy A Scott.                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                          
|14.1 | Pursuant to Rule 12b-23(a) of the Securities Exchange
Act of 1934, as amended, the information incorporated into this report by reference
to the Company’s report on Form 6-K dated March 16, 2004, which contains
its Annual Report and Accounts 2004, is attached as an exhibit hereto.
|     |                                                                                                                                                                                                                                                                                          
|14.2 | Consent of KPMG Audit
    Plc.                                                                                                                                                                                                                                                           



---