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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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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, 2005
| | OR                                                                                                                                           
| | TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934                                         
| | OR                                                                                                                                           
| | SHELL
        COMPANY 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 representingfour
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 December 31, 2005:


Ordinary Shares of £1 each:                            1,191,666,256

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.


YesNo

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.


Yes No


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.


YesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the
Exchange Act.


Large accelerated filerAccelerated filerNon-accelerated filer

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


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesNo


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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, 2005, 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 2005, which was furnished to the Securities and
Exchange Commission as a report on Form 6-K on March 14, 2006.


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 159 of the Companys Annual Report and Accounts 2005 contained in its report on
Form 6-K dated March 14, 2006, 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 156 and 157 of the Companys Annual Report and Accounts 2005 contained in its report on Form 6-K dated March 14, 2006 and is incorporated herein by reference.


Words within single quotation marks within the text of this document, the letters ICI, the Roundel Device, Ablestik, Acheson, Alabastine, Alba, Alco, Aquacoral, BioCaptive, Coral, Cuprinol,
Cuprinol Sprayable, Devoe, Duco, Dulux, Dulux Diamond, Elotex, Emerson & Cuming, Glidden, Hammerite, ImpaQ Taste Technology, Metalshield, National Starch, Neutrozone, Polycell, Polyfilla, Quest, Quisine, Sterishield, Uniqema, Valentine and
Xyladecor are all trademarks of the ICI Group.


Other named products appearing within this document that are non-ICI trademarks, are: Gaultier2, Miss Dior Cherie,
Paludrine, Perspex, Silver Shadow from Davidoff, This Old House, Tumulte from Christian Lacroix and Zirhs Corduroy.


PART I

|ITEM 1  IDENTITY OF DIRECTORS,
            SENIOR MANAGEMENT AND ADVISERS
|--------------------------------------------------------------------------

Not applicable.


|ITEM 2  OFFER STATISTICS AND EXPECTED
            TIMETABLE
|------------------------------------------------------------

Not applicable.


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ITEM 3  KEY INFORMATION

|A. | Selected financial data.
|-- | ------------------------

The following tables present selected consolidated financial data of the Group. 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.


The Groups historical consolidated financial
    data presented in the tables below has been derived from the Groups
    audited consolidated financial statements for the two years ended  December
    31, 2005. These are the Groups first consolidated financial statements
    prepared in accordance with the recognition and measurement requirements
    of International Financial Reporting Standards (IFRS) and International Financial
     Reporting Interpretations Committee (IFRIC) interpretations in issue that
    are endorsed by the European Commission and effective (or which ICI has chosen
    to adopt early) at December 31, 2005 (adopted IFRS).
ICI has taken advantage of the SEC rules allowing entities adopting IFRS for
    the first time to present two, rather than three years of certain financial
    information


The financial data on
      pages 3 to 9 of this Annual Report on Form 20-F has been selected from
      the financial statements of the ICI Group for the last two 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 Group accounts  Note 1  Basis of presentation of financial information, which appears on pages 63 and 64 under Item 18
Financial Statements of this Annual Report on Form 20-F). The net profit for the financial periods covered in the Summary of Group income statement and total equity for the financial periods covered in the Summary of
Group balance sheet, are stated in accordance with adopted IFRS, with a transition date of January 1, 2004, except for IAS32 and IAS39 which were adopted effective January 1, 2005. Refer to Notes relating to the Group accounts 
Note 36 Differences between IFRS and US accounting principles, which appears on pages 121 to 129 under Item 18 Financial Statements of this Annual Report on Form 20-F, for a discussion of the main differences between IFRS and
generally accepted accounting principles in the US, or US GAAP.


The following tables present selected consolidated financial data of the Group in accordance with adopted IFRS for the periods indicated. Measures used which are not defined under IFRS are
referred to in the following narrative as non-GAAP measures:


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Summary of Group income statement

|                                                                                    |       |  | Year
    ended |  
|----------------------------------------------------------------------------------- | ----- |  | -------------- | -
|                                                                                    |       |  | December 31,   |  
|                                                                                    |       |  |                |  
|                                                                                    | Notes |  | 2005           |  
|                                                                                    |       |  |                |  
|                                                                                    |       |  | £m             |  
|Revenue                                                                             | 1     |  | 5,812          |  
|Operating profit before special items                                               | 1     |  | 550            |  
|Special items charged to operating profit                                           |       |  | 34             |  
|                                                                                    |       |  |                |  
|Operating profit after special items                                                |       |  | 584            |  
|Share of profits less losses of associates                                          |       |  | 3              |  
|Profits less losses on sale of operations                                           |       |  | 20             |  
|Net finance expense:                                                                | 3     |  |                |  
|                                                                                    |       |  |                |  
|Interest expense                                                                    |       |  | (129           | )
|Interest income                                                                     |       |  | 57             |  
|Post-retirement benefit finance: interest cost                                      |       |  | (451           | )
|Post-retirement benefit finance: expected return on assets                          |       |  | 414            |  
|Foreign exchange gains on debt
 previously hedging goodwill written off to reserves |       |  | 2              |  
|                                                                                    |       |  |                |  
|                                                                                    | 3     |  | (107           | )
|                                                                                    |       |  |                |  
|Profit before taxation                                                              |       |  | 500            |  
|Income tax expense                                                                  | 3     |  | (80            | )
|                                                                                    |       |  |                |  
|Net profit for the financial year                                                   |       |  | 420            |  
|                                                                                    |       |  |                |  
|Attributable to equity holders of the parent                                        | 6     |  | 390            |  
|Attributable to minority interests                                                  |       |  | 30             |  
|                                                                                    |       |  |                |  
|Total                                                                               |       |  | 420            |  
|                                                                                    |       |  |                |  
|Continuing operations                                                               |       |  | 420            |  
|Discontinued operations                                                             | 2     |  |               |  
|                                                                                    |       |  |                |  
|Total                                                                               |       |  | 420            |  
|                                                                                    |       |  |                |  
|Profit before taxation and special items                                            | 5     |  | 444            |  
|                                                                                    |       |  |                |  
|Adjusted earnings per £1 Ordinary Share *                                           |       |  | 27.1           | p
|Earnings per £1 Ordinary Share                                                      | 6     |  | 32.9           | p
|Basic Earnings per £1 Ordinary Share                                                |       |  |                |  
|Continuing operations                                                               |       |  | 32.9           | p
|Discontinued operations                                                             | 2     |  |               |  
|                                                                                    |       |  |                |  
|Total basic earnings per £1 Ordinary Share                                          | 6     |  | 32.9           | p
|                                                                                    |       |  |                |  
|Diluted Earnings per £1 Ordinary Share                                              |       |  |                |  
|Continuing operations                                                               |       |  | 32.8           | p
|Discontinued operations                                                             | 2     |  |               |  
|                                                                                    |       |  |                |  
|Total diluted earnings per £1 Ordinary Share                                        | 6     |  | 32.8           | p
|                                                                                    |       |  |                |  
|Dividends per £1 Ordinary Share                                                     |       |  | 7.7            | p
|                                                                                    |       |  |                |  

| 
|-
|*

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Summary of Group balance sheet

|                                             |  | At December 31, |  
|-------------------------------------------- |  | --------------- | -
|                                             |  |                 |  
|                                             |  | 2005            |  
|                                             |  |                 |  
|                                             |  | £m              |  
|Non-current assets                           |  | 2,890           |  
|Current assets                               |  | 2,277           |  
|                                             |  |                 |  
|Total assets                                 |  | 5,167           |  
|                                             |  |                 |  
|Current liabilities                          |  | (2,245          | )
|Non-current liabilities                      |  | (3,408          | )
|                                             |  |                 |  
|Total liabilities                            |  | (5,653          | )
|                                             |  |                 |  
|Net assets                                   |  | (486            | )
|                                             |  |                 |  
|Attributable to equity holders of the parent |  | (613            | )
|Minority interests                           |  | 127             |  
|                                             |  |                 |  
|Total equity                                 |  | (486            | )
|                                             |  |                 |  

Summary of Group cash flow statement

|                                                    |  | Year
    ended |  
|--------------------------------------------------- |  | -------------- | -
|                                                    |  | December 31,   |  
|                                                    |  |                |  
|                                                    |  | 2005           |  
|                                                    |  |                |  
|                                                    |  | £m             |  
|Net cash inflow from operating activities           |  | 359            |  
|Net cash (outflow) inflow from investing activities |  | (106           | )
|Net cash (outflow) from financing activities        |  | (224           | )
|                                                    |  |                |  
|Net cash inflow (outflow)from all activities        |  | 29             |  
|                                                    |  |                |  
|Cash and cash equivalents at beginning of period    |  | 469            |  
|Net cash inflow (outflow)from all activities        |  | 29             |  
|Movement arising on foreign currency translation    |  | 18             |  
|                                                    |  |                |  
|Cash and cash equivalents at end of period          |  | 516            |  
|                                                    |  |                |  

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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-GAAP measure. A detailed explanation of managements reasons for
finding this non-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 revenue and operating profit before special 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.


Revenue

|                         | Year
    ended |  
|------------------------ | -------------- | -
|                         | December 31,   |  
|                         |                |  
|                         | 2005           |  
|                         |                |  
|                         | £m             |  
|                         |                |  
|Continuing operations    |                |  
|National Starch          | 1,871          |  
|Quest                    | 560            |  
|Uniqema                  | 631            |  
|Paints                   | 2,331          |  
|                         |                |  
|International Businesses | 5,393          |  
|Regional and Industrial  | 428            |  
|                         |                |  
|Total reporting segments | 5,821          |  
|Corporate and other      | 3              |  
|                         |                |  
|                         | 5,824          |  
|Inter-segment revenue    | (12            | )
|                         |                |  
|Total Group              | 5,812          |  
|                         |                |  

Operating profit before special items(1)

|                         | Year ended   |  
|------------------------ | ------------ | -
|                         | December 31, |  
|                         |              |  
|                         | 2005         |  
|                         |              |  
|                         | £m           |  
|                         |              |  
|Continuing operations    |              |  
|National Starch          | 214          |  
|Quest                    | 52           |  
|Uniqema                  | 22           |  
|Paints                   | 253          |  
|                         |              |  
|International Businesses | 541          |  
|Regional and Industrial  | 48           |  
|                         |              |  
|Total reporting segments | 589          |  
|Corporate and other      | (39          | )
|                         |              |  
|Total Group              | 550          |  
|                         |              |  

|   
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|(1)

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|(2) | Discontinued operations
|--- | -----------------------

The basis on which operations have been included
  under the heading of Discontinued operations is explained in Notes relating to the Group accounts  Note 1  Basis of presentation of financial
information  Continuing and Discontinued Operations, which appears on page 64 under Item 18 Financial Statements of
this Annual Report on Form 20-F,which also
lists the constituent operations which were sold or terminated before January 1, 2004.


|(3) | Net finance expense and income tax expense
|--- | ------------------------------------------

Net finance expense and income tax expense have been allocated to Discontinued operations to reflect the incidence of these items within the businesses divested.


|(4) | Special items  continuing operations
|--- | -------------------------------------

Special items relating to continuing operations in
the Group income statement were as follows:


|                                                                         | Year ended   | 
|------------------------------------------------------------------------ | ------------ | 
|                                                                         | December 31, | 
|                                                                         |              | 
|                                                                         | 2005         | 
|                                                                         |              | 
|                                                                         | £m           | 
|Continuing operations                                                    |              | 
|Special items before taxation                                            | 49           | 
|Taxation on special items                                                | 19           | 
|Special items attributable to minorities                                 | 1            | 
|                                                                         |              | 
|Net profit on special items attributable to equity holders of the parent | 69           | 
|                                                                         |              | 

Special items are those items of financial performance that management believe should be separately disclosed to assist in the understanding of the financial performance achieved by the Group and in making projections of
future results. Special items may include items relating to both continuing and discontinued businesses.


Notes relating to the Group accounts  Note 3  Special items before tax, which appears on page 65 under Item 18 Financial Statements of this Annual Report on Form 20-F, gives details of
special items before taxation in 2004 and 2005.


Special items disclosed separately in the IFRS income statement would be incorporated in individual line items under US GAAP.


|(5) | Profit before taxation and special items
|--- | ----------------------------------------

A reconciliation between the profit before taxation and profit before taxation and special items in the Group income statement for the years ended December 31, 2004 and 2005 is shown in the table below:


|                                                                           | Year ended   |  
|-------------------------------------------------------------------------- | ------------ | -
|                                                                           | December 31, |  
|                                                                           |              |  
|                                                                           | 2005         |  
|                                                                           |              |  
|                                                                           | £m           |  
|Profit before taxation                                                     | 500          |  
|Special items before taxation  continuing operations   (profit) / loss   | (49          | )
|Special items before taxation  discontinued operations   (profit) / loss | (7           | )
|                                                                           |              |  
|Profit before taxation and special items                                   | 444          |  
|                                                                           |              |  

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|(6) | Earnings per £1 Ordinary Share  pence
    per share
|--- | ----------------------------------------------------

Average
    ordinary shares in issue used to calculate earnings per £1 Ordinary
Share are as follows:


|                                                                      | 2005    |   | 2004    |  
|--------------------------------------------------------------------- | ------- | - | ------- | -
|                                                                      |         |   |         |  
|                                                                      | million |   | million |  
|Average Ordinary Shares                                               |         |   |         |  
|Weighted average Ordinary Shares in issue during the year             | 1,192   |   | 1,191   |  
|Weighted average shares held by Groups employee share ownership plan | (7      | ) | (8      | )
|                                                                      |         |   |         |  
|Basic weighted average Ordinary Shares in issue during year           | 1,185   |   | 1,183   |  
|Dilutive effect of share options                                      | 3       |   | 1       |  
|                                                                      |         |   |         |  
|Diluted weighted average Ordinary Shares in issue during the year     | 1,188   |   | 1,184   |  
|                                                                      |         |   |         |  

Basic earnings per £1 Ordinary Share and diluted earnings per £1 Ordinary Share for a year are calculated by dividing the appropriate value (continuing, discontinued or total) of net profit (loss) for the
financial year (see table on page 3 of this Annual Report on Form 20-F) by, respectively, basic weighted average Ordinary Shares in issue during the year or diluted weighted average Ordinary Shares in issue during the year.


Basic and diluted earnings per £1 Ordinary Share


|                                                        |       |  | Year ended  |  
|------------------------------------------------------- | ----- |  | ----------- | -
|                                                        |       |  | December 31 |  
|                                                        |       |  |             |  
|                                                        |       |  | 2005        |  
|                                                        |       |  |             |  
|Net profit attributable to equity holders of the parent | £m    |  | 390         |  
|Basic earnings per £1 Ordinary Share                    | pence |  | 32.9        | p
|Diluted earnings per £1 Ordinary Share                  | pence |  | 32.8        | p

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US GAAP results

The financial statements of the ICI Group are prepared in accordance with IFRS. IFRS 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 Group accounts  Note 36 Differences between IFRS and US accounting principles, which appears on pages 121 to 129 under Item 18 Financial
Statements of this Annual Report on Form 20-F, describes the significant differences between IFRS and US GAAP affecting the ICI Groups net income and shareholders equity for the two years ended December 31, 2005.


The following tables present selected consolidated financial data of the Group in accordance with US GAAP for the periods indicated:


|                                            |                    |   | Year ended December 31, |    |       |   
|------------------------------------------- | ------------------ | - | ----------------------- | -- | ----- | --
|                                            |                    |  
|                                            | 2005               |   | 2004                    |    | 2003  |   
|                                            |                    |   |                         |    |       |   
|                                            | £m                 |   | £m                      |    | £m    |   
|                                            |                    |   |                         |    |       |   
|Revenue                                     | 5,786              |   | 5,577                   |    | 5,796 |   
|Net income (loss)                           |                    |   |                         |    |       |   
|Continuing operations                       | 206                |   | 129                     |    | (181  | ) 
|Discontinued operations                     | 2                  |   | (24                     | )  | 15    |   
|                                            |                    |   |                         |    |       |   
|Net income (loss)                           | 208                |   | 105                     |    | (166  | ) 
|                                            |                    |   |                         |    |       |   
|Basic earnings (loss) per £1 Ordinary Share |                    |   |                         |    |       |   
|Continuing operations                       | 17.4               | p | 10.9                    | p  | (15.3 | )p
|Discontinued operations                     | 0.2                | p | (2.0                    | )p | 1.3   | p 
|                                            |                    |   |                         |    |       |   
|Basic earnings (loss) per £1 Ordinary Share | 17.6               | p | 8.9                     | p  | (14.0 | )p
|                                            |                    |   |                         |    |       |   
|                                            |                    |   |                         |    |       |   
|                                            | As at December 31, |  
|                                            |                    |  
|                                            | 2005               |   | 2004                    |    | 2003  |   
|                                            |                    |   |                         |    |       |   
|                                            | £m                 |   | £m                      |    | £m    |   
|Shareholders equity                        | 2,010              |   | 2,279                   |    | 2,359 |   
|                                            |                    |   |                         |    |       |   
|Total assets                                | 7,694              |   | 7,357                   |    | 8,118 |   
|                                            |                    |   |                         |    |       |   

Under US GAAP, the net income in 2005 was £208m
(2004 £105m) compared with net income of £390m (2004 £474m) under
IFRS. Under US GAAP, shareholders equity at December 31, 2005 was £2,010m

(December 31, 2004 was £2,279m) compared with a deficit balance of £(613)m
at December 31, 2005 (December 31, 2004 £(332)m) under IFRS. These differences
primarily result from the differing accounting treatment of post-retirement
benefit expense, purchase accounting adjustments, derivative instruments and
hedging activities, disposal accounting, restructuring costs and capitalisation
of interest, and the tax effect of these differences. As discussed in the second
paragraph
under the heading New Accounting Standards on page 22, the Company
changed its method of accounting for share-based payments upon adoption of SFAS
No. 123(R) “Share-based Payment” effective January 1, 2005.


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 2005 to be paid on April 14, 2006, the rate on February 8, 2006), were:


|                              | Year ended December 31,                                                 | 
|----------------------------- | ----------------------------------------------------------------------- | 
|                              |                                                                         | 
|                              | 2005                                                                    | 
|                              |                                                                         | 
|                              | $ per ADS                                                               | 
|Dividends declared per ADS(1) | 0.54                                                                    | 
|                              |                                                                         | 
|Dividends paid per ADS(1)     | 0.56                                                                    | 
|                              |                                                                         | 
|                             
|(1)                           | Each ADS represents four underlying
    Ordinary Shares of the Company.

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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, | 
|----------------------------------------------------- | ----------------------- | 
|                                                      |                         | 
|                                                      | 2005                    | 
|                                                      |                         | 
|Ratio of earnings to fixed charges                    |                         | 
|For the Group (under IFRS)                            | 4.8                     | 
|                                                      |                         | 
|For the Group with adjustments to accord with US GAAP | 3.4                     | 
|                                                      |                         | 

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


Exchange rates

The information set forth under the heading Shareholder information  Exchange rates, which appears on page 155 of the Companys Annual Report and Accounts 2005 contained in its report on Form 6-K
dated March 14, 2006, is incorporated herein by reference. The highest and lowest exchange rates for each period since February 2006 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 pounds Sterling (£)                             |  | Highest rate  |  | Lowest rate   | 
|------------------------------------------------------ |  | ------------- |  | ------------- | 
|2006                                                   |  | during period |  | during period | 
|                                                       |  |               |  |               | 
|                                                       |  | $             |  | $             | 
|February                                               |  | 1.78          |  | 1.73          | 
|March (as of March 29)                                 |  | 1.76          |  | 1.73          | 
|The noon buying rate on March 29, 2006 was $1.74 = £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 149 to 151 of the Companys Annual Report and Accounts 2005 contained in its report on Form 6-K
dated March 14, 2006, is incorporated herein by reference.


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ITEM 4  INFORMATION ON 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 Group accounts  Note 24  Disposal and legacy, and restructuring provisions  Disposal and legacy provisions, which appears on pages 91 and 92 under Item 18; the information set forth
under the heading Notes relating to the Group accounts  Note 29  Acquisitions and disposals  Disposals, which appears on pages 100 and 101 under Item 18; and the information set forth in the table addressing commitments
for capital expenditure under the heading Notes relating to the Group accounts  Note 32  Commitments and contingent liabilities, which appears on pages 111 and 112 under Item 18.


In addition, the following information, which appears in the Companys Annual Report and Accounts 2005 contained in its report on Form 6-K dated March 14, 2006 is incorporated herein by
reference: the information set forth under the heading ICI Group summary, which appears on page 4 thereof; the information set forth under the headings History and activities  History, History and activities
 Spread and balance of activities and Strategy  ICIs strategic matrix, which appears on pages 6 and 7 thereof; and the information set forth under the heading Operating and financial review  Capital expenditure, including the table entitled Group expenditure on property, plant and equipment and intangible assets, which appears on page 28 thereof. Group capital expenditure currently in
progress includes investments in new facilities in China for the International Businesses, including new manufacturing facilities for Paints and National Starch and a regional technical centre for Quest; the construction of a new Paints plant in
Vietnam; and investments in manufacturing facilities to expand capacity in the Regional and Industrial businesses in Pakistan.


In addition, the following information, which appears in the Companys Annual Report and Accounts 2005 contained in its report on Form 6-K dated March 14, 2006 is incorporated herein by
reference: the information set forth under the headings Shareholder information  Incorporation of the Company and Shareholder information  Registered Office, which appears on page 154 thereof.


The information set forth in the tables entitled Business segments and Geographical segments under the heading Notes relating to the Group accounts  Note 4
 Segment information, which appears on pages 66 to 70 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 2005 contained in its report on Form 6-K dated March 14, 2006 is incorporated herein by
reference: the information set forth under the headings History and activities, which appears on page 6 thereof; the information under the headings ICI Group and its businesses  Group Organisation, ICI Group and
its businesses  National Starch, ICI Group and its businesses  Quest, ICI Group and its businesses  Uniqema, ICI Group and its businesses  ICI Paints and ICI Group and its
businesses  Regional and Industrial, which appears on pages 9 to 14 thereof; the information under the headings ICI Group and its businesses  Other Group information  Markets and distribution, ICI Group and
its businesses  Other Group information  Competition, ICI Group and its businesses  Other Group information  Seasonality, ICI Group and its businesses  Other Group information  Sources and
availability of raw materials and ICI Group and its businesses  Other Group information  Intellectual property, which appears on page 19 thereof; the information under the heading ICI Group and its businesses
 Sustainability  Regulation, safety, security, health and the environment, which appears on pages 15 to 16 thereof; and the information under the heading ICI Group and its businesses  Sustainability 
Environment, which appears on page 17 thereof.


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|C. | Organizational structure.
|-- | -------------------------

The information set forth under the heading Principal subsidiary undertakings, which appears on page 131 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 2005 contained in its report on Form 6-K dated March 14, 2006, is incorporated herein by reference: the information set forth in the second and third paragraphs under the heading ICI Group and its
businesses  National Starch  Background, which appears on page 9 thereof; the information set forth in the second, third and fifth paragraphs under the heading ICI Group and its businesses  National Starch 
Strategic developments in 2005, which appears on pages 9 and 10 thereof; the information set forth under the heading ICI Group and its businesses  Quest Background, which appears on page 10 thereof; the information set
forth in the first and fourth paragraphs under the heading ICI Group and its businesses  Quest  Strategic developments in 2005, which appears on page 11 thereof; the information set forth in the second paragraph under the
heading ICI Group and its businesses  Uniqema  Background, which appears on page 12 thereof; the information set forth in the first and second paragraphs under the heading ICI Group and its businesses  Uniqema
 Strategic developments in 2005, which appears on page 12 thereof; the information set forth in the second paragraph under the heading ICI Group and its businesses  ICI Paints  Background, which appears on page 13
thereof; the information set forth in the third paragraph under the heading ICI Group and its businesses  ICI Paints  Strategic developments in 2005, which appears on page 14 thereof; the information set forth under the
heading ICI Group and its businesses  Regional and Industrial  Brief description of activities, which appears on page 14 thereof; and the information set forth under the heading ICI Group and its businesses 
Regional and Industrial  Strategic developments in 2005, which appears on page 14 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.


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ITEM 5  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Executive Summary

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


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


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


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


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


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


Asia remained an important area of development for ICI as the Group looks to build on the strong positions of its growth businesses in the region. During 2005, sales for ICIs businesses in Asia increased 12%, with
National Starch, Quest and ICI Paints all delivering good sales growth. National Starch opened a new technical and manufacturing centre in China for electronic materials and ICI began implementing plans for new paints facilities in China and
Vietnam. As a result of strong growth across the region in recent years, Asia represented 24% of Group sales in 2005. ICIs businesses in Latin America also delivered good growth in sales and operating profit before special items as the region
continued to benefit from economic recovery. Performance in North America was also good, with sales growth led by price increases and modest volume growth in most businesses. ICIs activities in Europe delivered a robust performance in
generally weak trading conditions.


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ICIs strategy focuses on actively managing its portfolio in different ways to create shareholder value. Sales, capital expenditure, head count and profitability all increased in targeted growth activities. At the same
time, ICI continued to achieve improvements in cost and capital effectiveness. As a result of this strategic focus ICI completed the sale of Vinamul Polymers in February 2005, and made the modest acquisition of the Celanese redispersible powder
polymers business in September 2005.


ICI also made good progress towards completing the restructuring activities launched in 2003. Cumulative savings from that programme reached £106m out of an increased target of £140m. Since the programmes
initiation, headcount has been reduced by 2,100.


Improved profitable sales growth is driven by technological innovation and ICI has maintained a satisfactory level of investment in R&D, the long-term benefit of which is seen in new product launches. In 2005, Quest
launched the ImpaQ Taste Technology platform, a new range of flavour molecules that should significantly reduce salt, sugar and fat content without reducing flavour impact in food products where it is used, for example in ice creams or
snack foods. National Starch launched a new printable adhesive developed for the latest faster, more compact electronics applications. The technology increases product reliability and reduces assembly costs, creating significant savings for
ICIs customers.


Basis of Presentation

Non-GAAP financial measures

IFRS and non-GAAP financial measures: generally

Investors should consider non-GAAP financial measures in addition to, and not as a substitute for or as superior to, measures of financial performance reported in accordance with IFRS. The IFRS results reflect all items
that affect reported performance and therefore it is important to consider the IFRS measures alongside the non-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-GAAP figures are discussed, the most directly comparable IFRS figures must also be presented and reconciled to the non-GAAP figures. The full results of the Group, prepared in accordance with IFRS, are presented in the
Group income statement, which appears on page 60 under Item 18 Financial Statements of this Annual Report on Form 20-F and the IFRS segmental information is presented in the Notes relating to the Group accounts 
Note 4  Segment information, which appears on pages 66 to 70 under Item 18 Financial Statements of this Annual Report on Form 20-F.


Constant currency performance

ICIs management assesses the underlying performance of its individual businesses by adjusting revenue and operating profit before special items 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 a non-GAAP financial measure and 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.


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Calculation of constant currency results

In the Operating and Financial Review and Prospects for 2005 compared to 2004, 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 2005 business review
compared to 2004, both the 2005 and 2004 results are translated using the average of the daily exchange rates in 2004).


The tables on pages 18 and 19 of this Annual Report on Form 20-F provide comparisons between the IFRS performance measures of movements in revenue and operating profit before special items and the
non-GAAP performance measures that ICI uses of movements in constant currency sales and constant currency operating profit before special items.


|International Businesses
|------------------------

ICI management refers to National Starch, Quest, Uniqema and Paints collectively as the International Businesses. The use of this term is a non-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. 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, past, present and future, of these parts of the Group.


Investors should consider this non-GAAP financial measure International Businesses in addition to, and not as a substitute for or as superior to, measures of financial performance reported in accordance with
IFRS. The IFRS results for the Group include the results from the Regional and Industrial businesses and Corporate and other results. It is therefore important to consider the results of the Group, which is an IFRS measure alongside the non-GAAP
measure of International Businesses which excludes the Regional and Industrial businesses and Corporate and other results. The tables on pages 18 and 19 of this Annual Report on Form 20-F present the comparison of Group revenue,
operating profit after special items, special items in operating profit, and operating profit before special items to International Businesses revenue, operating profit after special items, special items in operating profit, and operating
profit before special items.


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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 IFRS. Constant currency excludes the effect of currency translation differences and is a non-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-GAAP measures is set out on pages 13 and 14 of this Annual Report on Form 20-F. Comparisons detailing the amounts excluded from the most directly comparable IFRS
measures are presented on pages18 and 19 of this Annual Report on Form 20-F.


|Revenue
|-------

Group sales as reported were £5,812m for 2005, 4% higher than 2004 (2004 £5,609m). The higher sales in 2005 were the consequence of higher sales volumes and increased selling prices.


International Businesses sales as reported were £5,393m for 2005 which, despite mixed trading conditions, was 3% higher than 2004 (2004 £5,252m). On an asreported basis sales for Paints were higher than 2004 and sales for National Starch and Uniqema were in line with last year, but Quest sales were lower than for 2004.


Excluding the effects of foreign currency translation, constant currency sales for the International Businesses were 1% above 2004, with growth for Paints (+5%) offset by lower sales for National Starch (-1%), Quest (-5%)
and Uniqema (-1%). National Starch sales for 2004 included £144m of sales by the Vinamul Polymers business sold in 2005. National Starch sales for 2005 included Vinamul Polymers sales of £15m.


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

Group operating profit, as reported, was £584m for 2005, 10% above 2004 (2004 £532m). Group operating profit before special items, as reported, was £550m for 2005, 2% above 2004 (2004 £538m). Good
constant currency sales growth and the benefits of restructuring more than offset the impact of generally rising raw material costs.


Operating profit before special items, as reported, for the International Businesses was £541m for 2005, 5% higher than 2004 (2004 £516m). Excluding the effects of foreign currency translation (adverse £9m),
operating profit before special items for the International Businesses was 3% higher than 2004 on a constant currency basis, despite a reduction of £20m in operating profit before special items due to divestments, mainly National Starchs
Vinamul Polymers business.


Regional and Industrial reported a £48m operating profit for the year, in comparison with a £49m operating profit for 2004. The operating loss of Corporate and other was £39m for the year compared with an
operating loss of £27m for 2004.


|Associates
|----------

The Groups share of profits from associates was £3m for 2005 (2004 £2m profit). This comprised the Groups share of operating profits less losses from associates of £3m (2004 £4m) together
with associates net finance income of £1m (2004 £nil) less taxation on profits less losses of associates of £1m (2004 £2m).


|Net finance expense
|-------------------

The net finance expense of £109m for 2005 was £9m lower than last year (2004 £118m), with lower net interest costs of £72m (2004 £85m) partly as a result of lower levels of debt, offset in part by
higher post-retirement benefit finance costs of £37m (2004 £33m). Foreign exchange differences on intergroup financing resulted in a £4m gain compared with a £1m gain in 2004.


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Profit before taxation

After special items, Group profit before taxation was £500m, 18% lower than for 2004 (2004 £606m), due mainly to lower profits on sale of operations. Profit before taxation and special items was £444m for
2005 compared to £422m for 2004.


|Taxation
|--------

Taxation on profit before special items was £92m, £4m higher than 2004 (2004 £88m), reflecting the increase in operating profit before special items.


|Special items
|-------------

Special items are those items of financial performance that management believe should be separately disclosed to assist in the understanding of the financial performance achieved by the Group and in making projections of
future results. Special items may include items relating to both continuing and discontinued businesses. Management believes that the identification of special items is helpful for decision-making as management considers this to be a non-operational
item.


The Groups presentation of the Group income statement for the two years ended December 31, 2005, which appears on page 60 under Item 18 Financial Statements of this Annual Report on Form 20-F,
separately disclosing special items, has been prepared in accordance with IAS 1. This presentation provides a sufficient degree of prominence in respect to the special items necessary, under IFRS, to give a fair presentation of the results of the
Group in the two years ended December 31, 2005.


After taxation, special items amounted to a profit of £68m (2004 £174m) and mainly relates to gains arising on changes to post-retirement benefit schemes, profits less losses on the sale of operations and to
charges related to the restructuring programme first announced in 2003.


Gains on special items in operating profit of £34m related to a £40m benefit associated with changes to the terms of the Noblesse pension and post-retirement healthcare schemes in the Netherlands, and £7m
profit on disposal of fixed assets, partly offset by £13m of costs associated with restructuring programmes. Delivery of cost savings from the restructuring initiatives first announced in 2003 remained on track. The restructuring programme is
expected to deliver total benefits of £140m in 2007, £13m higher than for the original programme.


The cumulative charge to the income statement for the programme to the end of 2005 was £222m, including £138m relating to termination costs. Further charges of £9m are expected in 2006. The cumulative cash
expenditure on the programme at the end of 2005 was £142m, comprising primarily termination costs. Headcount across the Group was around 2,100 lower at the end of 2005 than at the start of the programme; and as a consequence, the programme
delivered £106m of cost benefit in 2005.


The £20m profit on sale of operations for the year included gains arising on the disposal of the Zweihorn wood finish business in Germany (£3m) and the Vinamul Polymers business (£6m) and a loss on the
disposal of 51% of the Regional and Industrial rubber chemicals business in India (£3m). Such profit also included increases in provisions relating to long-term residual activities, including pension administration costs (£23m), increased
employer liability costs (£10m) and a further provision for the costs of divestment of the Chlor-Chemicals, Klea and Crosfield businesses (£10m), offset by the release of provisions following a land transaction in the north of England
(£28m), credits arising from changes to post-retirement healthcare plans in the US (£23m) and a receipt from the Ineos Group (£4m).


In 2004, the profit on sale of operations (£175m) related mainly to the gain on the sale of the Quest Food Ingredients business.


Special items under IFRS do not represent extraordinary items under US GAAP.


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|Net profit
|----------

Net profit was £420m compared to £508m last year. Net profit before special items attributable to equity holders of the parent was £321m, 5% ahead of 2004 (2004 £306m).


Earnings per share



Basic earnings per share were 32.9p, compared to 40.1p for 2004. Diluted earnings per share were 32.8p, compared to 40.1p for 2004. Adjusted earnings per share were 27.1p for 2005, compared to 25.8p for 2004.


Dividend and dividend policy

The Companys dividend policy links growth in profit with growth in dividends and, at the same time, seeks to ensure that sufficient funds are available to the Group for investment in future profitable growth.


The Board continues to believe that this approach is appropriate, and therefore confirms that, following the introduction of IFRS, ICIs continued intent will be to grow dividends at about the same rate as the growth
in net profit before special items attributable to equity shareholders of the parent.


Consequently, the Board has declared a second interim dividend per £1 Ordinary Share of 3.95p (2004 3.90p), to bring the total dividend for 2005 to 7.70p (2004 7.30p), reflecting the 5% growth in net profit before
special items attributable to the equity shareholders of the parent.


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Review of 2005 business results

Basis of presentation

The tables on pages 18 and 19 of this Annual Report on Form 20-F provide comparisons between the IFRS performance measures of movements in revenue and operating profit before special items and the
non-GAAP performance measures that ICI uses of movements in constant currency revenue and constant currency operating profit before special items. The tables detail the amounts excluded from the most directly comparable IFRS
financial measure. Reported relates to the figures included in the financial statements prepared under IFRS. Constant currency excludes the effect of currency translation differences and is a non-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-GAAP financial measures are set out on pages 13 and 14 of this Annual Report on Form 20-F.


Comparison table  IFRS As reported revenue performance and non-GAAP Constant currency revenue performance  2005 vs. 2004

|Revenue                                  |                      |         |                            |   | Foreign             |   |              |  
|---------------------------------------- | -------------------- | ------- | -------------------------- | - | ------------------- | - | ------------ | -
|exchange                                
|translation                             
|Revenue As reported                    | As reported change | effects | Constant currency change
|                                         |                      |         |                            |   |                     |   |              |  
|                                         |                      |         |                            |   | Increase/(decrease) |   | Adverse/     |  
|                                         | 2005                 |         | 2004                       |   | 2005 vs 2004        |   | (favourable) |  
|                                         |                      |         |                            |   |                     |   |              |  
|                                         | £m                   |         | £m                         |   | £m                  |   | %            |  
|National Starch                          |                      |         |                            |   |                     |   |              |  
|Adhesives                                | 864                  |         | 779                        |   | 85                  |   | 11           |  
|Specialty Starches                       | 458                  |         | 461                        |   | (3                  | ) | (1           | )
|Specialty Synthetic Polymers             | 288                  |         | 386                        |   | (98                 | ) | (25          | )
|Electronic
    and Engineering Materials | 261                  |         | 252                        |   | 9                   |   | 4            |  
|                                         |                      |         |                            |   |                     |   |              |  
|Total                                    | 1,871                |         | 1,878                      |   | (7                  | ) |             |  
|                                         |                      |         |                            |   |                     |   |              |  
|Quest                                    |                      |         |                            |   |                     |   |              |  
|Flavours                                 | 259                  |         | 299                        |   | (40                 | ) | (13          | )
|Fragrance                                | 301                  |         | 285                        |   | 16                  |   | 6            |  
|                                         |                      |         |                            |   |                     |   |              |  
|Total                                    | 560                  |         | 584                        |   | (24                 | ) | (4           | )
|                                         |                      |         |                            |   |                     |   |              |  
|Uniqema                                  | 631                  |         | 629                        |   | 2                   |   |             |  
|                                         |                      |         |                            |   |                     |   |              |  
|Paints                                   |                      |         |                            |   |                     |   |              |  
|Decorative Europe                        | 719                  |         | 709                        |   | 10                  |   | 1            |  
|Decorative North America                 | 882                  |         | 836                        |   | 46                  |   | 6            |  
|Decorative Asia                          | 297                  |         | 252                        |   | 45                  |   | 18           |  
|Decorative Latin America                 | 189                  |         | 157                        |   | 32                  |   | 20           |  
|Packaging Coatings                       | 211                  |         | 181                        |   | 30                  |   | 17           |  
|Other                                    | 33                   |         | 26                         |   | 7                   |   | 27           |  
|                                         |                      |         |                            |   |                     |   |              |  
|Total                                    | 2,331                |         | 2,161                      |   | 170                 |   | 8            |  
|                                         |                      |         |                            |   |                     |   |              |  
|International Businesses                 | 5,393                |         | 5,252                      |   | 141                 |   | 3            |  
|                                         |                      |         |                            |   |                     |   |              |  
|Regional and Industrial                  | 428                  |         | 375                        |   | 53                  |   | 14           |  
|                                         |                      |         |                            |   |                     |   |              |  
|Total reporting segments                 | 5,821                |         | 5,627                      |   | 194                 |   | 3            |  
|                                         |                      |         |                            |   |                     |   |              |  
|Corporate and other                      | 3                    |         | 3                          |   |                    |   |              |  
|Inter-segment eliminations               | (12                  | )       | (21                        | ) | 9                   |   |              |  
|                                         |                      |         |                            |   |                     |   |              |  
|Total Group                              | 5,812                |         | 5,609                      |   | 203                 |   | 4            |  
|                                         |                      |         |                            |   |                     |   |              |  



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Comparison table  IFRS As reported operating profit before special items and non-GAAP Constant currency operating profit before special items performance  2005 vs. 2004

|                                               |               |                   | Quest        |            |       |       |     |   |     |   |    |   |     |   |     |  
|---------------------------------------------- | ------------- | ----------------- | ------------ | ---------- | ----- | ----- | --- | - | --- | - | -- | - | --- | - | --- | -
|National                                       | International | Regional 
    and | Corporateand | Total     
|Starch                                         | Uniqema       | Paints            | Businesses   | Industrial | other | Group
|                                               |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|                                               | £m            |                   | £m           |            | £m    |       | £m  |   | £m  |   | £m |   | £m  |   | £m  |  
|Operating profit / (loss) after special items  |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|2005                                           | 215           |                   | 63           |            | 40    |       | 248 |   | 566 |   | 48 |   | (30 | ) | 584 |  
|2004                                           | 213           |                   | 39           |            | 23    |       | 235 |   | 510 |   | 49 |   | (27 | ) | 532 |  
|                                               |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|Special items in operating profit / (loss)     |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|2005                                           | 1             |                   | 11           |            | 18    |       | (5  | ) | 25  |   |   |   | 9   |   | 34  |  
|2004                                           | (1            | )                 | (8           | )          | 3     |       |    |   | (6  | ) |   |   |    |   | (6  | )
|                                               |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|Operating profit / (loss) before special items |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|2005                                           | 214           |                   | 52           |            | 22    |       | 253 |   | 541 |   | 48 |   | (39 | ) | 550 |  
|2004                                           | 214           |                   | 47           |            | 20    |       | 235 |   | 516 |   | 49 |   | (27 | ) | 538 |  
|                                               |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|As reported change                           |              |                   | 5            |            | 2     |       | 18  |   | 25  |   | (1 | ) | (12 | ) | 12  |  
|(2005 vs. 2004) increase/(decrease) £m         |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|                                               |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|As reported change                           |              |                   | 11           |            | 9     |       | 8   |   | 5   |   | (3 | ) |     |   | 2   |  
|(2005 vs. 2004) increase/(decrease) %          |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|                                               |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|Foreign currency                               | (3            | )                 | (1           | )          |      |       | (5  | ) | (9  | ) |   |   |    |   | (9  | )
|translation effects adverse/(favourable)£m     |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|                                               |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|Constant currency                            | (3            | )                 | 4            |            | 2     |       | 13  |   | 16  |   | (1 | ) | (12 | ) | 3   |  
|operating profit before special items change   |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|(2005 vs. 2004) increase/(decrease) £m         |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|                                               |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|Constant currency                            | (2            | )                 | 8            |            | 6     |       | 6   |   | 3   |   | (2 | ) |     |   | 1   |  
|operating profit before  special
items change  |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|(2005 vs. 2004) increase/(decrease) %          |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  
|                                               |               |                   |              |            |       |       |     |   |     |   |    |   |     |   |     |  

National Starch

National Starchs sales for 2005 of £1,871m were in line with 2004 on an as reported basis. Operating profit before special items for 2005 was £214m, in line with 2004 on an as reported basis. On a constant
currency basis sales were 1% below 2004. The fall, mainly due to the disposal of the Vinamul Polymers business in January 2005, was in part offset by underlying growth in Asia and Latin America, and with the benefit of price increases implemented to
offset rising raw material costs. Raw material and energy costs escalated through the year and gross margin percentages were lower than in 2004 despite the implementation of price increases. Operating profit before special items of £214m was 2%
below 2004 on a constant currency basis.


The following commentaries relate to the four business groupings within National Starch: Adhesives (46% of National Starchs sales in 2005), Specialty Starches (25%), Specialty Synthetic Polymers (15%) and Electronic
and Engineering Materials (14%). The geographic split of revenue by customer location for National Starch in 2005 was: Europe 26%, North America 36%, Asia 27% and Latin America and Rest of World 11%.


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Adhesives

Adhesives reported sales were 11% ahead of 2004. Excluding foreign exchange translation effects, Adhesives constant currency sales for 2005 were 9% ahead of 2004. Growth in constant currency sales was strong in North
America, Latin America and Asia, notably China and India, but demand weakened in Europe in the latter part of the year. There was good growth for sales of adhesives for paper and disposable products and in Asia, the sports shoe adhesives business
performed well. Higher raw material costs were countered byincreased selling prices, but gross margin percentages were lower than in 2004.


Specialty Starches

Specialty Starches as reported sales for 2005 were 1% below 2004. Excluding foreign exchange translation effects, constant currency sales were also 2% lower, with higher sales for food starches more than offset by lower
sales into the paper industry. Constant currency sales growth was modest in Europe, Asia and Latin America but sales were lower in North America.


Specialty Synthetic Polymers

Specialty Synthetic Polymers sales for 2005 were 25% lower than 2004 as reported due to the disposal of the Vinamul Polymers business. On a constant currency basis sales were also 26% lower. Constant currency sales were
well ahead in Asia and for the Alco and Personal Care businesses.


Electronic and Engineering Materials

Electronic and Engineering Materials sales were 4% ahead of 2004, as reported. Excluding foreign exchange translation effects, sales were 3% ahead on a constant currency basis in generally favourable market conditions.
Constant currency sales for Ablestik and Emerson and Cuming were both ahead of 2004, but sales for Acheson were lower. Sales in Latin America grew strongly and North America was well ahead whilst Asia and Europe were broadly similar to
2004.


Quest

Sales of £560m for 2005 were £24m (4%) lower than 2004 on an as reported basis, mainly due to the impact of the divestment of the Food Ingredients business in 2004. Excluding foreign exchange translation effects,
sales were 5% below 2004. Operating profit before special items of £52m was 11% ahead of 2004 on an as reported basis.


On a constant currency basis, sales grew for the Fragrance business but were lower than 2004 for the Flavours business due to the divestment.


Asia and Latin America sales were both well ahead of 2004 on a constant currency basis. Sales in Europe were in line with 2004 but in North America, sales were lower. Overall, gross margin percentages were broadly unchanged
despite rising raw material costs, and constant currency operating profit before special items was 8% higher than in 2004.


The following commentaries relate to Quests two major strategic businesses: Flavours (46% of Quests sales in 2005) and Fragrance (54%). The geographic split of sales by customer location in 2005 was Europe 38%,
North America 22%, Asia 16% and Latin America and Rest of World 24%.


Flavours

Flavours reported sales for 2005 were 13% below 2004 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.


Fragrance

Fragrance reported sales were 6% higher than 2004 and 5% higher on a constant currency basis. Sales to household, fabric, oral care and personal care sectors were all ahead, offsetting the impact of higher raw material,
packaging and transport costs in the second half of 2005.


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Uniqema

Uniqemas reported sales of £631m were in line with 2004, but, excluding foreign exchange translation effects, were 1% lower on a constant currency basis, with growth in Asia and Latin America offset by lower
sales in Europe. The geographic split of sales by customer location for Uniqema in 2005 was: Europe 49%, North America 30%, Asia 15%, Latin America and Rest of World 6%. Overall gross margin percentages were slightly lower than in 2004 with
glycerine margins falling progressively through the year. However, control of costs below gross margin was maintained, supplemented by benefits from the restructuring programme. Operating profit before special items increased to £22m in 2005
(2004 £20m).


Paints

Paints reported sales of £2,331m for the year were 8% ahead of 2004. Excluding foreign exchange translation effects, sales were 5% ahead of 2004, 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. Operating profit before special items was 6% ahead of 2004
on a constant currency basis.


The following commentaries relate to the four geographical regions where Decorative Paints operates (Decorative Paints accounted for close to 90% of Paints overall sales for 2005) and to the Packaging Coating business
(9%). Other businesses accounted for 1% of overall sales. The geographic split for Paints by customer location in 2005 was: Europe 36%, North America 39%, Asia 15% and Latin America and Rest of World 10%.


In Decorative Europe, reported sales for 2005 were 1% ahead of 2004. Excluding favourable foreign exchange translation effects, sales for 2005 on a constant currency basis were 1% ahead of 2004. There was growth for UK
trade sales and sales in Ireland and Eastern Europe, whilst sales in the UK retail market were lower.


In Decorative North America, reported sales for 2005 were 6% ahead of 2004. Excluding favourable foreign exchange translation effects, sales for 2005 on a constant currency basis were 4% ahead of 2004. There was growth in
all the principal market sectors, but raw material and energy cost increases were significant and gross margin percentages were lower than 2004.


In Decorative Asia, reported sales for 2005 were 18% ahead of 2004. Excluding favourable foreign exchange translation effects, sales for 2005 on a constant currency basis were 17% ahead of 2004, with notable performances in
China, India, Pakistan and Vietnam.


Decorative Latin America reported sales for 2005 were 20% ahead of 2004. Excluding favourable foreign exchange translation effects, sales for 2005 were 5% ahead of 2004 with growth in all the key countries in the
region.


Reported sales for 2005 for the Packaging Coatings business were 17% ahead of 2004, and excluding favourable foreign exchange translation effects, sales were 14% above 2004.


Regional and Industrial

Reported sales for the Regional and Industrial businesses were £428m, 14% higher than 2004. Constant currency sales were 15% above 2004, with all businesses ahead. Gross margin percentages were impacted by a decline in
margins for pure terephthalic acid (PTA) through the year, and operating profit before special items was 2% lower than 2004 on a constant currency basis.


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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 the 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 operating cash flows up to 12 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 2005 currency mix of profits, the adverse annual impact due to translation exposures on the Group operating profit (before special items) of a 5% strengthening of Sterling against the US dollar and related
currencies compared with the average rates prevailing in 2005 would be approximately £13m. The equivalent impact of a 5% strengthening of Sterling against the Euro would lead to an adverse impact of approximately £4m.


Critical accounting policies, judgements and estimates

The Groups main accounting policies affecting its results of operations and financial condition are set forth under the heading Group accounting policies, which appears on pages 56 to 59 under Item 18
Financial Statements of this Annual Report on Form 20-F. Judgements and assumptions have been made 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. Policies which are considered to be the Groups critical accounting policies under IFRS, as the judgements and assumptions made could have a significant impact on its results of operations and financial
condition, are shown under Notes related to the accounts  Note 37  Critical accounting policies, judgements and estimates, which appears on page 130 under Item 18 Critical accounting policies, judgements and
estimates of this Annual Report on Form 20-F. In addition to the information provided in the third paragraph of that Note, headed Post-retirement benefits, the discount rate used is derived from the indices of AA-rated corporate
bonds in the countries relevant to the retirement plans and of terms appropriate to the durations of liabilities in the plans.


New Accounting Standards

International Financial Reporting Standards


The Groups consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations in issue that are endorsed by the European Commission and
effective (or which ICI has chosen to adopt early) at December 31, 2005 (adopted IFRS). Following the announcement by the US Securities and Exchange Commission (SEC) to allow an exemption from the provision of a second year
of comparatives, ICI decided to take advantage of the exemption and hence the transition date for the adoption of IFRS for the Group is January 1, 2004. All comparative data in these statements has been restated accordingly, except the Group has
taken the exemption allowed by IFRS 1 (First-time adoption of International Financial Reporting Standards) not to restate comparatives for IAS 32  Financial Instruments: Disclosure and Presentation and IAS 39  Financial
Instruments: Recognition and Measurement. Further details are shown underNotes relating to the Group accounts  Note 1  Basis of presentation of financial
information which appears on pages 63 and 64 under Item 18 Financial Statements of this Annual Report on Form 20-F.


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New US standards are outlined under the heading (l) New US Accounting Standards not yet implemented under Notes relating to the Group accounts  Note 36  Differences between IFRS and US
accounting principles, which appears on page 123 under Item 18 Financial Statements of this Annual Report on Form 20-F. In addition, ICI adopted SFAS No. 123 (R) Share-based Payment for the first time in 2005, details
of which appear under, and are incorporated herein by reference to, Notes relating to the Group accounts  Note 39  New US Accounting Standards implemented in the period, which appears on page 130B 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 Group accounts  Note 22  Financial Liabilities, which appears on pages 87 to 89, the information set forth under the heading Notes relating to the Group accounts  Note 30  Financial
instruments, which appears on pages 102 to 109; and the information set forth in the table under the heading Notes relating to the Group accounts  Note 32  Commitments and contingent liabilities,
which appears on page
111.


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 27 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 2005 contained in its report on Form 6-K dated March 14, 2006 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 28 thereof; and the information set forth under the heading Operating and financial review  Counterparty credit risk, which appears on page 23 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 page 22 thereof; and the information set forth under the heading Operating and financial review  Foreign currency risk,
which appears on page 23 thereof.


As noted in the second paragraph (beginning The Group has acquired, or is committed to acquire...) under the heading Notes relating to the Group accounts  Note 26  Reconciliation of changes in
equity  Limitation of borrowings, which appears on page 99 under Item 18 Financial Statements of
this Annual Report on Form 20-F, the Group has acquired or is committed to acquire
under forward contracts, 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.


Cash flow

This commentary relates to the Group cash flow statement, which appears on page 62 under Item 18 Financial Statements of this Annual Report on Form 20-F.


Net cash inflow from operating activities for 2005 was £359m, £32m higher than 2004, with higher operating profit before special items for the Group, a higher cash inflow from movement in working capital, and
lower cash outflows in relation to restructuring, offset by higher cash outflows in relation to taxation and dividends. Net cash flow from investing activities was a cash outflow of £106m, which was lower than 2004 by £135m, due primarily
to lower net proceeds from the disposal of businesses. Capital expenditure and financial investment for 2005, of £159m, was £1m higher than the £158m outflow in 2004. Payments in respect of disposals prior to 2004 were £47m,
compared with £95m in 2004. Acquisitions expenditure was £23m, compared with £4m in 2004.


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Net proceeds from disposals were £108m in 2005, compared with £279m in 2004, and comprised £128m gross disposal proceeds (2004 £291m) less expenditure against divestment provisions of £20m (2004
£12m). The sale of National Starchs Vinamul Polymers business, with gross proceeds of £111m received in the first quarter of 2005, was the major contributor to disposal proceeds. The expenditure against divestment provisions related
primarily to the divestments of the Vinamul Polymers business and the Quest Food Ingredients business.


Dividend payments to the equity holders of the parent of £91m (2004 £82m)
  comprised the 2004 second interim dividend and the 2005 first interim dividend.


Consequently, the Groups cash inflow before financing activities for 2005 was £253m, £103m lower than the cash inflow of £356m in 2004. The reduction in Group cash flow resulted primarily from lower
proceeds from disposals and higher payments in relation to taxation, partially offset by higher operating profit, improved working capital effectiveness and lower payments in relation to restructuring.


Liquidity and investments

At December 31, 2005, the Group had at its disposal $1,085m (Sterling equivalent £630m) of undrawn, committed borrowing facilities. These comprised $385m maturing in October 2006 and $700m maturing in March
2010. These facilities provide a backstop for short-term funding as well as flexibility to cover future cash flows. In addition, facilities of $240m (£139m) backstop two receivables securitisation programmes which the Group runs in the USA.
At December 31, 2005, the amount borrowed under these programmes was £nil.


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 needs arise principally from the seasonality of the Paints business, which experiences higher sales of products used on the exterior of buildings, and thus working capital, during the North American and European summer (the second
and third quarters of the year). The Groups commercial paper programmes and other short-term borrowings are normally used to fund these working capital fluctuations. At December 31, 2005, the Group had £14m of short-term borrowings
outstanding, shown under the heading Notes relating to the Group accounts  Note 22 Financial liabilities, which appears on pages 87 to 89 under Item 18 Financial Statements of this Annual Report on Form
20-F.


During 2005, the principal movement in long-term debt was the maturity of a £100m 18-year note in April 2005.


During 2005, there were no changes in ICIs debt ratings. At December 31, 2005, 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. 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.


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

The following information, which appears in the Companys Annual Report and Accounts 2005 contained in its report on Form 6-K dated March 14, 2006 is incorporated herein by reference: the
information set forth under the heading ICI Group and its businesses  Research and development, which appears on page 15 thereof; and the information set forth under the heading ICI Group and its businesses  Other Group
information  Intellectual property, which appears on page 19 thereof.


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|D. | Trend Information.
|-- | ------------------

Operating resultsOperating
    results for 2006 are subject to the outcome of many uncertainties, including
    those matters set forth under Risk factors, which appear on pages 149 to 151 of the Companys
    Annual Report and Accounts 2005 contained in its report on Form 6-K dated
    March 14, 2006 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 2005. A slowing of economic growth in any of the key regions in 2006
        could directly impact the results of the Group. ICI has a well-established
        position in Asia, particularly the ICI
        Paints, National Starch and Quest businesses. Their products are sold
        into growth segments of local economies and ICIs major international
        customers are investing in capacity
        to serve domestic and export markets. Growth estimates remain strong
        for the Asia region and one or two countries
        in particular. Should the economic outlook change, this could impact
        favourably or unfavourably the Groups rates of growth. ICI believes
        that the electronics market, whilst
        likely to remain more cyclical than most, will continue to grow and present
        National Starch with sustained opportunities to introduce new technologies.
        Against this backdrop, individual market
    cycles may have an impact on the business.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | – | Raw material and energy costs: many parts of
        the Group experienced significant increases in costs
        for raw materials during 2005, particularly for petrochemical based materials,
        but
also for some renewable raw materials. In addition,
ICIs businesses have some exposure to energy
price fluctuations; for example, National Starchs starch operation suffered
from significant increases in natural gas prices
in the US during 2005. Whilst the impact of cost increases
was offset by increases in selling prices, further cost increases in 2006, to
the extent that they may not be recovered, could
adversely affect ICI.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | – | PTA to paraxylene (PX) differential margin:
        the profitability of the Regional and Industrial business
        in Pakistan is significantly affected by the market price differential
        between
PTA selling prices and the cost of the key PTA
feedstock, paraxylene. The differential margin was lower
in 2005 than in 2004, and this trend could continue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | – | Restructuring: the restructuring programmes
        announced in 2003 resulted in cumulative charges
        of £222m to the end of 2005. A further charge for these programmes
        of £9m is expected in 2006. Cost
        savings in 2006 from these programmes are expected to be around £131m, £25m
    more than in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | – | 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 recent years has been
        for the US dollar to depreciate against Sterling, although it strengthened again
        slightly in 2005: the average rate of £/US$ was 1.50 in 2002,
        1.64 in 2003,
1.84 in 2004 and 1.81 in 2005. Based on the
currency mix of profits and losses in 2005, 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 2005, would be approximately £13m.                                                                                                                                                                                                                                                                                                                                                                                                             

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Cash flow

Cash flow for 2006 is subject to the outcome of many uncertainties, including those matters set forth under the heading Risk factors, which appear on pages 149 to 151 of the Companys Annual Report and
Accounts 2005 contained in its report on Form 6-K dated March 14, 2006 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, £142m was spent up to
        the end of 2005, with the remainder
    expected to be paid primarily in 2006.                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | – | Disposal provisions: payments against provisions
        established on the disposal of businesses prior
        to 2004 amounted to £47m in 2005. Expenditure against the remaining
        provisions is expected to remain at
    around this level in 2006.                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | – | Taxation: 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
        21% of
profit before taxation and special items.                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | – | Loans: during 2005 the Group made loan repayments
        of £137m. Loans due for repayment in 2006
    total £166m.                                                                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | – | Because of ICIs long history it has significant
        pension commitments. Principally as a result of
        changes in mortality, the aggregate net deficit of the pension and other
        post-retirement plans increased from £1.2bn
        at December 31, 2004 to £1.7bn
at December 31, 2005. As a result, ICI has agreed
with the trustees of the two principal UK
pension funds to make increased contributions
from 2006 onwards amounting to an additional £72m in 2006.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|E. | Off-Balance Sheet Arrangements.
|-- | -------------------------------

Off-balance sheet financing mainly comprises the
    leases as shown in the information contained in the tables under Notes relating to the Group accounts  Note 31  Leases,
which appears on page 110 under Item 18 Financial Statements of this
Annual Report on Form 20-F.


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|F. | Contractual Obligations.
|-- | ------------------------

The following table summarises ICIs principal contractual obligations at December 31, 2005, including instalments, which are described in the accounts 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 Group accounts  Note 32 Commitments and contingent
liabilities, which appears on pages 111 and 112 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 obligations
is included in the Notes relating to the Group accounts indicated
in the table below:


|                                               | Notes |        |       |       | Payments due by period | 
|---------------------------------------------- | ----- | ------ | ----- | ----- | ---------------------- | 
|relating                                       |       |       
|to the                                         |       | Less   |       |       |                        | 
|Group                                          |       | than   | 1-3   | 4-5   | After                 
|accounts                                       | Total | 1 year | years | years | 5 years               
|As at December 31, 2005                        |       |        | £m    |       | £m                     | 
|                                               |       |        |       |       |                        | 
|Loans                                          | 22    |        | 1,238 |       | 166                    | 
|Finance lease obligations                      | 31    |        | 2     |       | 1                      | 
|Operating leases                               | 31    |        | 322   |       | 62                     | 
|Capital expenditure                            | 32    |        | 19    |       | 19                     | 
|ICI UK Pension Fund top-up                     | 25    |        | 798   |       | 122                    | 
|ICI UK Specialty Chemicals Pension Fund top-up | 25    |        | 123   |       | 12                     | 
|Purchase obligations                           |       |        | 955   |       | 169                    | 
|                                               |       |        |       |       |                        | 
|Total                                          |       |        | 3,457 |       | 551                    | 
|                                               |       |        |       |       |                        | 

At December 31, 2005, the Groups loans, after financial derivatives, were all at floating interest rates. It is not possible, therefore, to provide an accurate estimate of the Groups commitments for future
interest payments. Also, regular, recurring pension contributions are not included in this table as they are largely based on annually updated actuarial calculations / advice and therefore cannot be estimated in advance. Agreed top-up payments are
shown as they are agreed in advance, and scheduled to be made over a specified number of years into the future.


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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 2005 contained in its report on Form 6-K dated March 14, 2006 is incorporated herein by reference: the
information set forth under the heading Board of Directors and Executive Management Team,
which appears on pages 30 to 34 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, including the
table set forth in the second paragraph (beginning The aggregate remuneration paid to or accrued for key management personnel. . .) under the heading Notes relating to the Group accounts  Note 2 Directors and
Officers remuneration and interests, which appears on page 64 under Item 18; and the information set forth under the subheading Notes relating to the Group accounts  Note 7  Share-based payments  Employees
share option schemes and other share-based plans, which appears on page
73 under Item 18.


In addition, the following information which appears in the Companys Annual Report and Accounts 2005 contained in its report on Form 6-K dated March 14, 2006 is incorporated herein by
reference: the information set forth under the heading Remuneration Report  2005 Actual remuneration, which appears on pages 43 to 44 thereof; the information set forth under the heading Remuneration Report 
Directors emoluments, which appears on page 45 thereof; the information set forth under the heading Remuneration Report  Performance Growth Plan (PGP), which appears on page 43 thereof; the information set forth under
the heading Remuneration Report  Awards under the Performance Growth Plan, which appears on page 46 thereof; the information set forth under the heading Remuneration Report  Shares vested under the Performance Growth
Plan, which appears on page 46 thereof; the information set forth under the heading Remuneration Report  Directors interests in share options, which appears on pages 47 and 48 thereof; the information set forth under
the heading Remuneration Report  Retirement benefits, which appears on pages 49 and 50 thereof; and the information set forth under the heading ICI Group and its businesses  Retirement benefits, which appears on
page 18 thereof.


As of March 23, 2006, there were options outstanding in respect of 31.8m Ordinary Shares of £1 each under the Senior Staff and UK-Sharesave Option Schemes normally exercisable in the
period 2006 to 2015 at subscription prices of £1.340 to £10.077.


|C. | Board Practices.
|-- | ----------------

The following information, which appears in the
    Companys Annual Report and Accounts 2005 contained in its report on Form 6-K dated March 14, 2006 is incorporated herein by reference: the
information set forth under the heading Corporate governance  Board Committees  Nomination Committee, which appears on page 36 thereof; the information set forth under the heading Corporate governance  Board
Committees  Remuneration Committee, which appears on pages 36 and 37 thereof; the information under the heading Corporate governance  US corporate governance compliance, which appears on pages 38 and 39 thereof; the
information under the heading Corporate governance  Board Committees  Audit Committee, which appears on page 37 thereof; and the information set forth under the headings Remuneration Report  Directors
service agreements and letters of engagement  Executive Directors and Remuneration Report  Directors service agreements and letters of engagement  Chairman and Non-Executive Directors, which
appears on pages
51 and 52 thereof.


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|D. | Employees.
|-- | ----------

The information set forth under the heading Notes relating to the Group accounts  Note 5 Employee numbers and costs, which appears on page 71 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 ICI Group and its businesses Employee and employment principles, which appears on pages 17 and 18 of the
Companys Annual Report and Accounts 2005 contained in its report on Form 6-K dated March 14, 2006, is incorporated herein by reference.


|E. | Share Ownership.
|-- | ----------------

The information set forth in the second table (beginning with first column headed Directors.) under the heading Notes relating to the Group accounts  Note 2 
Directors and Officers remuneration and interests, which appears on page 64 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 2005 contained in its report on Form 6-K dated March 14, 2006 is incorporated herein by
reference: the information set forth under the heading Remuneration Report  Directors interests in share options, which appears on pages 47 and 48 thereof; and the information set forth under the heading Remuneration
Report  Directors interests in shares, which appears on page 50 thereof.


As of March 23, 2006, 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)
|                                                                                                                                                                                                                                    |                    |         |                |           |            
|                                                                                                                                                                                                                                    | Options            |         | Subscription   |           | Date latest
|At March                                                                                                                                                                                                                            | outstanding at    
|23, 2006                                                                                                                                                                                                                            | March 23, 2006    
|Number                                                                                                                                                                                                                              | Number             | prices  | option expires
|                                                                                                                                                                                                                                    |                    |         |                |           |            
|                                                                                                                                                                                                                                    |                    |         |                |           |            
|Directors (for further details see the
Remuneration Report on pages 47, 48 and page
50 of the Companys Annual Report and Accounts
2005 contained in its report on Form 6-K dated
March 14, 2006, incorporated herein by reference) |                    | 709,007 |                | 9,498,013 |            
|                                                                                                                                                                                                                                    |                   
|                                                                                                                                                                                                                                    |                   
|                                                                                                                                                                                                                                    |                   
|                                                                                                                                                                                                                                    |                   
|                                                                                                                                                                                                                                    |                   
|                                                                                                                                                                                                                                    |                   
|                                                                                                                                                                                                                                    |                   
|                                                                                                                                                                                                                                    |                    |         |                |           |            
|Officers                                                                                                                                                                                                                            |                    | 128,306 |                | 4,480,070 |            

|   
|---
|(1)

As of March 23, 2006, 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 23, 2006, 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 |  | Per cent of | 
|------------------ | ----- | ------------ |  | ----------- | 
|(number of shares) | class
|                   |       |              |  |             | 
|Ordinary Shares    |       | 837,313      |  | 0.070       | 

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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 153 of the Companys
Annual Report and Accounts 2005 contained in its report on Form 6-K dated March 14, 2006, is incorporated herein by reference.


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 23, 2006
|------------------------------------- | --------------------
|                                      |                     
|                                      |                     
|(number of shares)                    | Per cent of         
|millions                              | class               
|                                      |                     
|Barclays Bank PLC                     |                     
|Capital International Limited         |                     
|Legal & General Investment Management |                     
|Citibank Shareholder Services*        |                     
|Morley Fund Management Ltd            |                     
|Standard Life Investments Ltd         |                     

| 
|-
|*

As of March 23, 2006, 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 Group accounts  Note 2  Directors and Officers remuneration and interests  Loans and guarantees to Officers, which appears on page 64 under Item 18; and the information set
forth under the heading Notes relating to the Group accounts  Note 33  Related party transactions, which appears on page 112 under Item 18.


|C. | Interests of Experts and Counsel.
|-- | ---------------------------------

Not applicable.


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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:


|                                                                                                                    |  | 2005 |   |  | 2004 |  
|------------------------------------------------------------------------------------------------------------------- |  | ---- | - |  | ---- | -
|                                                                                                                    |  |      |   |  |      |  
|Exports from the United Kingdom                                                                                     |  | £365 | m |  | £392 | m
|Exports from the United Kingdom as a percentage of
total  sales made by ICI companies located in
 the UnitedKingdom |  | 36   | % |  | 37   | %

Subsidiary Undertakings.

The maximum contingent liability for the Company, mainly on guarantees of borrowings by subsidiaries, was £1,203m (2004 £1,123m). 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.


Legal or Arbitration Proceedings.

Certain companies in the Group are the subject of various claims and proceedings which, if successfully asserted against them, 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 producers of lead pigment and former producers of lead pigment based paint, as
well as other lead product manufacturers and their trade associations, in a number of law suits in the United States. These law suits seek damages for alleged personal injury caused by lead pigment based paint or the costs of removing lead pigment
based paint. An alleged predecessor of Glidden manufactured lead pigments until the 1950s and lead pigment based consumer paint until the 1960s. Glidden is currently a defendant in three active suits (The City of New York v. Lead Industries
Association, Inc, et al. (1989), Smith v. Lead Industries Association, Inc, et al. (1999) and Hurkmans v. Salczenco, et al. (2005)) and is also named in one unserved case. Glidden continues to believe that it has strong defences to all of the
pending cases, has denied all liability and will continue to defend all such actions.


In 1986, a subsidiary of ICI purchased a newly formed company, now Glidden, from a predecessor of Millennium Holdings LLC (the Seller), now a subsidiary of Lyondell Chemical
Company. Under the sale agreement, the Seller agreed to indemnify Glidden against certain claims relating to certain pre-completion liabilities, and Glidden also gave certain indemnities to the Seller. Whilst Glidden did not acquire any assets or
liabilities for the manufacture or sale of lead pigments, the Seller, however, has previously asserted that it is entitled to indemnification under the sale agreement for certain liabilities it may have relating to lead pigment and/or lead pigment
based paint litigation. Glidden, which has assumed all of the purchasers rights and obligations under the sale agreement, believes that it has no such obligation to indemnify the Seller. The above indemnity claims have not been ruled on by any
court.


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In July 2004, ICI received a request for information from the European Commission relating to alleged cartel activity in the European Methacrylates market. In ICIs case, the allegations
concern a period starting in 1995 and ending when it sold its Acrylics business in 1999. During 2005, the Commission issued a statement of objections, alleging that ICIs former Acrylics business was involved in breaches of European competition
law and, during the fourth quarter, ICI provided a written response to the Commission and attended an oral hearing. ICI's policy is to conduct its business in full compliance with the applicable competition laws. ICI will continue to assist the
European Commission with this matter. Their decision is expected in 2006.


During January and February 2006, a number of purported class action lawsuits were filed, currently in the US District Court for the Eastern District of Pennsylvania and the US District Court
for the District of New Jersey, on behalf of purchasers of methyl methacrylate who claim to have suffered anti-trust injury as a result of alleged cartel activity referred to in the paragraph above. Along with other parties, ICI has been named as a
defendant.


With respect to each of the claims and proceedings described in the four paragraphs above, ICI is unable to make estimates within a reasonable range of outcomes of the loss to which the claims
or proceedings may give rise. Disclosure of the amount sought by claimants and plaintiffs (where known) is not considered meaningful with respect to these claims and proceedings, however, an unfavourable outcome of one or more of these matters could
have a material effect on the Groups results of operations, cash flow or financial position.


The Group is also subject to various other claims or 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. Quest has settled its dispute, without admission of liability, with two of the affected customers. It remains possible that the
third affected customer may commence proceedings seeking to recover alleged damages.


From the early 1970s 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.


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.


On April 30, 2004 ICI sold its Quest Food Ingredients Business to Kerry Group PLC (Kerry) for $440 million. Kerry has raised a number of issues regarding potential claims under the sale
and purchase agreement. No proceedings have been commenced.


The Directors do not believe that the outcome of
    the matters described in the four paragraphs above will have a material effect
    on the Groups financial position.


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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 that 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, cash flow or financial position.


Policy on Dividend Distributions.

The Companys dividend policy links growth in profit with growth in dividends and, at the same time, seeks to ensure that sufficient funds are available to the Group for investment in
future profitable growth.


The Board continues to believe that this approach is appropriate, and therefore confirms that, following the introduction of IFRS, ICIs continued intent will be to grow dividends at about
the same rate as the growth in net profit before special items attributable to equity holders of the parent.


|B. | Significant Changes.
|-- | --------------------
|  
|   | Not applicable.     
|  

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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 152 of the Companys Annual Report and Accounts 2005 contained in its
report on Form 6-K dated March 14, 2006, 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 2006 are set out below:


|                            |      | £1 Ordinary Shares |       | ADSs |      
|--------------------------- | ---- | ------------------ | ----- | ---- | -----
|                            |      |                    |       |      |      
|Month                       |      | Month              | Month |      | Month
|2006                        | high | low                | high  | low 
|                            |      |                    |       |     
|                            | £    | £                  | $     | $   
|                            |      |                    |       |      |      
|February                    |      | 3.67               |       | 3.35 |      
|March (through to March 23) |      | 3.63               |       | 3.30 |      
|                            |      |                    |       |      |      
|                            |      |                    |       |      |      

The Companys share price as of March 23, 2006 was £3.61; the Companys ADS price as of March 23, 2006 was $25.08.

|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 152 of the Companys Annual Report and Accounts 2005 contained in its report on Form
6-K dated March 14, 2006, is incorporated herein by reference.


|                             |                                       |         |  | In the United | 
|---------------------------- | ------------------------------------- | ------- |  | ------------- | 
|Total                        | States                               
|                             |                                      
|Number of record holders of: |                                       |         |  |              
|                             | Ordinary Shares as at January 1, 2006 | 127,622 |  | 694           | 
|                             | ADSs as at March 23, 2006             | 2,032   |  | 1,977         | 
|                             |                                       |         |  |               | 

As of March 23, 2006, the proportion of Ordinary Shares represented by ADSs was 4.89% of the Ordinary Shares in issue.


|D. | Selling Shareholders. 
|-- | ----------------------
|  
|   | Not applicable.       
|  
|E. | Dilution.             
|  
|   | Not applicable.       
|  
|F. | Expenses of the Issue.
|  
|   | Not applicable.       
|  

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|ITEM 10  ADDITIONAL
    INFORMATION
|------------------------------------
|                                    
|A.                                  
|                                    
|                                    
|                                    
|B.                                  

The following summary contains a description of certain provisions of the Companys Memorandum and Articles of Association (which are referred to as
the Memorandum and the Articles respectively). It does not purport to be complete and is qualified in its entirety by reference to the Memorandum and Articles, copies of which have been filed as Exhibit 1.1 hereto.


Registration and Objects

The Company is a public limited company incorporated pursuant to the Companies Acts 1908 to 1917 and is registered under number 218019 in the register of companies maintained by the Registrar
of Companies for England and Wales. The objects of the Company are set out in full in clause 5 of the Memorandum. They contemplate the conduct of a wide range of industrial and other businesses and activities.


Directors

Restrictions on voting

Subject to the exceptions set out below, no director may vote on, or be counted in a quorum in relation to, any resolution of the board of directors in respect of any contract, arrangement or
proposal in which he has a material interest and, if he does so, his vote is not to be counted. This prohibition does not apply to a director in relation to:


| | – | any arrangement for giving any director any
        security or indemnity in respect of money lent by him
        to, or obligations undertaken by him for the benefit of, the Company
    or any of its subsidiaries;                                                                                                                                                                                                                                                                                                 
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | – | any contract or arrangement by a director to
        participate in the underwriting of any offer of shares,
        debentures or other securities of the Company, or any of its subsidiaries,
    for subscription, purchase or exchange;                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | – | any contract of arrangement in which he is
        interested by virtue of his interest in shares or debentures
        or other securities of the Company, or by reason of any other interest
        in or
through the Company;                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | – | any contract of arrangement concerning any
        other company in which the director is interested, directly
        or indirectly, whether as an officer, shareholder, creditor or otherwise,
        unless he
owns more than 1% of that companys equity
share capital (determined on the basis set out in the Articles);                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | – | any proposal concerning the adoption, modification
        or operation of a superannuation fund or retirement,
        death or disability benefits scheme, share option scheme, share incentive
        scheme or profit sharing scheme, which
        relates to both directors and employees of the Company, or of any
        of its subsidiaries and does not accord to any director as such any privilege
        or advantage not generally accorded
    to the employees to which such scheme or fund relates;
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | – | any arrangement for the benefit of employees
        of the Company, or any of its subsidiaries under which
    the director benefits in a similar manner as the employees; or                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | – | any proposal concerning any insurance which
        the Company is empowered to purchase or maintain
        for or for the benefit of any directors of the Company, or for persons
    who include directors of the Company.                                                                                                                                                                                                                                                                                          

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Compensation

Non-executive directors are entitled to receive such remuneration as the board of directors may determine, but the aggregate of all such remuneration to non-executive directors may not exceed
£500,000 per annum unless authorized by an ordinary resolution. Executive directors are entitled to receive such remuneration as the board of directors may determine. In the absence of an independent quorum, directors do not have the power to
vote compensation to themselves or any member of their body.


Borrowing Powers

Directors may exercise all borrowing powers of the Company, subject to the limitation that the aggregate principal amount from time to time outstanding of all the sums borrowed by the Company
and its subsidiaries, exclusive of intra-group borrowings, may not, without the previous sanction of an ordinary resolution, exceed an amount equal to 2 1/2 times an adjusted capital and reserves figure calculated in the manner prescribed in the
Articles.


Age Limit

No person is disqualified from being a director or is required to vacate that office by reason only of the fact that he is 70 or more years of age. If at an annual general meeting a director
who is 70 or more years of age as at the date of the meeting is proposed for election or re-election, his age must be set out in the notice accompanying the meeting.


Share Ownership Requirements

No minimum holding of the Companys shares is required in order to serve as a director.


Appointment

The Companys Memorandum and Articles provide for a board of directors, consisting of at least five but not more than 25 directors, which is responsible for managing the Companys
business and affairs. The Company may from time to time by shareholder resolution increase the maximum number of directors beyond 25.


Directors may be elected by the shareholders in a general meeting, or appointed by the board of directors.


Retirement

At each annual general meeting one-third of the directors, representing those directors who have been in office longest since their last election, as well as any directors appointed by the
board of directors since the last annual general meeting, are required to retire and are then considered for reelection if they wish to stand for re-election. In cases when directors were elected or re-elected on the same day, the decision as to
which of them is to retire is determined by lot unless they otherwise agree.


Indemnification

Every director or other officer of the Company (other than any person (whether an officer or not) engaged by the Company as auditor) is entitled to be indemnified out of the assets of the
Company against liability incurred by him for negligence, default, breach of duty or breach of trust in relation to the affairs of the Company, provided that such indemnification would not be treated as void under the Companies Act 1985.


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Shares

Uncertificated Shares

In accordance with the UK Uncertificated Shares Regulations 2001, the Articles detail clearly the use of the multi-currency electronic settlement system for UK and Irish securities
(CREST) in the course of payment for dividends or other moneys payable in respect of shares.


Rights, Preferences and Restrictions relating to Shares

The Company has an authorized share capital consisting of 1,400,000,000 ordinary shares of £1 nominal value per share. The rights, preferences and restrictions attaching to the ordinary
shares are as follows:


Dividend Rights

No dividend may be paid other than out of profits available for distribution, as determined in accordance with UK GAAP and the UK Companies Act. Holders of the Companys ordinary shares
may declare dividends by ordinary resolution but may not declare dividends in excess of the amount recommended by the directors. The directors may also declare interim dividends. Any dividends must be distributed to shareholders in proportion to the
amounts paid up on their shareholdings.


If a dividend is unclaimed for 12 years after the date such dividend became due for payment, it will be forfeited and will revert to the Company.


The Companys Articles permit payment or satisfaction of a dividend wholly or partly by distribution of specific assets, including fully paid shares or debentures of any other company.
Such action must be approved by the general meeting which declared the dividend and upon the recommendation of the directors.


Meetings

Simultaneous attendance:

|(i) | through satellite
|--- | -----------------

The Company may arrange for shareholders to attend, speak and vote at a general meeting of the Company by simultaneous attendance at a satellite meeting anywhere in the world.


|(ii) | through other forums
|---- | --------------------

The Company may arrange for shareholders who are entitled to attend a general meeting to be able to view and hear the proceedings and to speak, but not vote, by attending a venue other than a
satellite meeting place.


Safety and security

In the interests of shareholder safety and security, the directors are permitted to control the level of attendance at general meetings and to change the meeting place or to postpone or adjourn
the meeting if it becomes impracticable or unreasonable for it to be held. The Chairman is able to impose such security restrictions as he considers appropriate and to refuse entry to anyone who does not comply.


Electronic communications

Notices of meetings to shareholders, voting and the appointment of proxies may be facilitated by electronic communications.


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Voting at any general meeting of shareholders is by a show of hands unless a poll, which is a written vote, is duly demanded. On a show of hands, every shareholder present in person at a
general meeting, including the duly authorised representative of a corporate holder of the Companys shares which is not itself a shareholder entitled to vote, has one vote regardless of the number of shares held. On a poll, every shareholder
who is present in person or by proxy has one vote for every share held by that shareholder. For all future general meetings, the Company intends to put resolutions to a poll rather than a show of hands.


A poll may be demanded by any of the following:


| | – | the chairman of the meeting;                                                                                                                                                                                                                                                  
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                               
| | – | at least five shareholders entitled to vote
        and present in person, by proxy or by a duly authorized
    representative at the meeting;                                                                                                                                
| |   |                                                                                                                                                                                                                                                                               
| | – | any shareholder or shareholders representing
        in the aggregate not less than one-tenth of the total
        voting rights of all shareholders entitled to vote at the meeting and
        present in person,
by proxy or by a duly authorized representative;
or       
| |   |                                                                                                                                                                                                                                                                               
| | – | any shareholder or shareholders holding shares
        conferring a right to vote at the meeting on which
        there have been paid-up sums in the aggregate equal to not less than
        one-tenth of the total sum paid up on
    all the shares conferring that right.

A proxy has the authority to demand a poll or to join others in demanding one.  Matters are transacted at the Companys general meetings by the proposal and approval of three kinds of
resolutions:


| | – | ordinary resolutions, which include resolutions
        for the election, re-election and removal of directors,
        the approval of financial statements, the declaration of final dividends,
        the appointment or reappointment of
        auditors, the increase of authorised share capital or the grant of
    authority to allot shares,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                        
| | – | special resolutions, which include resolutions
        to amend the Companys Memorandum or Articles
    or resolutions changing the name of the company, and                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                        
| | – | extraordinary resolutions, which are those
        required under the UK Companies Act or the Companys
        Articles to approve a matter outside the ordinary course, for example
        a resolution relating to the winding-up
    of ICI.                                                                                                      

An ordinary resolution requires the affirmative vote of a majority of the votes of those persons present in person or, where proxies are allowed (i.e. on a poll), by proxy and voting at a
meeting at which there is a quorum. Special and extraordinary resolutions require the affirmative vote of not less than three-fourths of the votes of those present in person or, where proxies are allowed (i.e. on a poll), by proxy and voting at a
meeting at which there is a quorum. In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting is entitled to cast the deciding vote in addition to any other vote he or she may have as a
shareholder.


Rights to Share in the Profits

See Dividend Rights above.


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In the event of the liquidation of ICI, after payment of all liabilities and deductions in accordance with English law, the liquidator may, with the sanction of an extraordinary resolution of
the Company, distribute the balance of assets available for distribution first among the holders of the Companys ordinary shares according to the amounts paid-up on the shares held by them. Any surplus thereafter will be distributedpro ratato the holders of the Companys ordinary shares according to the respective number of ordinary shares held by them. A liquidator may, with the sanction of an
extraordinary resolution of the shareholders and any other sanction required by the UK Insolvency Act 1986:


(i) divide among the shareholders in kind the whole or any part of the Companys assets, whether they consist of property of the same kind or not; and (ii) vest the whole or any part of
  the balance of assets in trusts for the benefit of the shareholders.


No shareholder shall be compelled to accept any assets whereon there is any liability.




The Companys shares are not expressly redeemable.


Sinking Fund

The Companys shares are not subject to any sinking fund.


Liability to Further Capital Calls

All of the issued shares in the Companys capital are fully paid. Accordingly none of the Companys shareholders are liable to further capital calls.


Principal Shareholder Restrictions

There are no provisions in the Articles which would discriminate against any existing or prospective holder of the Companys shares as a result of such shareholder owning a substantial
number of shares.


If, at any time, the Companys share capital is divided into different classes of shares, the rights attached to any class may be varied, subject to the provisions of the UK Companies Act,
either with the written consent of the holders of not less than three-fourths in nominal value of the issued shares of that class or upon the adoption of an extraordinary resolution passed at a separate general meeting of the holders of the shares
of that class.


At every such separate meeting, all of the provisions of the Companys Memorandum and Articles relating to proceedings at a general meeting apply, except that (a) the quorum is to be the
number of persons (which must be at least two) who hold or represent by proxy not less than one-third in nominal value of the issued shares of the class or, if such quorum is not present on an adjourned meeting, one person who holds shares of the
class regardless of the number of shares he holds, (b) any person present in person or by proxy may demand a poll, and (c) each shareholder will have one vote per share held in that particular class in the event a poll is taken.


Class rights are deemed not to have been varied by the creation or issue of new shares ranking equally with or subsequent to that class of shares in all respects or by the purchase by the Company of the Companys own
shares in accordance with the UK Companies Act and the Companys Memorandum and Articles.

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The Company is required to hold an annual general meeting and may also hold extraordinary general meetings. All meetings of the Companys shareholders other than the annual general meeting
are called extraordinary general meetings. Five shareholders present at an annual general meeting or an extraordinary general meeting constitute a quorum.


At least 21 clear days written notice of an annual general meeting and of any extraordinary general meeting at which a special resolution or a resolution appointing a person as a director
is to be proposed is required. At least 14 clear days written notice of any other extraordinary general meeting is required. An annual general meeting may, however, be held at short notice provided that all the shareholders entitled to attend
and vote at the meeting agree. Any extraordinary general meeting may be held at short notice if a majority in number of shareholders, who together hold at least 95% in nominal value of the Companys shares with a right to attend and vote at
such meeting, agree. Clear days notice excludes the date on which the notice of a meeting is posted, the date on which such notice is deemed to have been served and the date of the meeting itself. Such notice, when sent by first class post, is
deemed to have been served on the date following that on which the notice was posted.


All shareholders or their proxies may attend and vote according to the voting rights set out above at an annual general meeting and extraordinary general meetings.


Under the Companys Memorandum and Articles, the annual general meeting of shareholders must be held within 15 months of the preceding annual general meeting and at a time and place
determined by the board of directors. The holders of at least one-tenth in nominal value of the Companys issued shares may requisition a meeting of shareholders. The courts of England also have residual powers to call general meetings under
the UK Companies Act.


There are no restrictions under English law or in the Memorandum or Articles that limit the right of non-resident or foreign shareholders to hold or exercise voting rights in respect of the
Companys ordinary shares.


There are no provisions in the Articles that would have the effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger,
acquisition or corporate restructuring involving the Company or any of its subsidiaries.


There are no provisions in the Companys Memorandum or Articles whereby persons acquiring, holding or disposing of a certain percentage of the Companys ordinary shares are required
to make disclosure of their ownership percentage. Sections 198 to 211 of the UK Companies Act do, however, impose such disclosure requirements upon a person who acquires or ceases to have an interest in shares comprising any class of the
Companys issued and voting share capital and, as a result, either obtains, or ceases to have:


| | – | a material interest in 3% or
          more of the nominal value of any class of the Companys issued voting
      share capital; or                                                                                                                                                                                                        
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                               
| | – | an aggregate interest (whether material or
          not) in 10% or more of the nominal value of any class
          of the Companys issued voting share capital or the percentage
          of his
interest in the Companys issued voting
share capital remains above the relevant level and changes by a whole
percentage point or more.

A material interest means, broadly, any beneficial interest, including those of a spouse or a child or a step-child, those of a company which is accustomed to act in
accordance with the relevant persons instructions or in which one third or more of the votes are controlled by such person and certain other interests set out in the UK Companies Act, other than those of an investment manager or an operator of
a unit trust/recognized scheme/collective investment scheme/open-ended investment company.


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The UK Companies Act set out particular rules of disclosure where two or more parties have entered into an agreement to acquire interests in shares of a public company, and the agreement
imposes obligations or restrictions on any such party with respect to the use, retention or disposal of their interests in the shares and an acquisition of shares by a party pursuant to the agreement has taken place.


Under the UK Companies Act, the Company may by notice in writing require a person that the Company knows or has reasonable cause to believe is or was during the three years preceding the date
of the notice interested in the Companys shares to indicate whether or not that is correct and, if that person does or did hold an interest in the Companys shares, to provide certain information as set out in the UK Companies
Act.


The UK Companies Act also regulates the disclosure of interests in shares or debentures held by directors and certain associated companies of the issuing company.


There are additional disclosure obligations under the Rules Governing Substantial Acquisitions of Shares where a person acquires 15% or more of the voting rights of a listed company or when an
acquisition increases his holding of shares or rights over shares so as to increase his voting rights beyond that level by a whole percentage point. In this case notification should be directed to the London Stock Exchange and to the Company no
later than noon on the business day following the date of the acquisition.


The UK City Code on Takeovers and Mergers also imposes strict disclosure requirements with regard to dealings in the securities of an offeror or offeree company on all parties to a takeover
transaction, and anyone acting in concert with such parties, during the course of an offer period.


|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
30, 2006.


| | (a) | 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, and ICI agreed to write off all existing indebtedness from Ineos Chlor;                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) | 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; and
|
| | (c) | an Employment Agreement dated November 2, 2005 between the Company and Mr Alan Brown detailing the rights, duties and responsibilities of Mr Brown in his capacity as Chief Financial Officer of the Company. The agreement
sets Mr Browns annual basic salary at £415,000.                                                                                                                         
|

|D. | Exchange Controls.
|-- | ------------------

The information set forth under the heading Shareholder information  Exchange controls and other limitations affecting security holders, which appears on page 153 of the
Companys Annual Report and Accounts 2005 contained in its report on Form 6-K dated March 14, 2006, is incorporated herein by reference.


|E. | Taxation.
|-- | ---------

The information set forth under the heading Shareholder information  Taxation, which appears on page 154 of the Companys Annual Report and Accounts 2005 contained in its
report on Form 6-K dated March 14, 2006, is incorporated herein by reference.


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|F. | Dividends and Paying Agents.
|-- | ----------------------------
|  
|   | Not applicable.             
|  
|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 (SEC), which appears on page 155 of the Companys
Annual Report and Accounts 2005 contained in its report on Form 6-K dated March
14, 2006, is incorporated herein by
reference.


|I. | Subsidiary Information.
|-- | -----------------------

The information set forth under the heading Principal subsidiary undertakings, which appears on page 131 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 second paragraph under the heading Notes relating to the Group accounts  Note 26  Reconciliation of changes in equity  Limitation of
borrowings, which appears on page 99 under Item 18 Financial Statements of this Annual Report on Form 20-F, is incorporated herein by reference. The Group has acquired or is committed to acquire under forward contracts, shares in
the Company, which include collateral requirements relating to the prevailing price of shares in the Company.


In addition, the following information which appears in the Companys Annual Report and Accounts 2005 contained in its report on Form 6-K dated March 14, 2006 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 23 thereof; the information set forth under the heading Operating and financial review  Financing and interest rate risk, which appears on page 22 thereof; the
information set forth under the heading Operating and financial review  Foreign currency risk, which appears on page 23 thereof; and the information set forth under the heading Operating and financial review 
Counterparty credit risk, which appears on page 23 thereof.


ITEM 12  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.


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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 152 of the Companys Annual
Report and Accounts 2005 contained in its report on Form 6-K dated March 14, 2006, 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 37 and 38 of the Companys Annual Report and Accounts 2005 contained in its report on Form 6-K dated March 14, 2006, 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, 2005 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. The Companys management necessarily applied its judgment in assessing such
controls and procedures, which by their nature can provide only reasonable assurance regarding managements control objectives.


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.


The Company is in the process of implementing a plan to align its internal control systems with the requirements established in Section 404 of the Sarbanes Oxley Act. Section 404 requires that,
in addition to the annual audit, management prepares a report on the design, maintenance and periodic evaluation of its internal control system for financial reporting, which is to be accompanied by an attestation report by its external
auditor.


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.


The information contained in the third paragraph under the heading Corporate governance Adoption and disclosure of corporate governance guidelines, which appears on page 39 of
the Companys Annual Report and Accounts 2005 contained in its report on Form 6-K dated March 14, 2006, is incorporated herein by reference.


The information, regarding the Companys Code of Conduct is set forth under the heading Corporate governance  Principles of business conduct, which appears on
page 39 of the Companys Annual Report and Accounts 2005 contained in its report on Form 6-K dated March 14, 2006, 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.


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ITEM 16C  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information, including the table set forth under the heading Notes relating to the Group accounts  Note 41 Remuneration of the Auditor set out in accordance with SEC
Regulations, which appears on page 130D 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 fifth 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 37 of the Companys Annual Report and Accounts 2005
contained in its report on Form 6-K dated March 14, 2006, 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 two years ended December 31, 2005 were approved by the Audit Committee of
the Company.


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

Not applicable.


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, 2005 and December 31, 2005.


Pursuant to shareholder resolutions approved at the Annual General Meetings of the Company for 2004 and 2005, during 2004 and 2005, respectively, 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:


|                                                                                                |                |  | Amount approved       |  |                
|----------------------------------------------------------------------------------------------- | -------------- |  | --------------------- |  | ---------------
|Share repurchase                                                                                |                |  | Ordinary Shares of £1 |  |                
|authorisations                                                                                  | Date announced |  | each                  |  | Expiration date
|                                                                                                |                |  |                       |  |                
|Authorisation pursuant
to shareholder
resolution at 2004
Annual General
Meeting                 | May 26, 2004   |  | 119,120,038           |  | May 25, 2005   
|Authorisation pursuant
    to shareholder
    resolution at 2005
    Annual General
    Meeting | May 25, 2005   |  | 119,123,822           |  | May 24, 2006   

As noted in the second paragraph (beginning The Group has acquired, or is committed to acquire.) under the heading Notes relating to the Group accounts  Note 26  Reconciliation of changes
in equity  Limitation of borrowings, which appears on page 99 under Item 18 Financial Statements of this Annual Report on Form 20-F, the Group has acquired or is committed to acquire under forward contracts, shares in the
Company, which include collateral requirements relating to the prevailing price of shares in the Company.


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Part III

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


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 hereof,
the table of contents to the accounts on page 55 hereof, and the related financial statements and notes on pages 56 to 131 under this Item 18 Financial Statements constitute the Companys response to this Item 18 Financial
Statements.


The information set out in these accounts does not constitute the Companys full statutory accounts for the years ended December 31, 2005 and 2004. Such statutory accounts have been reported on by the Companys
auditor. The auditors 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, 2004 have been delivered to the Registrar of
Companies and those for the year ended December 31, 2005 will be delivered in due course.


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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 December 31, 2005 and 2004, and the related consolidated income statements,
consolidated statements of total recognised income and expense, and consolidated cash flow statements for each of the years in the two-year period ended December 31, 2005 presented on pages 56 to 131. 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 December 31, 2005 and 2004
and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2005 in conformity with International Financial Reporting Standards (IFRS) as adopted by the European
Union.


As referred to in note 30 to the consolidated financial statements, Imperial Chemical Industries PLC changed its method of accounting for certain financial instruments with effect from January 1, 2005, upon the adoption of
International Accounting Standards 32 and 39.


IFRS as adopted by the European Union 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 36 to the consolidated financial statements.




KPMG Audit PlcChartered AccountantsLondon, EnglandFebruary 16, 2006

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| |                                                  |                                                                                    |      | 
| | ------------------------------------------------ | ---------------------------------------------------------------------------------- | ---- | 
| |                                                  |                                                                                    |      | 
| |                                                  |                                                                                    |      | 
| | Contents
    to the accounts                     |                                                                                   
| |                                                  |                                                                                    |      | 
| |                                                  |                                                                                    |      | 
| |                                                  |                                                                                    |      | 
| | Group accounts                                   |                                                                                    |     
| |                                                  |                                                                                    |      | 
| | Group accounting policies                        | 56                                                                                 |     
| |                                                  |                                                                                    |      | 
| | Group income statement                           | 60                                                                                 |     
| |                                                  |                                                                                    |      | 
| | Statement of Group recognised income and expense | 60                                                                                 |     
| |                                                  |                                                                                    |      | 
| | Group balance sheet                              | 61                                                                                 |     
| |                                                  |                                                                                    |      | 
| | Group cash flow statement                        | 62                                                                                 |     
| |                                                  |                                                                                    |      | 
| | Notes relating to the Group accounts             |                                                                                    |     
| | 1                                                | Basis of presentation of financial information                                     | 63   | 
| | 2                                                | Directors and Officers remuneration and interests                                | 64   | 
| | 3                                                | Special items before tax                                                           | 65   | 
| | 4                                                | Segment information                                                                | 66   | 
| | 5                                                | Employee numbers and costs                                                         | 71   | 
| | 6                                                | Operating profit                                                                   | 72   | 
| | 7                                                | Share-based payments                                                               | 73   | 
| | 8                                                | Share of profits less losses of associates                                         | 76   | 
| | 9                                                | Net finance expense                                                                | 76   | 
| | 10                                               | Income tax expense                                                                 | 77   | 
| | 11                                               | Earnings (loss) per £1 Ordinary Share                                              | 79   | 
| | 12                                               | Intangible assets                                                                  | 80   | 
| | 13                                               | Property, plant and equipment                                                      | 81   | 
| | 14                                               | Investments in associates                                                          | 83   | 
| | 15                                               | Financial assets                                                                   | 84   | 
| | 16                                               | Deferred taxation assets and liabilities                                           | 85   | 
| | 17                                               | Inventories                                                                        | 86   | 
| | 18                                               | Trade and other receivables                                                        | 86   | 
| | 19                                               | Cash and cash equivalents                                                          | 86   | 
| | 20                                               | Trade and other payables                                                           | 87   | 
| | 21                                               | Current tax liability                                                              | 87   | 
| | 22                                               | Financial liabilities                                                              | 87   | 
| | 23                                               | Provisions for liabilities and charges                                             | 90   | 
| | 24                                               | Disposal and legacy, and restructuring provisions                                  | 91   | 
| | 25                                               | Post-retirement benefits                                                           | 92   | 
| | 26                                               | Reconciliation of changes in equity                                                | 98   | 
| | 27                                               | Dividends                                                                          | 99   | 
| | 28                                               | Analysis of net debt                                                               | 100  | 
| | 29                                               | Acquisitions and disposals                                                         | 100  | 
| | 30                                               | Financial instruments                                                              | 102  | 
| | 31                                               | Leases                                                                             | 110  | 
| | 32                                               | Commitments and contingent liabilities                                             | 111  | 
| | 33                                               | Related party transactions                                                         | 112  | 
| | 34                                               | Interest in joint ventures                                                         | 113  | 
| | 35                                               | Comparative data restated in accordance with IFRS                                  | 114  | 
| | 36                                               | Differences between IFRS and US accounting principles                              | 121  | 
| | 37                                               | Critical accounting policies, judgements and estimates                             | 130  | 
| | 38                                               | Reformatted
            condensed IFRS income statement                            | 130A | 
| | 39                                               | New US Accounting Standard
              SFAS No. 123(R) implemented in the period | 130B | 
| | 40                                               | Valuation
            and qualifying accounts                                      | 130C | 
| | 41                                               | Remuneration
            of the Auditor set out in accordance with SEC Regulations | 130D | 
| |                                                  |                                                                                    |      | 
| |                                                  |                                                                                    |      | 
| | Principal subsidiary undertakings                | 131                                                                                |     
| |                                                  |                                                                                    |      | 
| |                                                  |                                                                                    |      | 
| |                                                  |                                                                                    |      | 
| |                                                  |                                                                                    |      | 
| |                                                  | ICI
    Annual Report and Accounts 2005 55                                         |      | 

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Group
  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, its consolidated subsidiaries and its proportionally consolidated
joint ventures but not to its associates. The financial statements are prepared in accordance with International
Financial Reporting Standards and its interpretations, as adopted by the European
Union (adopted
IFRS) and those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The adoption of full IFRS by the European Union would not result in any significant changes to these financial statements. The following paragraphs
describe the main accounting policies. Note 36 describes the significant differences between IFRS and US Generally Accepted Accounting Principles (US GAAP) and presents a reconciliation of net income and shareholders equity
from
IFRS to US GAAP as a result of each difference. Basis
      of consolidationThe
  Group accounts include the accounts of the parent undertaking, 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.
A discontinued operation is a component of the Groups business that represents
a separate major line of business or geographical area of operation, or is part
of a single co-ordinated plan to dispose of a separate major line of business
or geographical area of operation, and which has been sold, permanently terminated
or classified as held for sale at the period end. Classification as a discontinued
operation occurs upon disposal or when the operation meets the criteria to be
classified held for sale if earlier. Prior years analyses are restated to reflect
that business as discontinued. AssociatesAssociates
are those entities in which the Group has significant influence, but not control,
over the financial and operating policies. The consolidated financial statements
include the Groups share of the total recognised income and expense of
  associates on an equity accounted basis, from the date that significant influence
  commences until that date that significant influence ceases. When the Groups
  share of losses exceeds its interest in an associate, the Groups carrying
  amount is reduced to nil and recognition of further losses is discontinued
  except
  to the extent that the Group has incurred legal or constructive obligations
  or made payments on behalf of an associate. Joint
        venturesJoint
  ventures are those undertakings over which the Group has joint control, established
by contractual agreement. The consolidated financial statements include the
  Groups proportionate share of the entities assets, liabilities,
  revenue and expenses with items of a similar nature on a line by line basis,
  from the date that joint control commences until the date that joint control
  ceases. RevenueRevenue
  represents the fair value of consideration received or receivable for goods
  supplied and services rendered to customers, excluding intergroup income and
  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 and costs incurred
  in respect of the transaction can be measured reliably and collectability is
  reasonably assured. Revenue includes the Group share of the revenue of joint ventures,
net of the Group share of any sales to the joint ventures already included in
the Group figures, but does not
include the Groups share of the revenue of associates. Operating
      leasesThe
  cost of operating leases is charged on the straight-line basis over the period
  of the lease.


Depreciation
      and amortisationThe
  Groups policy is to write off the book value of property, plant and equipment,
  excluding land, and intangible assets other than goodwill to their residual
  value evenly over their estimated remaining life. Residual values are reviewed
  on an annual basis. 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, 14 years for plant and equipment and
  3 to 5 years for computer software. 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 cash flows from the asset and net realisable value of the asset, the
  resulting impairment is charged to the income statement. Foreign
      currenciesIncome
  statements of foreign operations are translated into sterling at average rates
  for the relevant accounting periods where it is a good approximation of the
  actual rate. 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 finance expense. Exchange differences on all other balances, except foreign currency loans accounted for as net investment hedges, are taken to the income statement. In the Group accounts, exchange
differences arising on consolidation of the net investments in overseas subsidiary undertakings and associates together with those on foreign currency loans accounted for as net investment hedges, are taken to equity. An intergroup monetary item for which settlement is neither planned
nor likely to occur in the foreseeable future is, in substance, a part of the
Groups net investment in the
foreign operation. Exchange differences arising on a monetary item that forms part of the Groups
net investment in a foreign operation is recognised in a separate component of
equity and is recognised in profit and loss on disposal of the net
investment. One of the requirements of IAS 21The Effects of Changes in Foreign Exchange Ratesis that on disposal of an operation, the cumulative amount of exchange differences previously recognised directly in equity for that foreign operation are to be transferred to the income
statement as part of the profit or loss on disposal. The Group has adopted the exemption allowing these cumulative translation differences to be reset to zero at the transition date to IFRS. TaxationIncome
  tax on the profit or loss for the period comprises current and deferred tax.
  Income tax is recognised in the income statement except to the extent that it
  relates to items recognised directly in equity, in which case it is recognised
  in equity. Current tax is the expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for tax on any temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes using tax rates enacted or substantially enacted at the balance sheet date. No deferred tax is provided on temporary differences arising on investments in subsidiaries where the Group is able to control the timing of the reversal and it is probable that the
temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences to the extent that it is probable that taxable profit will be available against which they can be
utilised.




|56 ICI
      Annual Report and Accounts 2005 | Accounts
|-------------------------------------------- | --------

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Special
  itemsSpecial
  items are those items of financial performance that should be separately disclosed
  to assist in the understanding of the financial performance achieved by the
  Group and in making projections of future results, as explained in IAS 1Presentation
  of Financial Statements. Special items include
  items relating to both continuing and discontinued businesses. Business
      combinations and goodwillOn
  the acquisition of a business, fair values are attributed to the net assets
  acquired. The Group has chosen not to restate business combinations prior to
  the transition date on an IFRS basis. Goodwill arises where the fair value of
  the consideration given for a business exceeds the fair value of such net assets.
  Goodwill arising on acquisitions is capitalised and reviewed for impairment
  at least annually. Any impairment is recognised immediately in the income statement
  and is not subsequently reversed. On disposal of a subsidiary, associate or
  jointly controlled entity, the attributable amount of goodwill is included in
  the determination of profit or loss on disposal. Goodwill arising on acquisitions
  before the date of transition to IFRS has been retained at the previous UK GAAP
  amount, subject to being tested for impairment at that date. Goodwill taken
  to reserves under UK GAAP prior to 1998 has not been reinstated and is not included
  in determining any subsequent profit or loss on disposal. Non-current
      assets and disposal groups held for saleIFRS
  5 Non-current
  Assets Held for Sale and Discontinued Operationswas effective for annual
  periods beginning on or after 1 January 2005. The standard sets out the requirements
  for the classification, measurement and presentation of non-current assets held
  for sale and replaces IAS 35 Discontinued
  Operations.
  The Group has applied IFRS 5 prospectively from 1 January 2005. Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal
groups are classified as held for sale when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for
recognition as a completed sale within one year from the date of classification. Property,
      plant and equipmentItems
  of property, plant and equipment are stated at historical cost less accumulated
  depreciation and impairment losses (see accounting policy on depreciation).
  The Group has not adopted the exemption to restate items of property, plant
  and equipment to fair value at the transition date. Where parts of an item of
  property, plant and equipment have different useful lives, they are accounted
  for as separate items of property, plant and equipment. Intangible
      assets other than goodwillResearch
and developmentResearch
  expenditure is charged to income in the year in which it is incurred. Development expenditure is charged to income in the year in which it is incurred unless it meets the recognition criteria of IAS 38Intangible Assets.Regulatory and other uncertainties generally mean that such criteria are not met. Intangible
assets, if capitalised, are amortised on a straight-line basis over the period of the expected benefit. Other
        intangible assetsOther
  intangible assets that are acquired by the Group, principally computer software,
  are stated at cost less accumulated amortisation and impairment losses (see
  accounting policy on amortisation). Expenditure on internally generated brands
  is recognised in the income statement as an expense when incurred. Subsequent
  expenditure on capitalised intangible assets is capitalised only when it increases
  the future economic benefits embodied in the specific asset to which it relates.
  All other expenditure is expensed as incurred.


Valuation
      of inventoriesFinished
  goods, raw materials and other inventories 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 consistently across inventory classes of a similar nature. In determining
  cost for inventory valuation purposes, depreciation is included but selling
  expenses and certain overhead expenses are excluded. Environmental
      liabilitiesThe
  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
      provisionsThe
  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 post-retirement benefit 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
      liabilitiesContingent
  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 that 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 32 relating to the Group accounts. Employee
      benefitsThe
  Group accounts for pensions and similar benefits (principally healthcare) under
  IAS 19 (revised) Employee Benefits.
  The Groups net obligation in respect of defined benefit plans is calculated
  by independent, qualified actuaries and updated at least annually. Additional
  updates are performed when one-time events or market fluctuations, which do
  not include regular, ongoing changes in actuarial assumptions, indicate that
  the benefit obligation and pension assets differ significantly from the most
  recent valuation. These events could occur as the result of a change in benefits,
  a redundancy exercise or a disposal. Material settlements or curtailments are
  examples of the one-time events that would trigger such an update. Obligations
  are measured at discounted present value whilst plan assets are recorded at
  fair value. The operating and financing costs of such plans are recognised
  separately
  in the income statement; service costs are spread systematically over the lives
  of employees and financing costs are recognised in the periods in which they
  arise. Actuarial gains and losses are recognised in full in the period in which
  they occur and presented in the statement of recognised income and expense.
  Payments to defined contribution retirement benefit schemes are charged as
  an expense
  as they fall due. All cumulative actuarial gains and losses have been recognised
  in equity at
the transition date. Employee
      Share Ownership Plan (ESOP)The
  financial statements of the Group include the asset 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. The cost of shares held by
the ESOP are deducted from equity.




|Accounts | ICI
      Annual Report and Accounts 2005 57
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Group
  accounting policies



Share-based
  paymentsThe
  Group has applied the requirements of IFRS 2Share-based
  Paymentand has elected not to adopt
  the exemption to apply IFRS 2 only to awards made after 7 November 2002. Instead
  a full retrospective approach has been followed on all grants not fully vested
  at the date of transition to maintain consistency across reporting periods.
  The fair value of these grants in prior periods has been disclosed previously
  as part of the ongoing US GAAP disclosure requirements. The Group
  issues equity settled share-based payments to certain employees. Equity settled
  share-based payments are measured at fair value at grant date. Fair value is
  measured using the Black-Scholes model, taking into account the terms and conditions
  upon which the instruments were granted, excluding the impact of any non-market
  vesting conditions. The total
  amount to be expensed over the vesting period is determined by reference to
  the fair value of the equity instruments granted and the number of equity instruments
  which eventually vest. At each balance sheet date, the Group revises its estimates
  of the number of equity instruments that are expected to vest. It recognises
  the impact of the revision of original estimates, if any, in the income statement,
  and a corresponding adjustment to equity. Financial
      assetsInvestments
  and current asset investments are classified as held-to-maturity financial assets
  and other loan investments are classified as loans and receivables in accordance
  with IAS 39 Financial
  Instruments: Recognition and Measurement.Both
  these classes of financial assets are recognised at amortised cost using the
  effective interest method. Financial
      derivativesAs
  described further in note 1, financial instruments in the 2004 comparative information
  are reported in accordance with UK GAAP, whereas they are accounted for in accordance
  with IFRS in the 2005 results. The accounting policies for financial instruments
  in accordance with both IFRS and UK GAAP are detailed below. Financial
        derivatives  IFRS (2005)
Hedge accountingThe
  Group uses various derivative financial instruments to manage exposure to foreign
  exchange risks. These include currency swaps and forward currency contracts.
  The Group also uses interest rate swaps to manage interest rate exposures. The
  Group does not use derivative financial instruments for speculative purposes. The accounting
  for the Groups various hedging activities is detailed below: Transaction
      exposure hedgingForward
  currency contracts hedging transaction exposures are fair valued through the
  income statement. Forecast
      cash flow hedgingDerivatives
  used to hedge the currency risks associated with forecast cash flows are fair
  valued through the income statement. Where these derivatives form part of designated,
  effective cash flow hedges, the portion of the gain or loss that is determined
  to be an effective hedge under IAS 39 Financial
  Instruments: Recognition and Measurementis
  recognised directly in equity. Amounts that have been recognised directly in
  equity are recognised in the income statement in the same period or periods
  during which the hedged forecast transaction impacts the income statement. For effective
  hedges that include a purchase of a forecast non-monetary item, the gain or
  loss on the derivative, at the end of the hedge relationship, is capitalised
  into the carrying value of that non-monetary item.


Interest
      rate hedgingInterest
  rate derivatives are fair valued through the income statement. Where interest
  rate derivatives form part of designated, effective fair value hedge relationships,
  the gain or loss from remeasuring the hedging instrument at fair value is recognised
  in income or expense, and the gain or loss on the hedged item attributable to
  the hedged risk adjusts the carrying amount of the hedged item and is recognised
  in income or expense. Where interest rate derivatives form part of designated,
  effective cash flow hedge relationships, the portion of the gain or loss on
  the hedging instrument that is determined to be an effective hedge is recognised
  directly in equity. Amounts that have been recognised directly in equity are
  recognised in the income statement in the same period or periods during which
  the hedged forecast transaction impacts the income statement. The ineffective
  portion of the gain or loss on the hedging instrument is recognised immediately
  in the income statement. Net
      investment hedging (currency hedging)Currency
  derivatives are fair valued through the income statement except, where currency
  derivatives and foreign currency loans form part of designated, effective net
  investment hedge relationships, the portion of the gain or loss on the hedging
  instrument that is determined to be an effective hedge is recognised directly
  in equity. The ineffective portion of the gain or loss on the hedging instrument
  is recognised immediately in income or expense. For net investment hedges, the
  gain or loss on the hedging instrument that has been recognised in equity is
  recognised in income or expense on the disposal of the foreign operation. Commodity
      hedgingDerivatives
  used to manage commodity price exposures are fair valued through the income
  statement. Where these derivatives form part of designated, effective hedge
  relationships, the portion of the gain or loss on the hedging instrument that
  is determined to be an effective hedge is recognised directly in equity until
  the underlying hedged item is recognised. At this point any deferred gain or
  loss adjusts the carrying value of the underlying hedged item. Discontinuance
        of hedge accountingHedge
  accounting is discontinued prospectively when the hedging instrument expires
  or is sold, terminated, or exercised, or no longer qualifies for hedge accounting.
  At the time, the following accounting treatment will be adopted: Fair
      value hedgesAny
  adjustment made to the carrying amount of the hedged item, as a consequence
  of the fair value hedge relationship, shall be amortised to profit or loss through
  the income statement over the remaining life of the hedged item. Cash
      flow hedgesAny
  cumulative gain or loss on the hedging instrument recognised in equity is retained
  in equity until the forecast transaction occurs or impacts the income statement.
  If a forecast transaction is no longer expected to occur, the net cumulative
  gain or loss recognised in equity is transferred to net profit or loss for the
  period through the income statement. Fair
      valuesThe
  fair value of the Groups debt and derivatives has been estimated using
  discounted anticipated cash flows utilising zero-coupon yield-curves for the
  relevant currencies.




|58 ICI
      Annual Report and Accounts 2005 | Accounts
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Financial derivatives  UK
        GAAP (2004)Hedge
accountingThe
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 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. Other
material instruments do not involve deferral since the profit impact they offset
occurs during the terms of the contracts. Foreign currency derivative instrumentsThe
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 instrumentsThe
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 are:•
    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 financing
activities, as
appropriate, in the Group cash flow statement. Currency swapsPrincipal
amounts are revalued at exchange rates ruling at the date of the Group balance
sheet and included in the sterling value of loans. Exchange gains/losses are
included in the statement of recognised income and expense along with similar
movements in the values of the investments being hedged. Forward currency contractsThose
forward currency contracts hedging transaction exposures (purchases and sales
held in the books of account) are retranslated to balance sheet rates with net
unrealised gains/losses being shown as debtors/creditors. Both realised gains
and losses on purchases/sales and unrealised gains/losses on forward contracts
are recognised in operating profit. 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 optionsOption
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 income statement as operating profit. Interest rate swaps and forward rate agreementsInterest
payments/receipts are accrued with interest income/expense as appropriate. 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 capsThe
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.




|Accounts | ICI Annual Report and Accounts 200559
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Group income statementfor the year ended 31 December 2005

|                                                                                                                  |       |  | 2005       |   |  | 2004       |  
|----------------------------------------------------------------------------------------------------------------- | ----- |  | ---------- | - |  | ---------- | -
|                                                                                                                  |       |  |            |   |  |            |  
|                                                                                                                  |       |  | Continuing |   |  | operations |  
|                                                                                                                  |       |  |            |   |  |            |  
|                                                                                                                  |       |  | Before     |   |  | Special    |  
|                                                                                                                  |       |  | special    |   |  | items      |  
|                                                                                                                  |       |  | items      |   |  |            |  
|                                                                                                                  | notes |  | £m         |   |  | £m         |  
|                                                                                                                  |       |  |            |   |  |            |  
|Revenue                                                                                                           | 4,6   |  | 5,812      |   |  |            |  
|                                                                                                                  |       |  |            |   |  |            |  
|Operating costs                                                                                                   | 3,6   |  | (5,302     | ) |  | 27         |  
|                                                                                                                  |       |  |            |   |  |            |  
|(including special items of:                                                                                      |       |  |            |   |  |            |  
|                                                                                                                  |       |  |            |   |  |            |  
|restructuring costs                                                                                               | 3     |  |            |   |  | (13        | )
|                                                                                                                  |       |  |            |   |  |            |  
|post-retirement benefits)                                                                                         | 3     |  |            |   |  | 40         |  
|                                                                                                                  |       |  |            |   |  |            |  
|Other operating
            income                                                                                | 6     |  | 40         |   |  |           |  
|                                                                                                                  |       |  |            |   |  |            |  
|Profits
                less losses on disposal offixed assets                                                    | 3     |  |            |   |  | 7          |  
|                                                                                                                  |       |  |            |   |  |            |  
|Operating profit (loss)                                                                                           | 3,4,6 |  | 550        |   |  | 34         |  
|                                                                                                                  |       |  |            |   |  |            |  
|Profits
                less losses on sale of operations                                                         | 3     |  |            |   |  | 13         |  
|                                                                                                                  |       |  |            |   |  |            |  
|Share
                of profits less lossesof associates                                                         | 8     |  | 3          |   |  |           |  
|                                                                                                                  |       |  |            |   |  |            |  
|Interest
            expense                                                                                      | 9     |  | (129       | ) |  |           |  
|                                                                                                                  |       |  |            |   |  |            |  
|Interest
            income                                                                                       | 9     |  | 57         |   |  |           |  
|                                                                                                                  |       |  |            |   |  |            |  
|Post-retirement
            benefit finance:                                                                      |       |  |            |   |  |            |  
|                                                                                                                  |       |  |            |   |  |            |  
|Interest
            cost                                                                                         | 9,25  |  | (451       | ) |  |           |  
|                                                                                                                  |       |  |            |   |  |            |  
|Expected
            return on assets                                                                             | 9,25  |  | 414        |   |  |           |  
|                                                                                                                  |       |  |            |   |  |            |  
|Foreign
                exchange gains on debt previously hedging goodwillwritten off
                to reserves | 3,9   |  |            |   |  | 2          |  
|                                                                                                                  |       |  |            |   |  |            |  
|                                                                                                                  |       |  | (109       | ) |  | 2          |  
|                                                                                                                  |       |  |            |   |  |            |  
|Profit (loss) before taxation                                                                                     |       |  | 444        |   |  | 49         |  
|                                                                                                                  |       |  |            |   |  |            |  
|Income tax
            expense                                                                                    | 10    |  | (92        | ) |  | 19         |  
|                                                                                                                  |       |  |            |   |  |            |  
|Net profit (loss)                                                                                                 |       |  | 352        |   |  | 68         |  
|                                                                                                                  |       |  |            |   |  |            |  
|Attributable
              to equity holders of the parent                                                        |       |  | 321        |   |  | 69         |  
|                                                                                                                  |       |  |            |   |  |            |  
|Attributable
            to minority interest                                                                     |       |  | 31         |   |  | (1         | )
|                                                                                                                  |       |  |            |   |  |            |  
|Earnings (loss) per                                                                                               |       |  |            |   |  |            |  
|£1 Ordinary
Share                                                                                                 | 11    |  |            |   |  |            |  
|                                                                                                                  |       |  |            |   |  |            |  
|Basic  Continuing
              operations                                                                       |       |  |            |   |  |            |  
|                                                                                                                  |       |  |            |   |  |            |  
|Discontinued
            operations                                                                               |       |  |            |   |  |            |  
|                                                                                                                  |       |  |            |   |  |            |  
|                                                                                                                  |       |  |            |   |  |            |  
|                                                                                                                  |       |  |            |   |  |            |  
|                                                                                                                  |       |  |            |   |  |            |  
|                                                                                                                  |       |  |            |   |  |            |  
|Diluted  Continuing
              operations                                                                     |       |  |            |   |  |            |  
|                                                                                                                  |       |  |            |   |  |            |  
|Discontinued
            operations                                                                               |       |  |            |   |  |            |  
|                                                                                                                  |       |  |            |   |  |            |  
|                                                                                                                  |       |  |            |   |  |            |  
|                                                                                                                  |       |  |            |   |  |            |  

Statement
      of Group recognised income and expensefor
the year ended 31 December 2005

|                                                                   |       |  | 2005 |   |  | 2004 |  
|------------------------------------------------------------------ | ----- |  | ---- | - |  | ---- | -
|                                                                   | notes |  | £m   |   |  | £m   |  
|                                                                   |       |  |      |   |  |      |  
|Net profit                                                         |       |  | 420  |   |  | 508  |  
|                                                                   |       |  |      |   |  |      |  
|Exchange differences
            on translating foreign operations |       |  | 83   |   |  | (32  | )
|                                                                   |       |  |      |   |  |      |  
|Recycling of
            cumulative exchange differences           |       |  |     |   |  | 1    |  
|                                                                   |       |  |      |   |  |      |  
|Actuarial gains
            and losses                             |       |  | (625 | ) |  | (92  | )
|                                                                   |       |  |      |   |  |      |  
|Changes in
            fair value of cash flow hedges              |       |  | 2    |   |  |      |  
|                                                                   |       |  |      |   |  |      |  
|Tax on items
            taken directly to equity                  |       |  | 38   |   |  | 30   |  
|                                                                   |       |  |      |   |  |      |  
|                                                                   |       |  | (502 | ) |  | (93  | )
|                                                                   |       |  |      |   |  |      |  
|Total recognised income and expense for the period                 | 26    |  | (82  | ) |  | 415  |  
|                                                                   |       |  |      |   |  |      |  
|IFRS 2005 transitional
            adjustment (IAS 32 and IAS 39)  | 26    |  | (63  | ) |  |      |  
|                                                                   |       |  |      |   |  |      |  
|                                                                   |       |  | (145 | ) |  | 415  |  
|                                                                   |       |  |      |   |  |      |  
|Attributable
            to equity holders of the parent           | 26    |  | (183 | ) |  | 381  |  
|                                                                   |       |  |      |   |  |      |  
|Attributable
            to minority interests                     | 26    |  | 38   |   |  | 34   |  
|                                                                   |       |  |      |   |  |      |  

See accompanying notes to consolidated financial statements.



|60ICI Annual Report and Accounts 2005 | Accounts
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Group balance sheetat 31 December 2005

|                                                         |       |  | 2005   |   |  | 2004   |  
|-------------------------------------------------------- | ----- |  | ------ | - |  | ------ | -
|                                                         | notes |  | £m     |   |  | £m     |  
|                                                         |       |  |        |   |  |        |  
|Assets                                                   |       |  |        |   |  |        |  
|                                                         |       |  |        |   |  |        |  
|Non-current assets                                       |       |  |        |   |  |        |  
|                                                         |       |  |        |   |  |        |  
|Intangible
            assets                            | 12    |  | 601    |   |  | 569    |  
|                                                         |       |  |        |   |  |        |  
|Property, plant
            and equipment                | 13    |  | 1,599  |   |  | 1,599  |  
|                                                         |       |  |        |   |  |        |  
|Investments
            in associates                    | 14    |  | 19     |   |  | 22     |  
|                                                         |       |  |        |   |  |        |  
|Financial assets                                         | 15    |  | 73     |   |  | 35     |  
|                                                         |       |  |        |   |  |        |  
|Deferred tax
            assets                          | 16    |  | 506    |   |  | 458    |  
|                                                         |       |  |        |   |  |        |  
|Other receivables                                        | 18    |  | 81     |   |  | 72     |  
|                                                         |       |  |        |   |  |        |  
|Post-retirement
            benefit asset                | 25    |  | 11     |   |  | 10     |  
|                                                         |       |  |        |   |  |        |  
|                                                         |       |  | 2,890  |   |  | 2,765  |  
|                                                         |       |  |        |   |  |        |  
|Current assets                                           |       |  |        |   |  |        |  
|                                                         |       |  |        |   |  |        |  
|Inventories                                              | 17    |  | 658    |   |  | 648    |  
|                                                         |       |  |        |   |  |        |  
|Trade and other
            receivables                  | 18    |  | 1,067  |   |  | 986    |  
|                                                         |       |  |        |   |  |        |  
|Financial assets                                         | 15    |  | 30     |   |  | 22     |  
|                                                         |       |  |        |   |  |        |  
|Cash and cash
            equivalents                    | 19    |  | 522    |   |  | 477    |  
|                                                         |       |  |        |   |  |        |  
|                                                         |       |  | 2,277  |   |  | 2,133  |  
|                                                         |       |  |        |   |  |        |  
|Total assets                                             | 4     |  | 5,167  |   |  | 4,898  |  
|                                                         |       |  |        |   |  |        |  
|Liabilities                                              |       |  |        |   |  |        |  
|                                                         |       |  |        |   |  |        |  
|Current liabilities                                      |       |  |        |   |  |        |  
|                                                         |       |  |        |   |  |        |  
|Trade and other
            payables                     | 20    |  | (1,485 | ) |  | (1,303 | )
|                                                         |       |  |        |   |  |        |  
|Financial liabilities                                    | 22    |  | (231   | ) |  | (300   | )
|                                                         |       |  |        |   |  |        |  
|Current tax
            liabilities                      | 21    |  | (423   | ) |  | (387   | )
|                                                         |       |  |        |   |  |        |  
|Provisions                                               | 23    |  | (106   | ) |  | (210   | )
|                                                         |       |  |        |   |  |        |  
|                                                         |       |  | (2,245 | ) |  | (2,200 | )
|                                                         |       |  |        |   |  |        |  
|Non-current liabilities                                  |       |  |        |   |  |        |  
|                                                         |       |  |        |   |  |        |  
|Financial liabilities                                    | 22    |  | (1,097 | ) |  | (1,114 | )
|                                                         |       |  |        |   |  |        |  
|Other creditors                                          | 20    |  | (40    | ) |  | (15    | )
|                                                         |       |  |        |   |  |        |  
|Provisions                                               | 23    |  | (298   | ) |  | (341   | )
|                                                         |       |  |        |   |  |        |  
|Deferred tax
            liabilities                     | 16    |  | (274   | ) |  | (285   | )
|                                                         |       |  |        |   |  |        |  
|Post-retirement
            benefit liabilities          | 25    |  | (1,699 | ) |  | (1,190 | )
|                                                         |       |  |        |   |  |        |  
|                                                         |       |  | (3,408 | ) |  | (2,945 | )
|                                                         |       |  |        |   |  |        |  
|Total liabilities                                        | 4     |  | (5,653 | ) |  | (5,145 | )
|                                                         |       |  |        |   |  |        |  
|Net assets                                               |       |  | (486   | ) |  | (247   | )
|                                                         |       |  |        |   |  |        |  
|                                                         |       |  |        |   |  |        |  
|Equity                                                   |       |  |        |   |  |        |  
|                                                         |       |  |        |   |  |        |  
|Called-up share
            capital                      | 26    |  | 1,192  |   |  | 1,191  |  
|                                                         |       |  |        |   |  |        |  
|Share premium
            account                        | 26    |  | 934    |   |  | 933    |  
|                                                         |       |  |        |   |  |        |  
|Retained earnings
            and other reserves         | 26    |  | (2,739 | ) |  | (2,456 | )
|                                                         |       |  |        |   |  |        |  
|Attributable
            to equity holders of the parent | 26    |  | (613   | ) |  | (332   | )
|                                                         |       |  |        |   |  |        |  
|Minority interests                                       | 26    |  | 127    |   |  | 85     |  
|                                                         |       |  |        |   |  |        |  
|Total equity                                             | 26    |  | (486   | ) |  | (247   | )
|                                                         |       |  |        |   |  |        |  

See accompanying notes to consolidated financial statements.

The accounts on pages 56 to 131 were authorised for issue by the Board of Directors on 16 February 2006 and were signed on its behalf by:

P B EllwoodCBEDirector

A J BrownDirector



|Accounts | ICI
        Annual Report and Accounts 200561
|-------- | ---------------------------------------------

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Group cash flow statementfor the year ended 31 December 2005

|                                                                   |       |  | 2005 |   | 2004 |  
|------------------------------------------------------------------ | ----- |  | ---- | - | ---- | -
|                                                                   | notes |  | £m   |   | £m   |  
|                                                                   |       |  |      |   |      |  
|Cash flows from operating activities                               |       |  |      |   |      |  
|                                                                   |       |  |      |   |      |  
|Profit before
            tax                                      |       |  | 500  |   | 606  |  
|                                                                   |       |  |      |   |      |  
|Adjusted for:                                                      |       |  |      |   |      |  
|                                                                   |       |  |      |   |      |  
|Net
            finance expense                                    |       |  | 109  |   | 118  |  
|                                                                   |       |  |      |   |      |  
|Depreciation
            and amortisation                          |       |  | 168  |   | 169  |  
|                                                                   |       |  |      |   |      |  
|Post-retirement
            benefit charges                        |       |  | 41   |   | 63   |  
|                                                                   |       |  |      |   |      |  
|Special
            items                                          | 3     |  | (56  | ) | (184 | )
|                                                                   |       |  |      |   |      |  
|Taxation
            on associates                                 |       |  | 1    |   | 2    |  
|                                                                   |       |  |      |   |      |  
|Movement in
            working capital                            |       |  | 60   |   | 13   |  
|                                                                   |       |  |      |   |      |  
|Outflows relating
            to special items in operating profit |       |  | (53  | ) | (81  | )
|                                                                   |       |  |      |   |      |  
|Post-retirement
            benefit payments                       | 25    |  | (153 | ) | (151 | )
|                                                                   |       |  |      |   |      |  
|Interest paid                                                      |       |  | (122 | ) | (153 | )
|                                                                   |       |  |      |   |      |  
|Interest received                                                  |       |  | 55   |   | 87   |  
|                                                                   |       |  |      |   |      |  
|Tax paid excluding
            tax on disposal of businesses       |       |  | (83  | ) | (43  | )
|                                                                   |       |  |      |   |      |  
|Dividends paid
            to equity holders of the parent         |       |  | (91  | ) | (82  | )
|                                                                   |       |  |      |   |      |  
|Dividends paid
            to minority interests                   |       |  | (15  | ) | (13  | )
|                                                                   |       |  |      |   |      |  
|Other items                                                        |       |  | (2   | ) | (24  | )
|                                                                   |       |  |      |   |      |  
|Net cash inflow from operating activities*                         |       |  | 359  |   | 327  |  
|                                                                   |       |  |      |   |      |  
|                                                                   |       |  |      |   |      |  
|Cash flows from investing activities                               |       |  |      |   |      |  
|                                                                   |       |  |      |   |      |  
|Purchase of
            property, plant and equipment              |       |  | (159 | ) | (158 | )
|                                                                   |       |  |      |   |      |  
|Proceeds from
            sale of property, plant and equipment    |       |  | 17   |   | 8    |  
|                                                                   |       |  |      |   |      |  
|Purchase of
            businesses, net of cash acquired           | 29    |  | (23  | ) | (4   | )
|                                                                   |       |  |      |   |      |  
|Net proceeds from disposal of businesses                          | 29    |  | 108  |   | 279  |  
|                                                                   |       |  |      |   |      |  
|Payments in
            respect of disposals prior to 2004         |       |  | (47  | ) | (95  | )
|                                                                   |       |  |      |   |      |  
|Tax on disposal
            of businesses                          |       |  | (2   | ) | (1   | )
|                                                                   |       |  |      |   |      |  
|Net cash (outflow) inflow from investing activities*               |       |  | (106 | ) | 29   |  
|                                                                   |       |  |      |   |      |  
|                                                                   |       |  |      |   |      |  
|Cash flows from financing activities                               |       |  |      |   |      |  
|                                                                   |       |  |      |   |      |  
|(Increase)
            in current asset investments                | 28    |  | (6   | ) | (38  | )
|                                                                   |       |  |      |   |      |  
|Increase in
            long-term loans                            | 28    |  | 6    |   | 12   |  
|                                                                   |       |  |      |   |      |  
|Repayment of
            long-term loans                           | 28    |  | (137 | ) | (521 | )
|                                                                   |       |  |      |   |      |  
|Net (decrease)
            increase in short-term borrowings       | 28    |  | (114 | ) | 84   |  
|                                                                   |       |  |      |   |      |  
|Movement in
            non-operating derivatives                  | 28    |  | 26   |   |      |  
|                                                                   |       |  |      |   |      |  
|Other financing
            cash flows                             | 28    |  | 1    |   | (1   | )
|                                                                   |       |  |      |   |      |  
|Net cash (outflow) from financing activities                       |       |  | (224 | ) | (464 | )
|                                                                   |       |  |      |   |      |  
|                                                                   |       |  |      |   |      |  
|Cash and cash equivalents at beginning of period                   | 28    |  | 469  |   | 588  |  
|                                                                   |       |  |      |   |      |  
|Net cash inflow
            (outflow) from all activities          | 28    |  | 29   |   | (108 | )
|                                                                   |       |  |      |   |      |  
|Movement arising
            on foreign currency translation       |       |  | 18   |   | (11  | )
|                                                                   |       |  |      |   |      |  
|Cash and cash equivalents at end of period                         | 28    |  | 516  |   | 469  |  
|                                                                   |       |  |      |   |      |  

|* | Net cash inflow from operating activities includes £nil (2004 £nil) cash flow relating to discontinued operations. Net cash flow from investing activities includes
£43m (2004 £60m) cash outflow from discontinued operations.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                
| | Includes
    payments in respect of disposals in 2004 and later (see note 29).                                                                                                                                                 

See accompanying notes to consolidated financial statements.



|62 ICI
        Annual Report and Accounts 2005 | Accounts
|---------------------------------------------- | --------

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Notes
        relating to the Group accounts

1  Basis
of presentation of financial information

These
    consolidated financial statements have been based on the recognition and
    measurement requirements of International Financial Reporting Standards and
    IFRIC interpretations in issue that are endorsed by the European Commission
    and effective (or which ICI has chosen to adopt early) at 31 December 2005
    (adopted IFRS). These financial statements also comply with full
    IFRS effective at 31 December 2005 as issued by the IASB. The following standards,
    amendments and interpretations are only effective for accounting periods
beginning after 31 December 2005:

Standards,
      amendments and interpretations not expected to have a significant effect
      on the Group include: IFRS 6 Exploration for and
      Evaluation of Mineral Resources;IFRS
      7 Financial Instruments:
      Disclosures;Amendment
      to IAS 1 Presentation of Financial
      Statements Capital Disclosures;Amendment
      to IAS 39 Cash flow hedge accounting
      of forecast intergroup transactions;Amendment
      to IAS 39 Financial Instruments:
      Recognition and Measurement and IFRS 4 Insurance contracts;Amendment
      to IFRS 1 First-time
      Adoption of International Financial Reporting Standards;IFRIC
      5 Rights
      to Interests arising from Decommissioning, Restoration and Environmental
      Rehabilitation Fundsand IFRIC 7 Applying
      the restatement approach under IAS 29, Financial reporting in hyperinflationary
economies.

Standards,
      amendments and interpretations still under review as to their effect on
      the Group include: Amendment to IAS 21 The Effects of Changes
      in Foreign Exchange Rates: net investment in foreign operation;IFRIC
      4 Determining
      whether an arrangement contains a lease;IFRIC
      6 Liabilities arising
      from participating in a specific market  Waste electrical and electronic
      equipmentand IFRIC 8 Scope
of IFRS 2.

These
      are the Groups first consolidated financial statements in accordance
      with adopted IFRS and IFRS
1 First-time Adoption
of International Financial Reporting Standards.The
Groups transition date for adoption of IFRS is 1 January 2004. The Group
has applied the exemption by the US Securities and Exchange Commission from the
provision of a second year of comparatives. The disclosures required by IFRS
1 concerning the transition from
UK GAAP to
IFRS are given in note 35.

The Groups
    accounting policies as set out in the 2004 Annual Report and Accounts have
    been revised where applicable to conform to IFRS. The complete accounting
    policies are set out on pages 56 to 59 of this report. IFRS 1 permits those
    companies adopting IFRS for the first time to take certain exemptions from
    the full requirements of IFRS in the transition period. The exemptions taken
    by ICI in accordance with IFRS 1 have been described in the accounting policy
    to which they relate and are repeated below. These policies have been consistently
    applied to all the years presented and in preparing the opening IFRS balance
    sheet at 1 January 2004 for the purpose of the transition to IFRS, except
    for those relating to the classification and measurement of financial instruments.
    The comparative figures in respect of 2004 have been restated to reflect
these changes in accounting policies accordingly.

IFRS
transition exemptionsICI has
taken the following key exemptions on transition to IFRS:

|(a)                                                                | Business combinations: The Group has chosen not to restate business combinations prior to the transition date on an IFRS basis. If the Group had not taken this exemption, the key
difference would have been that the accounting for the acquisition of the Unilever Speciality Chemicals business in 1997 would have been restated in accordance with IFRS 3. The main consequence of this would have been that the goodwill taken to
reserves under UK GAAP would have been recognised on the balance sheet under IFRS, subject to an impairment test at the transition date and annually thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                       
|------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                  
|(b)                                                                | Employee benefits: All cumulative actuarial gains and losses have been recognised in equity at the transition date. This is to maintain consistency with prospective Group policy,
whereby all actuarial gains and losses will be recognised directly in reserves via the statement of recognised income and expense. If the Group had not taken this exemption, then the cumulative actuarial gains and losses would have been split into a
recognised portion and a larger unrecognised portion. The unrecognised portion offsetting the post-retirement benefit liability on the balance sheet would be charged to the income statement on a systematic basis over a period of time.                                                                                                                                                                                                                                                                                                                                        
|                                                                  
|(c)                                                                | Cumulative translation differences: One of the requirements of IAS 21 The Effects of Changes in
Foreign Exchange Ratesis that on disposal of an operation, the cumulative amount of exchange differences previously recognised directly in equity for that foreign
operation are to be transferred to the income statement as part of the profit or loss on disposal. The Group has adopted the exemption allowing these cumulative translation differences to be reset to zero at the transition date. If the Group had not
taken this exemption, a different amount of net foreign exchange gains and losses would be transferred to the income statement on disposal of a foreign operation.                                                                                                                                                                                                                                                                                                                                
|                                                                  
|(d)                                                                | The Group took the exemption under IFRS 1 not to restate comparative information in respect of IAS 32 and IAS 39. As a consequence financial instruments included in the 2004
comparative information are still in accordance with UK GAAP, whereas they are accounted for in accordance with IFRS in the 2005 results. In accordance with the transitional provisions of IFRS, this had been treated as a change in accounting policy.
The accounting policy for financial instruments under both UK GAAP and under IFRS is detailed on page 58 to 59 of this report. The adjustments made to reserves as a result of adopting IAS 32 and IAS 39 on 1 January 2005 are detailed in note 26. The
resultant effect on opening net debt is detailed in note 28. If the Group had not taken this exemption, a number of financial instruments would have been recognised or revalued in the opening balance sheet at 1 January 2004 and accounted for during
the year ended 31 December 2004 in accordance with IAS 32 and IAS 39.
|                                                                  
|The exemptions ICI has elected not to adopt include the following:
|                                                                  
|(a)                                                                | Share-based payments: The Group has not adopted the exemption to apply IFRS
        2 Share-based paymentonly to awards made after   7
    November 2002, instead a full retrospective approach has been followed on
    all awards granted but not fully vested at the date of transition to maintain
    consistency across reporting periods. Fair value disclosures in respect of
    share based incentive schemes have been previously made in the Groups
    US GAAP net income reconciliation in the Annual Report and Accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                  
|(b)                                                                | Fair value or revaluation at deemed cost: The Group has not adopted the exemption to restate items of property, plant and equipment to fair value at the transition date. Such items
have been maintained at historical cost in order to maintain consistency with previous Group policy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



|Accounts | ICI
        Annual Report and Accounts 200563
|-------- | ---------------------------------------------

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Notes
        relating to the Group accounts

1  Basis
of presentation of financial information (continued)

IAS
      32 Financial
      Instruments: Disclosure and Presentationand IAS 39 Financial
      Instruments: Recognition
      and Measurementcame
      into effect on 1 January 2005. The European Commission
has adopted a carved-out version of IAS 39, which excludes certain
aspects of hedge accounting. The endorsement of the full IAS 39 by the European
Commission would have no significant effect on the results of the Group.

Continuing
and Discontinued Operations
For reporting purposes, the results in these financial statements differentiate
between the
Groups continuing and discontinued operations. Discontinued operations
are components of the Group representing separate major lines of business or
geographical areas of operations, or are part of a single co-ordinated plan to
dispose of a separate major line of business or geographical area of operation
and which have been sold, permanently terminated or classified as held for sale
at the period end. A component of the Group comprises operations and cash flows
that can be clearly distinguished, operationally and for financial reporting
purposes, from the rest of the entity. All other operations are classified as
continuing operations. Transactions in these financial statements which are identified
as relating to discontinued operations comprise items (and associated tax effects)
in respect of the following operations, all of which were sold or terminated
before 1 January 2004; Polyurethanes business, Tioxide business, selected Petrochemicals
businesses, Acrylics business, Chlor-Chemicals business, Polyester business and
Ethylene oxide
business.

Non
co-terminous year ends
Owing to local conditions and to avoid undue delay in the presentation of the
Group accounts, one subsidiary made up their accounts to dates earlier than 31
December, but not earlier than 30 September; additionally four subsidiaries made
up their accounts prior to 30 September but interim accounts to 31 December were
drawn up for consolidation
purposes.

Critical
accounting policies, judgements and 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 of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period and related disclosures. Actual results could differ from those estimates.
Judgements made by management on the application of IFRS that have had a significant
effect on the financial statements and estimates with a significant risk of material
adjustments in the next year are discussed in note 37.

2  Directors and
Officers remuneration and interests

The Directors
    and Officers are regarded as the key management personnel of the ICI Group.
    Information covering Directors remuneration, interests in shares, debentures,
    share options and pension benefits is included in the Remuneration Report
on pages 42 to 52.

The
    aggregate remuneration paid to or accrued for key management personnel for
    services in all capacities during the years ended 31 December are as
follows:

|                                         | 2005      |  | 2004     | 
|---------------------------------------- | --------- |  | -------- | 
|                                         |           |  |          | 
|                                         | Directors |  | Officers | 
|                                         | £m        |  | £m       | 
|                                         |           |  |          | 
|Short-term
            employee benefits | 4.3       |  | 2.5      | 
|                                         |           |  |          | 
|Post-retirement
            benefits     | 0.4       |  | 0.2      | 
|                                         |           |  |          | 
|Termination
            benefits         |          |  |         | 
|                                         |           |  |          | 
|Share-based
            payments         | 2.3       |  | 1.0      | 
|                                         |           |  |          | 
|                                         | 7.0       |  | 3.7      | 
|                                         |           |  |          | 

|                                                                                        | £1 Ordinary |  | Options granted           | 
|--------------------------------------------------------------------------------------- | ----------- |  | -------------------------- | 
|                                                                                        | Shares     |  |                            | 
|                                                                                        |             |  |                            | 
|                                                                                        | At          |  | Options                    | 
|                                                                                        | 13 February |  | outstanding
            at | 
|                                                                                        | 2006        |  | 13 February                | 
|                                                                                        |             |  | 2006                       | 
|                                                                                        | Number      |  | Number                     | 
|                                                                                        |             |  |                            | 
|Directors (for
            further details see Remuneration Report pages 46, 47 and 50) | 709,007     |  | 9,498,013                  | 
|                                                                                        |             |  |                            | 
|Officers                                                                                | 180,790     |  | 4,484,043                  | 
|                                                                                        |             |  |                            | 

| | 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.

At 31
    December 2005 an interest free housing loan to an Officer of the Company
    amounting to £100,000 (2004 £100,000) was outstanding.

In accordance with the Companys policy of providing housing assistance to staff on international assignment, throughout 2004, a subsidiary guaranteed a housing loan for an
Officer to the extent of £143,000. During 2005, the Officer repaid the loan
and the subsidiary was released from its guarantee.



|64 ICI
        Annual Report and Accounts 2005 | Accounts
|---------------------------------------------- | --------

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3  Special items before tax

|                                                                                       | 2005 |      | 2004 |     
|-------------------------------------------------------------------------------------- | ---- | ---- | ---- | ----
|                                                                                       | £m   |      | £m   |     
|                                                                                       |      |      |      |     
|Credited (charged) in arriving at operating profit (loss)(a)                           |      |      |      |     
|                                                                                       |      |      |      |     
|Continuing operations                                                                  |      |      |      |     
|                                                                                       |      |      |      |     
|Restructuring                                                                          | (13  | )(a) | (5   | )(g)
|                                                                                       |      |      |      |     
|Post-retirement
    benefits                                                           | 40   | (a)  |     |     
|                                                                                       |      |      |      |     
|Profits
    less losses on disposal of fixed assets                                    | 7    | (a)  | (1   | )   
|                                                                                       |      |      |      |     
|                                                                                       | 34   |      | (6   | )   
|                                                                                       |      |      |      |     
|                                                                                       |      |      |      |     
|                                                                                       |      |      |      |     
|Credited (charged) after operating profit (loss)                                       |      |      |      |     
|                                                                                       |      |      |      |     
|Continuing operations                                                                  |      |      |      |     
|                                                                                       |      |      |      |     
|Profits
    less losses on sale of operations                                          |      |      |      |     
|                                                                                       |      |      |      |     
|Profits                                                                                | 16   | (b)  | 204  | (h) 
|                                                                                       |      |      |      |     
|Losses                                                                                 | (3   | )(c) | (9   | )(i)
|                                                                                       |      |      |      |     
|                                                                                       | 13   |      | 195  |     
|                                                                                       |      |      |      |     
|                                                                                       |      |      |      |     
|                                                                                       |      |      |      |     
|Foreign
    exchange gains on debt previously hedging goodwill written off to reserves | 2    | (d)  | 15   | (d) 
|                                                                                       |      |      |      |     
|                                                                                       |      |      |      |     
|                                                                                       |      |      |      |     
|Discontinued operations                                                                |      |      |      |     
|                                                                                       |      |      |      |     
|Profits
    less losses on sale of operations                                          |      |      |      |     
|                                                                                       |      |      |      |     
|Profits                                                                                | 60   | (e)  | 9    |     
|                                                                                       |      |      |      |     
|Losses                                                                                 | (53  | )(f) | (29  | )(j)
|                                                                                       |      |      |      |     
|                                                                                       | 7    |      | (20  | )   
|                                                                                       |      |      |      |     
|                                                                                       |      |      |      |     
|                                                                                       |      |      |      |     
|Special items within profit (loss) before taxation                                     | 56   |      | 184  |     
|                                                                                       |      |      |      |     

|(a) | A detailed description
            of those special items charged/credited in arriving at operating profit
            (loss) is provided in note 24 and include £13m relating
to the restructuring programmes announced in 2003 (including the extension in
2004 following the disposal of the Quest Food Ingredients business
and the further
extension announced in 2005) split across each of; National Starch £2m charge,
Quest £12m charge, Uniqema £4m release, Paints £5m charge and
Corporate £2m release.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | Included in the restructuring
    charges for National Starch and Quest are amounts relating to accelerated
    depreciation of £1m and £2m respectively.                                                                                                                                                                                                                                                                                                                                                          
|   
|    | Post-retirement
benefits
comprise a £40m benefit associated with changes to the terms of the Netherlands
post-retirement pensions and healthcare plans.                                                                                                                                                                                                                                                                                                                                                            
|   
|    | Other
    items included within special operating items include a profit of £7m
arising from the disposal of fixed assets, mainly land.                                                                                                                                                                                                                                                                                                                                                                            
|   
|(b) | The profits on sale of
            continuing operations in 2005 includes the gain from the sale of the
            National Starch Vinamul Polymers business of £6m and a gain
of £3m from the sale
of the Paints wood finish business in Germany.                                                                                                                                                                                                                                                                
|   
|(c) | The losses on sale of
            continuing operations in 2005 relates to the loss on disposal of 51%
    of the rubber chemicals business in India of £3m.                                                                                                                                                                                                                                                                                                                                                       
|   
|(d) | Under IFRS, the exclusion of goodwill in reserves from the assets in the net
investment hedge calculation has introduced volatility to the income statement.
This results from the impact of foreign exchange rate movements on that part
of the debt that cannot be considered part of the hedge.                                                                                                                                                                                                                 
|   
|    | The £2m (2004 £15m)
    impact arising in the income statement from this treatment is included within
    the net finance expense and presented as a special
item.                                                                                                                                                                                                                                                                                                                                                 
|   
|(e) | The profits on sale of
            discontinued operations in 2005 relate primarily to credits arising from
            changes to post-retirement healthcare plans in the US relating to
divested businesses
previously disclosed as discontinued (£23m), a release of provisions following
a land transaction in the north of England (£28m) and a £4m receipt
from the Ineos Group.                                                                                                                             
|   
|(f) | The losses on sale of
            discontinued operations in 2005 relate primarily to increases in provisions
            relating to long-term residual activities of £37m principally
relating to
pension administration costs (£23m) and increased employer liability costs
(£10m); and a further provision of £10m relating to the costs of divestment
of the Chlor-Chemicals, Klea and Crosfield businesses.                                                                                                  
|   
|(g) | A detailed description
            of those special items charged/credited in arriving at operating profit
            (loss) in 2004 is provided in note 24 and includes £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; National Starch £1m, relating to severance costs and Quest £7m,
relating to
severance costs.                                                   
|   
|    | Restructuring
    in 2004 includes a credit of £3m relating to the release of
prior year provisions.                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(h) | The profits on sale of
            continuing operations in 2004 include the gain on sale of the Quest Food
            Ingredients business £163m, a gain of £26m from the
sale of part of the
Groups interest in Pakistan PTA, a £7m gain in relation to the release
of provisions created for the sale of Synetix in 2002 (see note 24), and a gain
on the sale of the nitrocellulose and trading businesses in India
(£5m).                                                                                   
|   
|(i) | The losses on sale of
            continuing operations in 2004 relate primarily to the loss on the closure
            of the polyethylene business in Argentina (£4m) and the loss
on the sale of the
Metro (wall coverings) business in Canada (£5m).                                                                                                                                                                                                                                                           
|   
|(j) | The losses on sale of
            discontinued operations in 2004 relate primarily to a £13m
charge in relation to an increased provision in relation to the Polyurethanes,
Tioxide and
selected Petrochemical businesses, a £6m charge in relation to costs of
the divestments of the Chlor-Chemicals, Klea and Crosfield businesses and a £5m
charge relating to ICIs exit from Ineos Chlor.                                                                                                                    

Under US GAAP, these special items would be included in operating income, unless
they related to discontinued operations or foreign exchange gains on debt previously
hedging goodwill
written off to reserves.



|Accounts | ICI
        Annual Report and Accounts 2005 65
|-------- | ----------------------------------------------

---



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Notes relating to the Group accounts



The Group is managed in five reporting segments, differentiated by business;
      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 segments                  | Products                                                                                                                                                                                                                                                                                                   
|---------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                   |                                                                                                                                                                                                                                                                                                            
|National Starch                    | adhesives,
            sealants, specialty synthetic polymers, specialty food and industrial
starches, electronic and engineering materials, specialty coatings and process
lubricants                                                                                                                     
|                                   |                                                                                                                                                                                                                                                                                                            
|Quest                              | flavours, fragrances and fragrance materials                                                                                                                                                                                                                                                               
|                                   |                                                                                                                                                                                                                                                                                                            
|Uniqema                            | oleochemicals
            (process intermediates), polymers, base stocks and additives for lubricants,
            personal
care, performance specialties for the manufacture of agrochemicals and coatings,
oilfield
chemicals, textile
auxiliaries, spin finish, polymer additives and specialty cleaning
|                                   |                                                                                                                                                                                                                                                                                                            
|Paints                             | decorative paint, and coatings for food and beverage cans                                                                                                                                                                                                                                                  
|                                   |                                                                                                                                                                                                                                                                                                            
|Regional and Industrial            | polyester staple
            fibre, pure terephthalic acid, soda ash, seeds, pharmaceuticals, rubber
            chemicals*,
sulphur related products and wine chemicals                                                                                                                                   
|                                   |                                                                                                                                                                                                                                                                                                            
|* Divested in fourth quarter 2005. |                                                                                                                                                                                                                                                                                                            

Corporate and other represents the shared costs that are not directly attributable to individual segments.

The geographical segments of the Group are the United Kingdom, Continental
  Europe, North America (USA and Canada), Latin America (Central and South America),
  Asia and the Other
countries (principally Australia).

The accounting policies
    for each segment are the same as those appearing on pages 56 to 59. The Groups
    policy is to transfer products internally at external market
prices.

Business segments

|                                   | Segment
          revenue    | 
|---------------------------------- | ---------------------------- | 
|                                   |                              | 
|                                   | External
          customers | 
|                                   |                              | 
|                                   | Sales                        | 
|                                   |                              | 
|                                   | £m                           | 
|                                   |                              | 
|2005                               |                              | 
|                                   |                              | 
|National
          Starch          | 1,867                        | 
|                                   |                              | 
|Quest                              | 560                          | 
|                                   |                              | 
|Uniqema                            | 629                          | 
|                                   |                              | 
|Paints                             | 2,329                        | 
|                                   |                              | 
|Regional
          and Industrial  | 420                          | 
|                                   |                              | 
|Total
          reporting segments | 5,805                        | 
|                                   |                              | 
|Corporate
          and other      |                             | 
|                                   |                              | 
|                                   | 5,805                        | 
|                                   |                              | 
|Inter-segment
          revenue    |                              | 
|                                   |                              | 
|                                   | 5,805                        | 
|                                   |                              | 

|                             |                        | 
|---------------------------- | ---------------------- | 
|                             | Segment revenue        | 
|                             |                       
|                             | External
    customers | 
|                             |                        | 
|                             | Sales                  | 
|                             |                        | 
|                             | £m                     | 
|                             |                        | 
|2004                         |                        | 
|                             |                        | 
|National
    Starch          | 1,866                  | 
|                             |                        | 
|Quest                        | 583                    | 
|                             |                        | 
|Uniqema                      | 626                    | 
|                             |                        | 
|Paints                       | 2,159                  | 
|                             |                        | 
|Regional
    and Industrial  | 371                    | 
|                             |                        | 
|Total
    reporting segments | 5,605                  | 
|                             |                        | 
|Corporate
    and other      |                       | 
|                             |                        | 
|                             | 5,605                  | 
|                             |                        | 
|Inter-segment
    revenue    |                        | 
|                             |                        | 
|                             | 5,605                  | 
|                             |                        | 



|66 ICI
        Annual Report and Accounts 2005 | Accounts
|---------------------------------------------- | --------

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4 Segment
information (continued)

Business
segments

|                                           | Segment
              profit |  
|------------------------------------------ | ---------------------------- | -
|                                           | before special items         |  
|                                           | and taxation                 |  
|                                           |                              |  
|                                           | 2005                         |  
|                                           | £m                           |  
|                                           |                              |  
|National
    Starch                        | 214                          |  
|                                           |                              |  
|Quest                                      | 52                           |  
|                                           |                              |  
|Uniqema                                    | 22                           |  
|                                           |                              |  
|Paints                                     | 253                          |  
|                                           |                              |  
|Regional
    and Industrial                | 48                           |  
|                                           |                              |  
|Total
    reporting segments               | 589                          |  
|                                           |                              |  
|Corporate
    and other                    | (39                          | )
|                                           |                              |  
|Segment result                             | 550                          |  
|                                           |                              |  
|Share of profits less losses of associates | 3                            |  
|                                           |                              |  
|Net finance expense                        | (109                         | )
|                                           |                              |  
|                                           | 444                          |  
|                                           |                              |  

|                                                        | Segment profit before interest and taxation and after special items |  
|------------------------------------------------------- | ------------------------------------------------------------------- | -
|                                                        |                                                                     |  
|                                                        | Continuing                                                          |  
|                                                        |                                                                     |  
|                                                        | 2005                                                                |  
|                                                        | £m                                                                  |  
|                                                        |                                                                     |  
|National
    Starch                                     | 221                                                                 |  
|                                                        |                                                                     |  
|Quest                                                   | 63                                                                  |  
|                                                        |                                                                     |  
|Uniqema                                                 | 40                                                                  |  
|                                                        |                                                                     |  
|Paints                                                  | 255                                                                 |  
|                                                        |                                                                     |  
|Regional
    and Industrial                             | 48                                                                  |  
|                                                        |                                                                     |  
|Total
    reporting segments                            | 627                                                                 |  
|                                                        |                                                                     |  
|Corporate
    and other                                 | (30                                                                 | )
|                                                        |                                                                     |  
|Segment result                                          | 597                                                                 |  
|                                                        |                                                                     |  
|                                                        |                                                                     |  
|                                                        |                                                                     |  
|Reconciliations                                         |                                                                     |  
|                                                        |                                                                     |  
|Segment result                                          | 597                                                                 |  
|                                                        |                                                                     |  
|Share
    of profits less losses of associates          | 3                                                                   |  
|                                                        |                                                                     |  
|Net
    finance expense                                 | (107                                                                | )
|                                                        |                                                                     |  
|Income
    tax expense                                  | (73                                                                 | )
|                                                        |                                                                     |  
|Net profit (loss)                                       | 420                                                                 |  
|                                                        |                                                                     |  
|                                                        |                                                                     |  
|                                                        |                                                                     |  
|Segment result                                          | 597                                                                 |  
|                                                        |                                                                     |  
|Less:
    Profits less losses on the sale of operations | 13                                                                  |  
|                                                        |                                                                     |  
|Operating profit (loss)                                 | 584                                                                 |  
|                                                        |                                                                     |  



|Accounts | ICI
        Annual Report and Accounts 2005 67
|-------- | ----------------------------------------------

---



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Notes relating to the Group accounts

4  Segment
  information (continued)

Geographical
  segments

The figures for each geographic area show the revenue earned by, and the total assets and liabilities owned by, companies located in that area; export sales are included in the areas
from which those sales were made.

|                                 |          |  |         |   | Revenue |   |  |          |  |        
|-------------------------------- | -------- |  | ------- | - | ------- | - |  | -------- |  | -------
|                                 |         
|                                 |          |  | 2005    |   |         |   |  |          |  | 2004   
|                                 |          |  |         |   |         |   |  |          | 
|                                 | External |  | Inter-  |   | Total   |   |  | External |  | Inter- 
|                                 |          |  | segment |   |         |   |  |          |  | segment
|                                 | £m       |  | £m      |   | £m      |   |  | £m       |  | £m     
|                                 |          |  |         |   |         |   |  |          |  |        
|United
      Kingdom*            | 809      |  | 216     |   | 1,025   |   |  | 829      |  | 230    
|                                 |          |  |         |   |         |   |  |          |  |        
|Continental
      Europe         | 1,182    |  | 299     |   | 1,481   |   |  | 1,192    |  | 315    
|                                 |          |  |         |   |         |   |  |          |  |        
|North
      America              | 1,948    |  | 176     |   | 2,124   |   |  | 1,940    |  | 198    
|                                 |          |  |         |   |         |   |  |          |  |        
|Latin
      America              | 431      |  | 48      |   | 479     |   |  | 358      |  | 44     
|                                 |          |  |         |   |         |   |  |          |  |        
|Asia                             | 1,293    |  | 170     |   | 1,463   |   |  | 1,155    |  | 159    
|                                 |          |  |         |   |         |   |  |          |  |        
|Other
      countries            | 149      |  | 2       |   | 151     |   |  | 135      |  | 2      
|                                 |          |  |         |   |         |   |  |          |  |        
|                                 | 5,812    |  | 911     |   | 6,723   |   |  | 5,609    |  | 948    
|                                 |          |  |         |   |         |   |  |          |  |        
|Inter-segment
      eliminations |          |  | (911    | ) | (911    | ) |  |         |  | (948   
|                                 |          |  |         |   |         |   |  |          |  |        
|                                 | 5,812    |  |        |   | 5,812   |   |  | 5,609    |  |       
|                                 |          |  |         |   |         |   |  |          |  |        

|* | The
      total export sales made by ICI companies located in the United Kingdom
      was £365m in 2005 (2004 £392m).
|- | ----------------------------------------------------------------------------------------------------------------------

|                               |                 |  |                 | 
|------------------------------ | --------------- |  | --------------- | 
|Business
      segments        |                 |  |                 | 
|                               | Depreciation**  |  | Amortisation    | 
|                               | (note
      13) |  | (note
      12) | 
|                               |                 |  |                 | 
|                               | 2005            |  | 2004            | 
|                               | £m              |  | £m              | 
|                               |                 |  |                 | 
|National
      Starch          | 48              |  | 52              | 
|                               |                 |  |                 | 
|Quest                          | 19              |  | 16              | 
|                               |                 |  |                 | 
|Uniqema                        | 21              |  | 20              | 
|                               |                 |  |                 | 
|Paints                         | 43              |  | 39              | 
|                               |                 |  |                 | 
|Regional
      and Industrial  | 18              |  | 19              | 
|                               |                 |  |                 | 
|Total
      reporting segments | 149             |  | 146             | 
|                               |                 |  |                 | 
|Corporate
      and other      | 3               |  | 3               | 
|                               |                 |  |                 | 
|                               | 152             |  | 149             | 
|                               |                 |  |                 | 

|                               |                             |  |             |  |           | 
|------------------------------ | --------------------------- |  | ----------- |  | --------- | 
|                               | Capital
      expenditure*  |  | Significant |  |           | 
|                               | (note
      12 and note 13) |  | non-cash    |  |           | 
|                               |                             |  |             |  | expenses | 
|                               |                             |  |             |  |           | 
|                               | 2005                        |  | 2004        |  | 2005      | 
|                               | £m                          |  | £m          |  | £m        | 
|                               |                             |  |             |  |           | 
|National
      Starch          | 53                          |  | 64          |  | 1         | 
|                               |                             |  |             |  |           | 
|Quest                          | 22                          |  | 17          |  | 1         | 
|                               |                             |  |             |  |           | 
|Uniqema                        | 17                          |  | 18          |  | 1         | 
|                               |                             |  |             |  |           | 
|Paints                         | 45                          |  | 48          |  | 2         | 
|                               |                             |  |             |  |           | 
|Regional
      and Industrial  | 18                          |  | 10          |  | 1         | 
|                               |                             |  |             |  |           | 
|Total
      reporting segments | 155                         |  | 157         |  | 6         | 
|                               |                             |  |             |  |           | 
|Corporate
      and other      | 3                           |  | 3           |  |          | 
|                               |                             |  |             |  |           | 
|                               | 158                         |  | 160         |  | 6         | 
|                               |                             |  |             |  |           | 
|                               |                             |  |             |  |           | 

|*  | Capital
      expenditure relates to the cost incurred during the period to acquire segment
      assets that are expected to be used during more than one period (property,
      plant and equipment and intangible assets).
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | Significant
      non-cash expenses consist mainly of fair value gains/losses on derivatives
      and foreign exchange movements.                                                                                            
|** | Includes
      depreciation relating to special items.                                                                                                                                                                        



|68ICI
      Annual Report and Accounts 2005 | Accounts
|------------------------------------------- | --------

---



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4Segment information
  (continued)

Business
  segments

|                                | Segment
      assets |  | Segment
    liabilities | 
|------------------------------- | -------------------- |  | ----------------------- | 
|                                |                      |  |                         | 
|                                | 2005                 |  | 2004                    | 
|                                | £m                   |  | £m                      | 
|                                |                      |  |                         | 
|National
      Starch           | 1,465                |  | 1,450                   | 
|                                |                      |  |                         | 
|Quest                           | 374                  |  | 364                     | 
|                                |                      |  |                         | 
|Uniqema                         | 461                  |  | 468                     | 
|                                |                      |  |                         | 
|Paints                          | 1,231                |  | 1,155                   | 
|                                |                      |  |                         | 
|Regional
      and Industrial   | 294                  |  | 279                     | 
|                                |                      |  |                         | 
|Total
      reporting segments  | 3,825                |  | 3,716                   | 
|                                |                      |  |                         | 
|Corporate
      and other       | 83                   |  | 89                      | 
|                                |                      |  |                         | 
|                                | 3,908                |  | 3,805                   | 
|                                |                      |  |                         | 
|Investments
      in associates | 19                   |  | 22                      | 
|                                |                      |  |                         | 
|Unallocated                    | 1,240                |  | 1,071                   | 
|                                |                      |  |                         | 
|                                | 5,167                |  | 4,898                   | 
|                                |                      |  |                         | 

| | Unallocated
      assets mainly comprise deferred tax assets, cash and cash equivalents, financial
      assets and other non-operating debtors. Unallocated liabilities mainly comprise
      post-retirement benefit liabilities, provisions, deferred tax liabilities,
      financial liabilities, current tax liabilities and other non- operating creditors.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | Goodwill             | 
|------------------------------ | -------------------- | 
|                               | included
      in    | 
|                               | segment
      assets | 
|                               |                      | 
|                               | 2005                 | 
|                               | £m                   | 
|                               |                      | 
|National
      Starch          | 256                  | 
|                               |                      | 
|Quest                          | 17                   | 
|                               |                      | 
|Uniqema                        | 13                   | 
|                               |                      | 
|Paints                         | 256                  | 
|                               |                      | 
|Regional
      and Industrial  | 14                   | 
|                               |                      | 
|Total
      reporting segments | 556                  | 
|                               |                      | 
|Corporate
      and other      |                     | 
|                               |                      | 
|                               | 556                  | 
|                               |                      | 

|                               |                      | 
|------------------------------ | -------------------- | 
|Geographical
      segments    |                      | 
|                               | Segment
      assets | 
|                               |                      | 
|                               | 2005                 | 
|                               | £m                   | 
|                               |                      | 
|United
      Kingdom           | 542                  | 
|                               |                      | 
|Continental
      Europe       | 825                  | 
|                               |                      | 
|North
      America            | 1,378                | 
|                               |                      | 
|Latin
      America            | 267                  | 
|                               |                      | 
|Asia                           | 826                  | 
|                               |                      | 
|Other
      countries          | 70                   | 
|                               |                      | 
|                               | 3,908                | 
|                               |                      | 
|Investment
      in associates | 19                   | 
|                               |                      | 
|Unallocated                   | 1,240                | 
|                               |                      | 
|                               | 5,167                | 
|                               |                      | 

| | Unallocated
      assets mainly comprise deferred tax assets, cash and cash equivalents, financial
      assets and other non-operating debtors. Unallocated liabilities mainly comprise
      post-retirement benefit liabilities, provisions, deferred tax liabilities,
      financial liabilities, current tax liabilities and other non- operating creditors.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Accounts | ICI
      Annual Report and Accounts 2005 69
|-------- | --------------------------------------------

---



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Notes
  relating to the Group accounts

4  Segment
  information (continued)

Geographical
  segments

|                         | Capital                     | 
|------------------------ | --------------------------- | 
|                         | expenditure*                | 
|                         | (note
      12 and note 13) | 
|                         |                             | 
|                         | 2005                        | 
|                         | £m                          | 
|                         |                             | 
|United
      Kingdom     | 20                          | 
|                         |                             | 
|Continental
      Europe | 27                          | 
|                         |                             | 
|North
      America      | 64                          | 
|                         |                             | 
|Latin
      America      | 8                           | 
|                         |                             | 
|Asia                     | 37                          | 
|                         |                             | 
|Other
      countries    | 2                           | 
|                         |                             | 
|                         | 158                         | 
|                         |                             | 

|  |                                                                                                                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Capital
      expenditure relates to the cost incurred during the period to acquire segment
      assets that are expected to be used during more than one period (property,
      plant and equipment and intangible assets).

|                                      |       |  |       | 
|------------------------------------- | ----- |  | ----- | 
|Revenue
      by location of customer |       |  |       | 
|                                      | 2005  |  | 2004  | 
|                                      | £m    |  | £m    | 
|                                      |       |  |       | 
|United
      Kingdom                  | 611   |  | 628   | 
|                                      |       |  |       | 
|Continental
      Europe              | 1,251 |  | 1,264 | 
|                                      |       |  |       | 
|North
      America                   | 1,895 |  | 1,888 | 
|                                      |       |  |       | 
|Latin
      America                   | 460   |  | 382   | 
|                                      |       |  |       | 
|Asia                                  | 1,395 |  | 1,252 | 
|                                      |       |  |       | 
|Other
      countries                 | 200   |  | 195   | 
|                                      |       |  |       | 
|                                      | 5,812 |  | 5,609 | 
|                                      |       |  |       | 



|70 ICI
      Annual Report and Accounts 2005 | Accounts
|-------------------------------------------- | --------

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5  Employee
numbers and costs

Average
number of people employed by the Group

Business
      segments

|                                                        | 2005   |  | 2004   | 
|------------------------------------------------------- | ------ |  | ------ | 
|                                                        |        |  |        | 
|National Starch                                         | 8,910  |  | 9,410  | 
|                                                        |        |  |        | 
|Quest                                                   | 3,450  |  | 3,730  | 
|                                                        |        |  |        | 
|Uniqema                                                 | 2,630  |  | 2,800  | 
|                                                        |        |  |        | 
|Paints                                                  | 15,160 |  | 15,330 | 
|                                                        |        |  |        | 
|Regional and Industrial                                 | 2,140  |  | 2,220  | 
|                                                        |        |  |        | 
|Corporate                                               |        |  |        | 
|                                                        |        |  |        | 
|Board
    support and parent company activities         | 110    |  | 110    | 
|                                                        |        |  |        | 
|Group
    technical resources and other shared services | 130    |  | 220    | 
|                                                        |        |  |        | 
|                                                        | 32,530 |  | 33,820 | 
|                                                        |        |  |        | 

Geographical
      segments

|                       | 2005   |  | 2004   | 
|---------------------- | ------ |  | ------ | 
|                       |        |  |        | 
|United
    Kingdom     | 4,520  |  | 4,790  | 
|                       |        |  |        | 
|Continental
    Europe | 5,300  |  | 5,660  | 
|                       |        |  |        | 
|North
    America      | 10,650 |  | 11,350 | 
|                       |        |  |        | 
|Latin
    America      | 3,050  |  | 3,070  | 
|                       |        |  |        | 
|Asia                   | 8,430  |  | 8,400  | 
|                       |        |  |        | 
|Other
    countries    | 580    |  | 550    | 
|                       |        |  |        | 
|Total employees        | 32,530 |  | 33,820 | 
|                       |        |  |        | 



|                                                       | 2005   |  | 2004   | 
|------------------------------------------------------ | ------ |  | ------ | 
|                                                       |        |  |        | 
|Number of people employed by the Group at the year end | 31,910 |  | 33,300 | 
|                                                       |        |  |        | 

Employee
costs

|                                                                | 2005  |   | 2004  |  
|--------------------------------------------------------------- | ----- | - | ----- | -
|                                                                | £m    |   | £m    |  
|                                                                |       |   |       |  
|Salaries                                                        | 886   |   | 893   |  
|                                                                |       |   |       |  
|Social security costs                                           | 90    |   | 88    |  
|                                                                |       |   |       |  
|Pension costs                                                   |       |   |       |  
|                                                                |       |   |       |  
|Defined
    benefit plans                                       | 37    |   | 79    |  
|                                                                |       |   |       |  
|Defined
    contribution plans                                  | 16    |   | 16    |  
|                                                                |       |   |       |  
|Post-retirement healthcare plans                                | (25   | ) | 1     |  
|                                                                |       |   |       |  
|Other employment costs                                          | 2     |   | 14    |  
|                                                                |       |   |       |  
|                                                                | 1,006 |   | 1,091 |  
|                                                                |       |   |       |  
|Less amounts allocated to capital                               | (8    | ) | (4    | )
|                                                                |       |   |       |  
|Severance costs charged in arriving at profit (loss) before tax | 14    |   | 8     |  
|                                                                |       |   |       |  
|Post-retirement benefit finance expense                         | 37    |   | 33    |  
|                                                                |       |   |       |  
|Employee costs charged in arriving at profit (loss) before tax  | 1,049 |   | 1,128 |  
|                                                                |       |   |       |  



|Accounts | ICI
        Annual Report and Accounts 2005 71
|-------- | ----------------------------------------------

---



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Notes relating to the Group accounts



6   Operating
profit



|                                            | 2005   |   | 2004   |  
|------------------------------------------- | ------ | - | ------ | -
|                                            | £m     |   | £m     |  
|                                            |        |   |        |  
|Operating profit before special items       |        |   |        |  
|                                            |        |   |        |  
|                                            |        |   |        |  
|Revenue                                     |        |   |        |  
|                                            |        |   |        |  
|Sale
    of goods                           | 5,805  |   | 5,605  |  
|                                            |        |   |        |  
|Rendering
    of services                   | 7      |   | 4      |  
|                                            |        |   |        |  
|                                            | 5,812  |   | 5,609  |  
|                                            |        |   |        |  
|Operating costs before special items        |        |   |        |  
|                                            |        |   |        |  
|Cost of sales                               | (3,685 | ) | (3,534 | )
|                                            |        |   |        |  
|Distribution costs                          | (887   | ) | (882   | )
|                                            |        |   |        |  
|Research and development                    | (147   | ) | (146   | )
|                                            |        |   |        |  
|Administration and other expenses           | (583   | ) | (544   | )
|                                            |        |   |        |  
|                                            | (5,302 | ) | (5,106 | )
|                                            |        |   |        |  
|Other operating income before special items |        |   |        |  
|                                            |        |   |        |  
|Royalties                                   | 4      |   | 1      |  
|                                            |        |   |        |  
|Other income                                | 36     |   | 34     |  
|                                            |        |   |        |  
|                                            | 40     |   | 35     |  
|                                            |        |   |        |  
|Operating profit before special items       | 550    |   | 538    |  
|                                            |        |   |        |  
|                                            |        |   |        |  

Included
    above within operating costs before special items is a charge for depreciation
    of £149m (2004 £149m) and a charge for amortisation of £19m
    (2004 £20m). Net foreign exchange gains and losses recognised within
operating profit amounted to £6m (2004 £1m).

|                                               | 2005   |   | 2004   |  
|---------------------------------------------- | ------ | - | ------ | -
|                                               | £m     |   | £m     |  
|                                               |        |   |        |  
|Operating profit after special items           |        |   |        |  
|                                               |        |   |        |  
|Revenue                                        |        |   |        |  
|                                               |        |   |        |  
|Sale of goods                                  | 5,805  |   | 5,605  |  
|                                               |        |   |        |  
|Rendering
    of services                      | 7      |   | 4      |  
|                                               |        |   |        |  
|                                               | 5,812  |   | 5,609  |  
|                                               |        |   |        |  
|Operating costs                                |        |   |        |  
|                                               |        |   |        |  
|Cost of sales                                  | (3,672 | ) | (3,533 | )
|                                               |        |   |        |  
|Distribution costs                             | (884   | ) | (883   | )
|                                               |        |   |        |  
|Research and development                       | (147   | ) | (146   | )
|                                               |        |   |        |  
|Administration and other expenses              | (572   | ) | (549   | )
|                                               |        |   |        |  
|                                               | (5,275 | ) | (5,111 | )
|                                               |        |   |        |  
|Other operating income                         |        |   |        |  
|                                               |        |   |        |  
|Royalties                                      | 4      |   | 1      |  
|                                               |        |   |        |  
|Other income                                   | 36     |   | 34     |  
|                                               |        |   |        |  
|                                               | 40     |   | 35     |  
|                                               |        |   |        |  
|Profit less losses on disposal of fixed assets | 7      |   | (1     | )
|                                               |        |   |        |  
|Operating profit after special items           | 584    |   | 532    |  
|                                               |        |   |        |  

Included
    above within operating costs after special items is a charge for depreciation
    of £152m (2004 £149m) and a charge for amortisation of £19m
    (2004 £20m). Net foreign exchange gains and losses recognised within
operating profit after special items amounted to £6m (2004 £1m).



|72 ICI
        Annual Report and Accounts 2005 | Accounts
|---------------------------------------------- | --------

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6 Operating
profit (continued)

Remuneration
of the Auditor

Remuneration
    of the Auditor for each of the two years ending 31 December 2005 and 2004
was as follows:

|                                                                       |       |  | 2005 |  | 2004 | 
|---------------------------------------------------------------------- | ----- |  | ---- |  | ---- | 
|                                                                       | notes |  | £m   |  | £m   | 
|                                                                       |       |  |      |  |      | 
|Audit of the Group  Remuneration of Auditor                           | 1     |  | 3.4  |  | 3.1  | 
|                                                                       |       |  |      |  |      | 
|                                                                       |       |  |      |  |      | 
|                                                                       |       |  |      |  |      | 
|Services other than audit  Remuneration of Auditor
    and associates |       |  |      |  |      | 
|                                                                       |       |  |      |  |      | 
|Audit related services                                                 | 2     |  | 1.6  |  | 1.2  | 
|                                                                       |       |  |      |  |      | 
|Tax services                                                           | 3     |  | 0.5  |  | 0.7  | 
|                                                                       |       |  |      |  |      | 
|                                                                       |       |  | 2.1  |  | 1.9  | 
|                                                                       |       |  |      |  |      | 

Notes

|1. | Remuneration of the Auditor for the 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
2005 amounting to £66,000 (2004 £65,000).                                                                                                                                                                                                                                                                                 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | Expenditure in 2005 related principally to assistance in preparation
    for Sarbanes-Oxley Section 404, employee benefit plans and review of interim
    financial statements. The expenditure for 2005 comprised audit related regulatory
    reporting £0.5m (2004 £0.4m) and further assurance services £1.1m (2004 £0.8m).
    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.
|  
|3. | Tax services for 2005 related to advisory services £0.3m (2004 £0.4m) and compliance services £0.2m (2004 £0.3m).                                                                                                                                                                                                                                                                                                                                                                                                        

7  Share-based payments

Employees share option schemes and other share-based plansICI currently
grants share options and Stock Appreciation Rights (SARs) under the 2004 Executive
Share Option Plan and conditional awards of shares and for US participants American
Depositary Receipts (ADRs) under the Performance Growth Plan and the Performance
Share Plan. 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), the 1994 Stock Appreciations Rights Plan and options outstanding
from the Companys savings related all employee share option scheme (UK  Sharesave).

Awards under the Performance Growth Plan and 2004 Executive Share Option Plan
are made to Executive Directors and members of the Executive Management Team.
These schemes are described on page 43. The Performance Growth Plan makes conditional
awards of ICI shares or for US based participants ADRs, which are linked to performance
over a fixed three-year period. At 31 December 2005 the number of conditional
awards of Ordinary Share equivalents outstanding under the Performance Growth
Plan was 4,060,652 (2004 3,902,288). The number of Ordinary Share equivalents
conditionally awarded during 2005 was 1,393,867 (2004 1,585,303) with lapses
during the year of
1,054,521 (2004 546,020).

The 2004 Executive Share Option Plan (Senior Staff Scheme) grants options that
vest and become exercisable providing earnings per share targets over a three-year
period are satisfied. Vesting levels will vary based on earnings per share levels
achieved. There is no retesting after the three-year performance period. Options
under the plan must be held for a minimum of three years from date of grant before
they can be exercised and lapse if not exercised within ten years. 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 granted. For US participants the awards are made as SARs denominated as ADRs.

Grants are made under the Performance Share Plan to senior staff below the level
of the Executive Management Team. These 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, ADRs. At 31 December 2005 the number of conditional
awards of Ordinary Share equivalents outstanding under the Performance Share
Plan was 3,803,481 (2004 2,133,600). The number of Ordinary Share equivalents
conditionally awarded during 2005 was 1,796,970 (2004 2,192,190) with lapses
during the year of 127,089 (2004 58,590).

Share options outstanding under the 1994 Share Option Scheme were granted subject
to performance conditions over a three-year period, which are retested each year
until the 10 year
terms of the grants are reached.

The 1994 Stock Appreciation Rights Plan grants stock appreciation rights, and
on exercise, the gain is delivered in the form of American Depository Receipts
(ADRs). Each ADR
represents four ICI Ordinary Shares.

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.

Awards granted to Directors under the Performance Growth Plan and Executive Share
Option Plan are shown in the Remuneration report on pages 46 and 47.

|Accounts | ICI
        Annual Report and Accounts 2005 73
|-------- | ----------------------------------------------

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Notes relating to the Group accounts

7  Share-based
payments (continued)

Share-based
      expenseThe
  Group has applied the requirements of IFRS 2 Share-based
  Paymentand has elected not to adopt
  the exemption to apply IFRS 2 only to awards made after 7 November 2002, instead
  a full retrospective approach has been followed on all grants not fully vested
  at the date of transition in order to maintain consistency across reporting
  periods.

The Group recognised total expenses all of which related to equity settled share-based payments transactions of:

|        | 2005 |  | 2004 | 
|------- | ---- |  | ---- | 
|        | £m   |  | £m   | 
|        |      |  |      | 
|Expense | 7    |  | 8    | 
|        |      |  |      | 

Fair
        value assumptions of share-based paymentsThe
  fair value of awards granted is determined using the Black-Scholes valuation
  model.

Fair value of share options and other equity instruments and assumptions are shown in the table below:

|                                      | 2005          | 2004 |                   
|------------------------------------- | ------------- | ---- | ------------------
|                                      |               |      |                   
|                                      | Share         |      | Other
      equity
|                                      | options       |      | instruments       
|                                      |               |      |                   
|Weighted
      average fair value     | £1.10         |      | £2.58             
|                                      |               |      |                   
|Weighted
      average share price    | £2.81         |      | £ 2.77            
|                                      |               |      |                   
|Weighted
      average exercise price | £2.81         |      |                  
|                                      |               |      |                   
|Dividend
      yield                  | 2.5%          |      | 2.5%              
|                                      |               |      |                   
|Expected
      volatility             | 54%           |      | 53%               
|                                      |               |      |                   
|Expected
      life                   | 4
      years |      | 3
      years     
|                                      |               |      |                   
|Risk
      free interest rate         | 4.6%          |      | 4.7%              
|                                      |               |      |                   

The Group uses historical volatility figures as an input to the Black-Scholes valuation model. For each new grant, the historical volatility is considered for a period in line with
the expected life of the option or equity instrument granted.

The Group assumes an expected life of one year after vesting for options and for other equity instruments the expected life is equal to the vesting period.

Participants in the Groups share-based incentive schemes are
not entitled to receive dividends during the vesting period. Therefore, dividends
expected on the underlying shares during this period must be taken into account
in determining the fair value of share options and other equity instruments granted.
The Group assumes that until each share-based incentive award vests, the dividends
per share will follow the same
pattern as for the previous two years. The Group then considers whether any adjustments
are required to the expected dividends based on knowledge of the Company.

A proportion
  of equity instruments awarded to members of the Executive Management Team is
  based on the TSR performance of the Company relative to a Peer Group. This market
  based performance condition is taken into account in determining the fair value
  of these awards. It is assumed the market is efficient and hence all available
  information about the Peer Group performance is already reflected in its share
  price. ICI therefore assumes that each company within the Peer Group has equal
  probabilities of attaining each ranking within the Peer Group.

|74
      ICI Annual Report and Accounts 2005 | Accounts
|-------------------------------------------- | --------

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7  Share-based
payments (continued)

Transactions
  on Option Schemes

|                                        | Senior
      Staff Scheme |   | UK  Sharesave |  | SARP             |  
|--------------------------------------- | ------------------------- | - | -------------- |  | ---------------- | -
|                                        |                           |   |                |  |                  |  
|                                        | Number                    |   | Weighted       |  | Number           |  
|                                        | of
      options          |   | average        |  | of
      options |  
|                                        |                           |   | exercise       |  |                  |  
|                                        |                           |   | price          |  |                  |  
|                                        | 000                       |   | £              |  | 000              |  
|                                        |                           |   |                |  |                  |  
|Outstanding                             |                           |   |                |  |                  |  
|                                        |                           |   |                |  |                  |  
|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
      beginning of 2005              | 31,366                    |   | 2.97           |  | 8,679            |  
|                                        |                           |   |                |  |                  |  
|Granted                                 | 2,584                     |   | 2.81           |  |                 |  
|                                        |                           |   |                |  |                  |  
|Exercised                               | (3,058                    | ) | 1.76           |  | (434             | )
|                                        |                           |   |                |  |                  |  
|Cancelled                               | (3,424                    | ) | 4.41           |  | (1,686           | )
|                                        |                           |   |                |  |                  |  
|At
      end of 2005                    | 27,468                    |   | 2.91           |  | 6,559            |  
|                                        |                           |   |                |  |                  |  
|Number
      of options exercisable at: |                           |   |                |  |                  |  
|                                        |                           |   |                |  |                  |  
|31
      December 2004                  | 7,336                     |   | 4.62           |  | 331              |  
|                                        |                           |   |                |  |                  |  
|31
      December 2005                  | 6,128                     |   | 4.29           |  | 169              |  
|                                        |                           |   |                |  |                  |  

Summary
  of share options outstanding at 31 December 2005

|                           |                 | Total
      options outstanding |  | Exercisable
      options | 
|-------------------------- | --------------- | ------------------------------- |  | ------------------------- | 
|                           |                 | at
      31 December 2005       |  | at
      31 December 2005 | 
|                           |                 |                                 |  |                           | 
|                           |                 | Number                          |  | Weighted                  | 
|                           |                 | outstanding                     |  | average                   | 
|                           |                 |                                 |  | remaining                 | 
|                           |                 |                                 |  | contractual               | 
|                           |                 |                                 |  | life                      | 
|                           |                 | 000                             |  | Years                     | 
|                           |                 |                                 |  |                           | 
|Exercise
      price range |                 |                                 |  |                           | 
|                           |                 |                                 |  |                           | 
|Senior
      Staff Scheme  |                 |                                 |  |                           | 
|                           |                 |                                 |  |                           | 
|                           | £0  £5         | 26,097                          |  | 6.55                      | 
|                           |                 |                                 |  |                           | 
|                           | £5
       £10  | 818                             |  | 3.09                      | 
|                           |                 |                                 |  |                           | 
|                           | £0
       £15  | 553                             |  | 2.38                      | 
|                           |                 |                                 |  |                           | 
|                           |                 | 27,468                          |  |                           | 
|                           |                 |                                 |  |                           | 
|UK  Sharesave             |                 |                                 |  |                           | 
|                           |                 |                                 |  |                           | 
|                           | £0
       £5   | 6,559                           |  | 2.08                      | 
|                           |                 |                                 |  |                           | 
|                           |                 | 6,559                           |  |                           | 
|                           |                 |                                 |  |                           | 
|                           |                 |                                 |  |                           | 
|                           |                 |                                 |  |                           | 
|SARP
      (ADRs)          |                 |                                 |  |                           | 
|                           |                 |                                 |  |                           | 
|                           | $0
       $20  | 3,001                           |  | 7.09                      | 
|                           |                 |                                 |  |                           | 
|                           | $20
       $40 | 1,939                           |  | 5.09                      | 
|                           |                 |                                 |  |                           | 
|                           | $40
       $60 | 57                              |  | 1.59                      | 
|                           |                 |                                 |  |                           | 
|                           | $60
       $80 | 92                              |  | 2.38                      | 
|                           |                 |                                 |  |                           | 
|                           |                 | 5,089                           |  |                           | 
|                           |                 |                                 |  |                           | 

At 31 December
  2005 there were options outstanding in respect of 34.0 million (2004 40.0 million)
      Ordinary Shares of £1 each under the Senior Staff and UK  Sharesave
  Option Schemes normally exercisable in the period 2006 to 2015 (2004: 2005 to
  2014) at subscription prices of £1.34 to £10.08 (2004 £1.34 to
  £10.08) . Movements in the number of shares under option during 2005 comprised
  new options 2.6 million, options exercised 3.5 million, and options lapsed or
  waived 5.1 million. The number of Ordinary Shares issued during the year, wholly
  in respect of the exercise of options, totalled 0.4 million (2004 0.03 million).
  The weighted average subscription price of options outstanding at 31 December
  2005 was £2.52. The weighted average grant price is equal to the weighted
  average exercise price detailed in the tables above.

|Accounts | ICI
      Annual Report and Accounts 2005 75
|-------- | --------------------------------------------

---



Back to Contents

Notes
  relating to the Group accounts

8  Share
      of profits less losses of associates

|                                                    | 2005 |   | 2004 |  
|--------------------------------------------------- | ---- | - | ---- | -
|                                                    | £m   |   | £m   |  
|                                                    |      |   |      |  
|Share
      of operating profits less losses        | 3    |   | 4    |  
|                                                    |      |   |      |  
|Associates
      net finance income                 | 1    |   |     |  
|                                                    |      |   |      |  
|Taxation
      on profits less losses of associates | (1   | ) | (2   | )
|                                                    |      |   |      |  
|                                                    | 3    |   | 2    |  
|                                                    |      |   |      |  

9 Net
finance expense

|                                                                                         | 2005 |   | 2004 |  
|---------------------------------------------------------------------------------------- | ---- | - | ---- | -
|                                                                                         | £m   |   | £m   |  
|                                                                                         |      |   |      |  
|Interest
      expense and similar charges                                               |      |   |      |  
|                                                                                         |      |   |      |  
|Loan
      interest                                                                      |      |   |      |  
|                                                                                         |      |   |      |  
|Bank
      loans                                                                         | (5   | ) | (8   | )
|                                                                                         |      |   |      |  
|Other
      loans                                                                        | (92  | ) | (122 | )
|                                                                                         |      |   |      |  
|                                                                                         | (97  | ) | (130 | )
|                                                                                         |      |   |      |  
|Interest
      on short-term borrowings                                                  |      |   |      |  
|                                                                                         |      |   |      |  
|Bank
      borrowings                                                                    | (12  | ) | (7   | )
|                                                                                         |      |   |      |  
|Other
      borrowings                                                                   | (7   | ) | (11  | )
|                                                                                         |      |   |      |  
|                                                                                         | (19  | ) | (18  | )
|                                                                                         |      |   |      |  
|                                                                                         |      |   |      |  
|                                                                                         |      |   |      |  
|Amortisation
      of discounted provisions                                              | (10  | ) | (10  | )
|                                                                                         |      |   |      |  
|Fair
      value losses                                                                  |     |   |     |  
|                                                                                         |      |   |      |  
|Foreign
      exchange losses                                                            | (3   | ) | (12  | )
|                                                                                         |      |   |      |  
|                                                                                         | (129 | ) | (170 | )
|                                                                                         |      |   |      |  
|                                                                                         |      |   |      |  
|                                                                                         |      |   |      |  
|Interest
      income and similar income                                                 |      |   |      |  
|                                                                                         |      |   |      |  
|Interest
      income on financial assets                                                | 49   |   | 72   |  
|                                                                                         |      |   |      |  
|Fair
      value gains                                                                   | 1    |   |     |  
|                                                                                         |      |   |      |  
|Foreign
      exchange gains                                                             | 7    |   | 13   |  
|                                                                                         |      |   |      |  
|                                                                                         | 57   |   | 85   |  
|                                                                                         |      |   |      |  
|                                                                                         |      |   |      |  
|                                                                                         |      |   |      |  
|Post-retirement
      benefit finance                                                    |      |   |      |  
|                                                                                         |      |   |      |  
|Interest
      cost                                                                      | (451 | ) | (447 | )
|                                                                                         |      |   |      |  
|Expected
      return on assets                                                          | 414  |   | 414  |  
|                                                                                         |      |   |      |  
|                                                                                         | (37  | ) | (33  | )
|                                                                                         |      |   |      |  
|                                                                                         |      |   |      |  
|                                                                                         |      |   |      |  
|Net
      finance expense before special items                                           | (109 | ) | (118 | )
|                                                                                         |      |   |      |  
|                                                                                         |      |   |      |  
|                                                                                         |      |   |      |  
|Foreign
      exchange gains on debt previously hedging goodwill written off to reserves | 2    |   | 15   |  
|                                                                                         |      |   |      |  
|Net
      finance expense after special items                                            | (107 | ) | (103 | )
|                                                                                         |      |   |      |  



|76
      ICI Annual Report and Accounts 2005 | Accounts
|-------------------------------------------- | --------

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10 Income
tax expense

|                                               | 2005 |  | 2004 | 
|---------------------------------------------- | ---- |  | ---- | 
|                                               | £m   |  | £m   | 
|                                               |      |  |      | 
|Profit before taxation
is analysed as follows: |      |  |      | 
|                                               |      |  |      | 
|United Kingdom                                 | 138  |  | 178  | 
|                                               |      |  |      | 
|Overseas                                       | 362  |  | 428  | 
|                                               |      |  |      | 
|                                               | 500  |  | 606  | 
|                                               |      |  |      | 



|                                                      | Continuing operations |   | Discontinued |   | Total      |  
|----------------------------------------------------- | --------------------- | - | ------------ | - | ---------- | -
|                                                      |                       |   |              |   | operations |  
|                                                      | Before                |   | Special      |   |            |  
|                                                      | special               |   | items        |   |            |  
|                                                      | items                 |   |              |   |            |  
|                                                      | £m                    |   | £m           |   | £m         |  
|                                                      |                       |   |              |   |            |  
|2005                                                  |                       |   |              |   |            |  
|                                                      |                       |   |              |   |            |  
|Recognised in the income statement                    |                       |   |              |   |            |  
|                                                      |                       |   |              |   |            |  
|Current tax expense                                   |                       |   |              |   |            |  
|                                                      |                       |   |              |   |            |  
|Current
    year corporation tax                      | 142                   |   | (15          | ) | (2         | )
|                                                      |                       |   |              |   |            |  
|Adjustments
    for prior years                       | (8                    | ) |             |   |           |  
|                                                      |                       |   |              |   |            |  
|Double
    taxation relief                            | (33                   | ) |             |   |           |  
|                                                      |                       |   |              |   |            |  
|                                                      | 101                   |   | (15          | ) | (2         | )
|                                                      |                       |   |              |   |            |  
|Deferred tax expense                                  |                       |   |              |   |            |  
|                                                      |                       |   |              |   |            |  
|Origination
    and reversal of temporary differences | (13                   | ) | (4           | ) | 9          |  
|                                                      |                       |   |              |   |            |  
|Changes
    in tax rates                              | 4                     |   |             |   |           |  
|                                                      |                       |   |              |   |            |  
|Benefit
    of tax losses recognised                  | (10                   | ) |             |   |           |  
|                                                      |                       |   |              |   |            |  
|Write
    down of a deferred tax asset                | 10                    |   |             |   |           |  
|                                                      |                       |   |              |   |            |  
|                                                      | (9                    | ) | (4           | ) | 9          |  
|                                                      |                       |   |              |   |            |  
|Total income tax expense in income statement          | 92                    |   | (19          | ) | 7          |  
|                                                      |                       |   |              |   |            |  
|                                                      |                       |   |              |   |            |  

|                                                      | Continuing
        operations |   | Discontinued |  | Total      |  
|----------------------------------------------------- | ----------------------------- | - | ------------ |  | ---------- | -
|                                                      |                               |   |              |  | operations |  
|                                                      | Before                        |   | Special      |  |            |  
|                                                      | special                       |   | items        |  |            |  
|                                                      | items                         |   |              |  |            |  
|                                                      | £m                            |   | £m           |  | £m         |  
|                                                      |                               |   |              |  |            |  
|2004                                                  |                               |   |              |  |            |  
|                                                      |                               |   |              |  |            |  
|Recognised
    in the income statement                |                               |   |              |  |            |  
|                                                      |                               |   |              |  |            |  
|Current tax expense                                   |                               |   |              |  |            |  
|                                                      |                               |   |              |  |            |  
|Current
    year corporation tax                      | 101                           |   | 15           |  | (6         | )
|                                                      |                               |   |              |  |            |  
|Adjustments
    for prior years                       | (13                           | ) |             |  |           |  
|                                                      |                               |   |              |  |            |  
|Double
    taxation relief                            | (15                           | ) |             |  |           |  
|                                                      |                               |   |              |  |            |  
|                                                      | 73                            |   | 15           |  | (6         | )
|                                                      |                               |   |              |  |            |  
|Deferred tax expense                                  |                               |   |              |  |            |  
|                                                      |                               |   |              |  |            |  
|Origination
    and reversal of temporary differences | 47                            |   | 1            |  |           |  
|                                                      |                               |   |              |  |            |  
|Changes
    in tax rates                              | (1                            | ) |             |  |           |  
|                                                      |                               |   |              |  |            |  
|Benefit
    of tax losses recognised                  | (31                           | ) |             |  |           |  
|                                                      |                               |   |              |  |            |  
|Write
    down of a deferred tax asset                |                              |   |             |  |           |  
|                                                      |                               |   |              |  |            |  
|                                                      | 15                            |   | 1            |  |           |  
|                                                      |                               |   |              |  |            |  
|Total income tax expense in income statement          | 88                            |   | 16           |  | (6         | )
|                                                      |                               |   |              |  |            |  

The tax expense
    for 2005 consists of UK taxation of £28m (2004 £18m)
  and an overseas tax expense of £52m (2004 £80m). The UK taxation
  charge of £28m (2004 £18m) is calculated after applying double taxation
  relief of £33m (2004 £15m). The UK taxation expense consists of £10m
  credit in respect of special items (2004 £10m credit), £2m charge
  in respect of discontinued operations (2004 £1m credit) and £36m
  charge in respect of continuing operations before special items (2004 £29m
  charge). The overseas tax expense of £52m (2004 £80m) consists of £9m
  credit in respect of special items (2004 £26m charge), £5m charge
  in respect of discontinued operations (2004 £5m credit) and £56m
  charge in respect of continuing operations before special items (2004 £59m
charge).

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% (2004
30%).

The benefit in the period
    arising from a previously unrecognised tax loss, tax credit or temporary
    difference of a prior period that is used to reduce
current tax expense is £8m, and to reduce deferred tax expense £44m.

The tax (credit) charge in 2005 and 2004 in relation to special items was in
respect of disposal and restructuring programmes, as discussed in note 24.

The tax charge of £7m for discontinued operations (2004 £6m
    credit) relates to the profit on discontinuance of an operation, rather than
    to a profit
  made by a
discontinued operation.



|Accounts | ICI
        Annual Report and Accounts 2005 77
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Notes relating to the Group accounts



10
      Income
tax expense (continued)

The table below
    reconciles the total tax charge (credit) at the UK corporation tax rate to
the Groups income tax expense:

|                                                               | 2005 |   | 2004 |  
|-------------------------------------------------------------- | ---- | - | ---- | -
|                                                               | £m   |   | £m   |  
|                                                               |      |   |      |  
|Taxation charge at UK corporation tax rate(2005 30%; 2004 30%) | 150  |   | 182  |  
|                                                               |      |   |      |  
|Movement
    on provisions                                     | (1   | ) | (8   | )
|                                                               |      |   |      |  
|Local
    taxes                                                | 1    |   | 9    |  
|                                                               |      |   |      |  
|Capital
    (gains) losses not taxable/deductible              | (12  | ) | (23  | )
|                                                               |      |   |      |  
|Taxable
    intergroup dividend income                         | 22   |   | 16   |  
|                                                               |      |   |      |  
|Depreciation
    permanently disallowed                        | 1    |   |     |  
|                                                               |      |   |      |  
|Overseas
    tax rates                                         | (5   | ) | (10  | )
|                                                               |      |   |      |  
|Current
    year tax losses not relieved                       | 1    |   |     |  
|                                                               |      |   |      |  
|Prior
    year tax losses utilised                             | (11  | ) | (31  | )
|                                                               |      |   |      |  
|Tax
    holidays/manufacturing exemptions                      | (9   | ) | (6   | )
|                                                               |      |   |      |  
|Adjustments
    for prior years                                | (41  | ) | (32  | )
|                                                               |      |   |      |  
|Other                                                          | (16  | ) | 1    |  
|                                                               |      |   |      |  
|Income tax expense                                             | 80   |   | 98   |  
|                                                               |      |   |      |  



|78 ICI
        Annual Report and Accounts 2005 | Accounts
|---------------------------------------------- | --------

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11Earnings
(loss) per £1 Ordinary Share

|                                                                      | Continuing |   | Discontinued |   | Total   |  
|--------------------------------------------------------------------- | ---------- | - | ------------ | - | ------- | -
|                                                                      | operations |   | operations   |   |         |  
|                                                                      | £m         |   | £m           |   | £m      |  
|                                                                      |            |   |              |   |         |  
|2005                                                                  |            |   |              |   |         |  
|                                                                      |            |   |              |   |         |  
|Adjusted earnings*                                                    | 321        |   |             |   | 321     |  
|                                                                      |            |   |              |   |         |  
|Special items after tax and minorities                                | 69         |   |             |   | 69      |  
|                                                                      |            |   |              |   |         |  
|Earnings                                                             | 390        |   |             |   | 390     |  
|                                                                      |            |   |              |   |         |  
|                                                                      | million    |   | million      |   | million |  
|                                                                      |            |   |              |   |         |  
|Weighted
    average Ordinary Shares in issue during year             | 1,192      |   | 1,192        |   | 1,192   |  
|                                                                      |            |   |              |   |         |  
|Weighted average
shares held by Groups employee share ownership plan | (7         | ) | (7           | ) | (7      | )
|                                                                      |            |   |              |   |         |  
|Basic weighted average Ordinary Shares in issue during year           | 1,185      |   | 1,185        |   | 1,185   |  
|                                                                      |            |   |              |   |         |  
|Dilutive effect of share options                                      | 3          |   | 3            |   | 3       |  
|                                                                      |            |   |              |   |         |  
|Diluted weighted average Ordinary Shares                              | 1,188      |   | 1,188        |   | 1,188   |  
|                                                                      |            |   |              |   |         |  
|                                                                      | pence      |   | pence        |   | pence   |  
|                                                                      |            |   |              |   |         |  
|Basic adjusted
            earnings
per £1 Ordinary Share             | 27.1       |   |             |   | 27.1    |  
|                                                                      |            |   |              |   |         |  
|Basic earnings
            per £1
Ordinary Share                      | 32.9       |   |             |   | 32.9    |  
|                                                                      |            |   |              |   |         |  
|Diluted adjusted
earnings per £1 Ordinary Share                       | 27.0       |   |             |   | 27.0    |  
|                                                                      |            |   |              |   |         |  
|Diluted earnings
per £1 Ordinary Share                                | 32.8       |   |             |   | 32.8    |  
|                                                                      |            |   |              |   |         |  



|                                                                      | Continuing |   | Discontinued |   | Total   |  
|--------------------------------------------------------------------- | ---------- | - | ------------ | - | ------- | -
|                                                                      | operations |   | operations   |   |         |  
|                                                                      | £m         |   | £m           |   | £m      |  
|                                                                      |            |   |              |   |         |  
|2004                                                                  |            |   |              |   |         |  
|                                                                      |            |   |              |   |         |  
|Adjusted earnings*                                                    | 306        |   |             |   | 306     |  
|                                                                      |            |   |              |   |         |  
|Special items after tax and minorities                                | 182        |   | (14          | ) | 168     |  
|                                                                      |            |   |              |   |         |  
|Earnings                                                             | 488        |   | (14          | ) | 474     |  
|                                                                      |            |   |              |   |         |  
|                                                                      | 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 adjusted
            earnings
per £1 Ordinary Share             | 25.8       |   |             |   | 25.8    |  
|                                                                      |            |   |              |   |         |  
|Basic earnings
            per £1
Ordinary Share                      | 41.2       |   | (1.1         | ) | 40.1    |  
|                                                                      |            |   |              |   |         |  
|Diluted adjusted
earnings per £1 Ordinary Share                       | 25.8       |   |             |   | 25.8    |  
|                                                                      |            |   |              |   |         |  
|Diluted earnings
per £1 Ordinary Share                                | 41.2       |   | (1.1         | ) | 40.1    |  
|                                                                      |            |   |              |   |         |  

|* | Adjusted
        earnings is the net profit (loss) for the financial year before special
    items attributable to equity holders of the parent.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------
|† | Earnings
        is the net profit (loss) for the financial year attributable to equity
    holders of the parent.                              

There are
    no options, warrants or rights outstanding in respect of unissued shares
    except for the share option schemes for employees (note 7).
  Adjusted earnings
    per £1 Ordinary
  Share have been calculated to show the impact of special items as these can
have a distorting effect on earnings and therefore warrant separate consideration.



|Accounts | ICI
        Annual Report and Accounts 2005 79
|-------- | ----------------------------------------------

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Notes relating to the Group accounts

12 Intangible
assets

|                                          |          |  |          |   |       |   |       |  
|----------------------------------------- | -------- |  | -------- | - | ----- | - | ----- | -
|                                          |          |  |          |   |       |   |       |  
|                                          | Goodwill |  | Computer |   | Other |   | Total |  
|                                          |          |  | software |   |       |   |       |  
|                                          | £m       |  | £m       |   | £m    |   | £m    |  
|                                          |          |  |          |   |       |   |       |  
|2005                                      |          |  |          |   |       |   |       |  
|                                          |          |  |          |   |       |   |       |  
|Cost                                      |          |  |          |   |       |   |       |  
|                                          |          |  |          |   |       |   |       |  
|At beginning of year                      | 516      |  | 105      |   | 12    |   | 633   |  
|                                          |          |  |          |   |       |   |       |  
|Additions                                 | 9        |  | 5        |   |      |   | 14    |  
|                                          |          |  |          |   |       |   |       |  
|Acquired as part
of business combinations |         |  |         |   | 3     |   | 3     |  
|                                          |          |  |          |   |       |   |       |  
|Disposals and other
movements             | 4        |  | (3       | ) | (1    | ) |      |  
|                                          |          |  |          |   |       |   |       |  
|Exchange adjustments                      | 27       |  | 5        |   | 1     |   | 33    |  
|                                          |          |  |          |   |       |   |       |  
|At end of year                            | 556      |  | 112      |   | 15    |   | 683   |  
|                                          |          |  |          |   |       |   |       |  
|Amortisation                              |          |  |          |   |       |   |       |  
|                                          |          |  |          |   |       |   |       |  
|At beginning of year                      |          |  | 58       |   | 6     |   | 64    |  
|                                          |          |  |          |   |       |   |       |  
|Amortisation for
the year                 |          |  | 17       |   | 2     |   | 19    |  
|                                          |          |  |          |   |       |   |       |  
|Disposals and other
movements             |          |  | (2       | ) | (1    | ) | (3    | )
|                                          |          |  |          |   |       |   |       |  
|Exchange adjustments                      |          |  | 2        |   |      |   | 2     |  
|                                          |          |  |          |   |       |   |       |  
|At end of year                            |          |  | 75       |   | 7     |   | 82    |  
|                                          |          |  |          |   |       |   |       |  
|Net book value
at end of 2005             | 556      |  | 37       |   | 8     |   | 601   |  
|                                          |          |  |          |   |       |   |       |  

|                                    |          |   |          |   |       |  |       |  
|----------------------------------- | -------- | - | -------- | - | ----- |  | ----- | -
|                                    | Goodwill |   | Computer |   | Other |  | Total |  
|                                    |          |   | software |   |       |  |       |  
|                                    | £m       |   | £m       |   | £m    |  | £m    |  
|                                    |          |   |          |   |       |  |       |  
|2004                                |          |   |          |   |       |  |       |  
|                                    |          |   |          |   |       |  |       |  
|Cost                                |          |   |          |   |       |  |       |  
|                                    |          |   |          |   |       |  |       |  
|At beginning of year                | 533      |   | 104      |   | 10    |  | 647   |  
|                                    |          |   |          |   |       |  |       |  
|Additions                           | 1        |   | 2        |   | 2     |  | 5     |  
|                                    |          |   |          |   |       |  |       |  
|Disposals and other movements       |         |   |         |   |      |  |      |  
|                                    |          |   |          |   |       |  |       |  
|Exchange adjustments                | (18      | ) | (1       | ) |      |  | (19   | )
|                                    |          |   |          |   |       |  |       |  
|At end of year                      | 516      |   | 105      |   | 12    |  | 633   |  
|                                    |          |   |          |   |       |  |       |  
|Amortisation                        |          |   |          |   |       |  |       |  
|                                    |          |   |          |   |       |  |       |  
|At beginning of year                |          |   | 40       |   | 4     |  | 44    |  
|                                    |          |   |          |   |       |  |       |  
|Amortisation for the year           |          |   | 18       |   | 2     |  | 20    |  
|                                    |          |   |          |   |       |  |       |  
|Exchange adjustments                |          |   |         |   |      |  |      |  
|                                    |          |   |          |   |       |  |       |  
|At end of year                      |          |   | 58       |   | 6     |  | 64    |  
|                                    |          |   |          |   |       |  |       |  
|Net book value at end of 2004       | 516      |   | 47       |   | 6     |  | 569   |  
|                                    |          |   |          |   |       |  |       |  
|Net book value at beginning of 2004 | 533      |   | 64       |   | 6     |  | 603   |  
|                                    |          |   |          |   |       |  |       |  

Substantially all of the Groups goodwill arose on the purchases
of Acheson Industries Inc. and the European Home Improvement business of Williams
Plc in 1998.



|80 ICI
        Annual Report and Accounts 2005 | Accounts
|---------------------------------------------- | --------

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12 Intangible
assets (continued)

|Impairment
    tests for cash-generating units containing goodwill                                                                    |      |  |      | 
|------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | ---- | 
|Significant
      amounts of goodwill have been allocated for impairment testing purposes
    to the following cash-generating units: |      |  |      | 
|                                                                                                                                      | 2005 |  | 2004 | 
|                                                                                                                                      | £m   |  | £m   | 
|                                                                                                                                      |      |  |      | 
|Paints Decorative
Europe                                                                                                              | 244  |  | 242  | 
|                                                                                                                                      |      |  |      | 
|National Starch Electronic
and Engineering Materials                                                                                  | 202  |  | 183  | 
|                                                                                                                                      |      |  |      | 
|                                                                                                                                      | 446  |  | 425  | 
|                                                                                                                                      |      |  |      | 
|Multiple units without significant goodwill                                                                                           | 110  |  | 91   | 
|                                                                                                                                      |      |  |      | 
|                                                                                                                                      | 556  |  | 516  | 
|                                                                                                                                      |      |  |      | 

The
    recoverable amount of both units is based on value in use calculations and
    is higher than the carrying value of the assets and goodwill allocated to  those
    units. The calculations use cash flow projections based on actual operating
    results and a four year business plan. A growth rate of 2.75% (2004 2.75%)
    has been used for both Paints Decorative Europe and National Starch Electronic
    and Engineering Materials to extrapolate beyond the most recent forecasts
    representing the long-term average growth rate for the countries in which
    the entities operate. A discount rate of 8.36% for Paints Decorative Europe
    and 7.25% for National Starch Electronic and Engineering Materials has been
    used
in discounting the projected cash flows.

|The
    key assumptions and approach to determining their value are:
|--------------------------------------------------------------------
|                                                                    
|Cash generating unit                                                
|                                                                    
|Paints Decorative
Europe                                            
|                                                                    
|                                                                    
|National Starch Electronic                                          
|and
            Engineering Materials                               
|                                                                    

13 Property, plant
and equipment

|                                            |     |           |       |           |      |              |       |       | 
|------------------------------------------- | --- | --------- | ----- | --------- | ---- | ------------ | ----- | ----- | 
|                                            |     | Land and  |       | Plant and |      | Payments on  |       | Total | 
|                                            |     | buildings |       | equipment |      | account and  |       |       | 
|                                            |     |           |       |           |      | assets in    |       |       | 
|                                            |     |           |       |           |      | course of    |       |       | 
|                                            |     |           |       |           |      | construction |       |       | 
|                                            |     | £m        |       | £m        |      | £m           |       | £m    | 
|                                            |     |           |       |           |      |              |       |      
|2005                                        |     |           |       |           |      |              |       |      
|                                            |     |           |       |           |      |              |       |      
|Cost                                        |     |           |       |           |      |              |       |      
|                                            |     |           |       |           |      |              |       |      
|At
            beginning of year            | 813 |           | 2,051 |           | 117  |              | 2,981 |      
|                                            |     |           |       |           |      |              |       |      
|New
            subsidiary undertakings     |    |           | 6     |           |     |              | 6     |      
|                                            |     |           |       |           |      |              |       |      
|Capital
            expenditure             |    |           |      |           | 153  |              | 153   |      
|                                            |     |           |       |           |      |              |       |      
|Transfers
            of assets into use    | 26  |           | 127   |           | (153 | )            |      |      
|                                            |     |           |       |           |      |              |       |      
|Disposals
            and other movements   | (48 | )         | (147  | )         | (37  | )            | (232  | )    
|                                            |     |           |       |           |      |              |       |      
|Exchange
            adjustments            | 51  |           | 117   |           | 10   |              | 178   |      
|                                            |     |           |       |           |      |              |       |      
|At
            end of year                  | 842 |           | 2,154 |           | 90   |              | 3,086 |      
|                                            |     |           |       |           |      |              |       |      
|Depreciation                                |     |           |       |           |      |              |       |      
|                                            |     |           |       |           |      |              |       |      
|At
            beginning of year            | 247 |           | 1,135 |           |      |              | 1,382 |      
|                                            |     |           |       |           |      |              |       |      
|Charge for year                             | 27  |           | 125   |           |      |              | 152   |      
|                                            |     |           |       |           |      |              |       |      
|Disposals
            and other movements   | (21 | )         | (105  | )         |      |              | (126  | )    
|                                            |     |           |       |           |      |              |       |      
|Exchange
            adjustments            | 15  |           | 64    |           |      |              | 79    |      
|                                            |     |           |       |           |      |              |       |      
|At
            end of year                  | 268 |           | 1,219 |           |      |              | 1,487 |      
|                                            |     |           |       |           |      |              |       |      
|Net
              book value at end of 2005 | 574 |           | 935   |           | 90   |              | 1,599 |      
|                                            |     |           |       |           |      |              |       |      



|Accounts | ICI
        Annual Report and Accounts 2005 81
|-------- | ----------------------------------------------

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Notes relating to the Group accounts



|13                                        | Property,
      plant and equipment (continued) |   |                 |   |                   |   |       |   | 
|----------------------------------------- | ----------------------------------------------- | - | --------------- | - | ----------------- | - | ----- | - | 
|                                          |                                                 |   |                 |   |                   |   |       |  
|                                          | Land
      and                                  |   | Plant
      and |   | Payments
      on |   | Total |  
|                                          | buildings                                       |   | equipment       |   | account
      and |   |       |  
|                                          |                                                 |   |                 |   | assets
      in   |   |       |  
|                                          |                                                 |   |                 |   | course
      of   |   |       |  
|                                          |                                                 |   |                 |   | construction      |   |       |  
|                                          | £m                                              |   | £m              |   | £m                |   | £m    |  
|                                          |                                                 |   |                 |   |                   |   |       |  
|2004                                      |                                                 |   |                 |   |                   |   |       |  
|                                          |                                                 |   |                 |   |                   |   |       |  
|Cost                                      |                                                 |   |                 |   |                   |   |       |  
|                                          |                                                 |   |                 |   |                   |   |       |  
|At
      beginning of year                | 860                                             |   | 2,132           |   | 115               |   | 3,107 |  
|                                          |                                                 |   |                 |   |                   |   |       |  
|New
      subsidiary undertakings         |                                                |   | 1               |   | 1                 |   | 2     |  
|                                          |                                                 |   |                 |   |                   |   |       |  
|Capital
      expenditure                 |                                                |   |                |   | 156               |   | 156   |  
|                                          |                                                 |   |                 |   |                   |   |       |  
|Transfers
      of assets into use        | 26                                              |   | 133             |   | (159              | ) |      |  
|                                          |                                                 |   |                 |   |                   |   |       |  
|Disposals
      and other movements       | (34                                             | ) | (142            | ) | 9                 |   | (167  | )
|                                          |                                                 |   |                 |   |                   |   |       |  
|Exchange
      adjustments                | (39                                             | ) | (73             | ) | (5                | ) | (117  | )
|                                          |                                                 |   |                 |   |                   |   |       |  
|At
      end of year                      | 813                                             |   | 2,051           |   | 117               |   | 2,981 |  
|                                          |                                                 |   |                 |   |                   |   |       |  
|Depreciation                              |                                                 |   |                 |   |                   |   |       |  
|                                          |                                                 |   |                 |   |                   |   |       |  
|At
      beginning of year                | 237                                             |   | 1,153           |   |                   |   | 1,390 |  
|                                          |                                                 |   |                 |   |                   |   |       |  
|Charge
      for year                     | 27                                              |   | 122             |   |                   |   | 149   |  
|                                          |                                                 |   |                 |   |                   |   |       |  
|Disposals
      and other movements       | (5                                              | ) | (92             | ) |                   |   | (97   | )
|                                          |                                                 |   |                 |   |                   |   |       |  
|Exchange
      adjustments                | (12                                             | ) | (48             | ) |                   |   | (60   | )
|                                          |                                                 |   |                 |   |                   |   |       |  
|At
      end of year                      | 247                                             |   | 1,135           |   |                   |   | 1,382 |  
|                                          |                                                 |   |                 |   |                   |   |       |  
|Net
      book value at end of 2004       | 566                                             |   | 916             |   | 117               |   | 1,599 |  
|                                          |                                                 |   |                 |   |                   |   |       |  
|Net
      book value at beginning of 2004 | 623                                             |   | 979             |   | 115               |   | 1,717 |  
|                                          |                                                 |   |                 |   |                   |   |       |  



|                                                    | 2005 |  | 2004 | 
|--------------------------------------------------- | ---- |  | ---- | 
|The net book value of land and buildings comprises: | £m   |  | £m   | 
|                                                    |      |  |      | 
|Freeholds                                           | 541  |  | 536  | 
|                                                    |      |  |      | 
|Long leases (over 50 years unexpired)               | 13   |  | 11   | 
|                                                    |      |  |      | 
|Short leases                                        | 20   |  | 19   | 
|                                                    |      |  |      | 
|                                                    | 574  |  | 566  | 
|                                                    |      |  |      | 

Capital expenditure
  in the year includes capitalised finance leases of £nil; creditors for capital work done but not paid decreased by £1m; the resulting cash expenditure
on property, plant and equipment, including computer software of £5m, was £159m.

The net book value
  of the property, plant and equipment of the Group includes capitalised finance
  leases of £7m (2004 £7m) comprising cost of £11m (2004 £10m)
less depreciation of £4m (2004 £3m). The depreciation charge for the year in respect of capitalised leases was £1m (2004 £1m) and finance charges were £nil (2004 £nil).

Included in land
  and buildings is £128m (2004 £125m) in respect of the cost of land
which is not subject to depreciation.



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        Annual Report and Accounts 2005 | Accounts
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14Investments
      in associates

|                                               | Equity accounted shares |  
|---------------------------------------------- | ----------------------- | -
|                                               |                         |  
|                                               | 2005                    |  
|                                               | £m                      |  
|                                               |                         |  
|Cost                                           |                         |  
|                                               |                         |  
|At beginning of year                           | 11                      |  
|                                               |                         |  
|Additions                                      |                        |  
|                                               |                         |  
|Disposals and other movements                  | (6                      | )
|                                               |                         |  
|Exchange adjustments                           |                        |  
|                                               |                         |  
|At end of year                                 | 5                       |  
|                                               |                         |  
|Share of post-acquisition reserves less losses |                         |  
|                                               |                         |  
|At beginning of year                           | 11                      |  
|                                               |                         |  
|Retained profits
less losses                   | 3                       |  
|                                               |                         |  
|Reclassifications                              |                        |  
|                                               |                         |  
|Exchange adjustments                           |                        |  
|                                               |                         |  
|At end of year                                 | 14                      |  
|                                               |                         |  
|Balance sheet value at end of year             | 19                      |  
|                                               |                         |  
|Balance sheet value at beginning of year       | 22                      |  
|                                               |                         |  

The Groups
    material associates at 31 December 2005 are:

|                 | Issued share capital at date of   |  | Held by a  |  | Principal activities                   |  | Incorporation | 
|---------------- | --------------------------------- |  | ---------- |  | -------------------------------------- |  | ------------- | 
|                 | latest available audited accounts |  | subsidiary |  |                                        |  |               | 
|                 |                                   |  | of ICI     |  |                                        |  |               | 
|                 | Class of capital                  |  | %          |  |                                        |  |               | 
|                 |                                   |  |            |  |                                        |  |               | 
|IC Insurance Ltd | Ordinary                          |  | 49         |  | Insurance and reinsurance underwriting |  | England       | 
|                 |                                   |  |            |  |                                        |  |               | 
|Metlac Spa       | Ordinary                          |  | 44         |  | Packaging coatings                     |  | Italy         | 
|                 |                                   |  |            |  |                                        |  |               | 
|                 |                                   |  |            |  |                                        |  |               | 

|                                                      | 2005 |   | 2004 |  
|----------------------------------------------------- | ---- | - | ---- | -
|                                                      | £m   |   | £m   |  
|                                                      |      |   |      |  
|Investments in associates                             |      |   |      |  
|                                                      |      |   |      |  
|Financial information is given based on 100% holding: |      |   |      |  
|                                                      |      |   |      |  
|Assets                                                | 84   |   | 84   |  
|                                                      |      |   |      |  
|Liabilities                                           | (35  | ) | (34  | )
|                                                      |      |   |      |  
|Equity                                                | 49   |   | 50   |  
|                                                      |      |   |      |  
|                                                      |      |   |      |  
|                                                      |      |   |      |  
|Revenues                                              | 46   |   | 43   |  
|                                                      |      |   |      |  
|Profit                                                | 5    |   | 5    |  
|                                                      |      |   |      |  

The Groups associates
    have the same annual reporting date as the Group.



|Accounts | ICI
        Annual Report and Accounts 200583
|-------- | ---------------------------------------------

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Notes relating to the Group accounts



15Financial
assets

|                                                   |       |     | 2005 |  | 2004 | 
|-------------------------------------------------- | ----- | --- | ---- |  | ---- | 
|                                                   | notes |     | £m   |  | £m   | 
|                                                   |       |     |      |  |      | 
|Non-current assets                                 |       |     |      |  |      | 
|                                                   |       |     |      |  |      | 
|Other
            investments                      | 15    | (a) | 40   |  | 35   | 
|                                                   |       |     |      |  |      | 
|Derivative
            assets greater than 1 year |       |     | 33   |  |      | 
|                                                   |       |     |      |  |      | 
|                                                   |       |     | 73   |  | 35   | 
|                                                   |       |     |      |  |      | 
|Current assets                                     |       |     |      |  |      | 
|                                                   |       |     |      |  |      | 
|Current
            asset investments              |       |     | 28   |  | 22   | 
|                                                   |       |     |      |  |      | 
|Derivative
            assets less than 1 year    |       |     | 2    |  |      | 
|                                                   |       |     |      |  |      | 
|                                                   |       |     | 30   |  | 22   | 
|                                                   |       |     |      |  |      | 

| | Derivative
          assets are only recognised since the adoption of IAS 39 on 1 January
          2005. As noted in the basis of preparation, comparative information
    was not restated.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(a)
Other investments

|                                                     | 2005        |   |       | 2004 |      
|---------------------------------------------------- | ----------- | - | ----- | ---- | -----
|                                                     |             |   |       |      |      
|                                                     | Investments |   | Loans |      | Total
|                                                     |             |   |       |      |      
|                                                     | £m          |   | £m    |      | £m   
|                                                     |             |   |       |      |      
|Cost                                                 |             |   |       |      |      
|                                                     |             |   |       |      |      
|At beginning
            of year                     | 18          |   | 18    |      | 36   
|                                                     |             |   |       |      |      
|Additions                                            | 2           |   |      |      | 2    
|                                                     |             |   |       |      |      
|Disposals and
            other movements            | (1          | ) |      |      | (1   
|                                                     |             |   |       |      |      
|Reclassifications                                    |            |   |      |      |     
|                                                     |             |   |       |      |      
|Exchange adjustments                                 | 2           |   | 2     |      | 4    
|                                                     |             |   |       |      |      
|At end of year                                       | 21          |   | 20    |      | 41   
|                                                     |             |   |       |      |      
|Provisions                                           |             |   |       |      |      
|                                                     |             |   |       |      |      
|At beginning
            of year                     | (1          | ) |      |      | (1   
|                                                     |             |   |       |      |      
|Additions                                            |            |   |      |      |     
|                                                     |             |   |       |      |      
|Disposals and
            other movements            |            |   |      |      |     
|                                                     |             |   |       |      |      
|Exchange adjustments                                 |            |   |      |      |     
|                                                     |             |   |       |      |      
|At end of year                                       | (1          | ) |      |      | (1   
|                                                     |             |   |       |      |      
|Balance sheet value at end of year                   | 20          |   | 20    |      | 40   
|                                                     |             |   |       |      |      
|Balance sheet
            value at beginning of year | 17          |   | 18    |      | 35   
|                                                     |             |   |       |      |      

|ø | At
          the start of 2004 loans to other investments principally comprised
          the Groups loans to Ineos Chlor. Under an agreement announced
          on 25 October 2004, Ineos agreed to take
          over ICIs outstanding funding commitment to Ineos Chlor of £55m.
          As part of the agreement, ICI wrote off all existing indebtedness from
          Ineos Chlor and transferred its 15% shareholding in Ineos Chlor to
          Ineos.
          Of the £134m of loans advanced, £129m had been fully provided
          (£30m transferred
          from other provisions (see note 23)). The net write off of the balance
    of £5m was included as a special item in 2004 (see note 3).
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|84 ICI
        Annual Report and Accounts 2005 | Accounts
|---------------------------------------------- | --------

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16 Deferred taxation assets and liabilities

Deferred taxationDeferred taxation accounted for in the Group financial statements and the potential amounts of deferred taxation were:

|                                                    | Balance at |   | Recognised |   | Recognised |   | Balance at |   | Recognised |   | Recognised |   | Balance at  |  
|--------------------------------------------------- | ---------- | - | ---------- | - | ---------- | - | ---------- | - | ---------- | - | ---------- | - | ----------- | -
|                                                    | 1 Jan 2004 |   | in income  |   | in equity  |   | 1 Jan 2005 |   | in income  |   | in equity  |   | 31 Dec 2005 |  
|                                                    | £m         |   | £m         |   | £m         |   | £m         |   | £m         |   | £m         |   | £m          |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Deferred tax assets                                 |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Restructuring
            provisions                | 25         |   | (14        | ) | (1         | ) | 10         |   | (5         | ) |           |   | 5           |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Post-retirement
            benefits                | 104        |   | 19         |   | 23         |   | 146        |   | (52        | ) | 50         |   | 144         |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Employee
            liabilities                    | 61         |   | (8         | ) | (3         | ) | 50         |   | 12         |   | 1          |   | 63          |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Other
            provisions                        | 60         |   | (20        | ) | (2         | ) | 38         |   | (18        | ) | 2          |   | 22          |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Stock
            valuation                         | 9          |   | (2         | ) |           |   | 7          |   | 9          |   | 1          |   | 17          |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Provisions
            on disposal of businesses    | 25         |   | (17        | ) |           |   | 8          |   | 7          |   | 1          |   | 16          |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Losses                                              | 45         |   | 4          |   | (6         | ) | 43         |   | (24        | ) | 7          |   | 26          |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Intangibles                                         | 67         |   | (18        | ) | (2         | ) | 47         |   | (1         | ) | 4          |   | 50          |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Foreign
            tax credits                     | 29         |   | 9          |   | (3         | ) | 35         |   | 1          |   | 4          |   | 40          |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Reclassifications  foreign
            tax credits |           |   |           |   |           |   | 19         |   |           |   |           |   | 19          |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Reclassifications  others                          |           |   |           |   |           |   | 10         |   |           |   |           |   | 10          |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Other                                               | 11         |   | 37         |   | (3         | ) | 45         |   | 42         |   | 7          |   | 94          |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|                                                    | 436        |   | (10        | ) | 3          |   | 458        |   | (29        | ) | 77         |   | 506         |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Deferred taxation liabilities                       |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|UK
            property, plant and equipment        | (25        | ) | (4         | ) |           |   | (29        | ) | 7          |   |           |   | (22         | )
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Non-UK
            property, plant and equipment    | (180       | ) | (3         | ) | 11         |   | (172       | ) | 2          |   | (16        | ) | (186        | )
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|Others                                              | (89        | ) | 1          |   | 4          |   | (84        | ) | 24         |   | (6         | ) | (66         | )
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  
|                                                    | (294       | ) | (6         | ) | 15         |   | (285       | ) | 33         |   | (22        | ) | (274        | )
|                                                    |            |   |            |   |            |   |            |   |            |   |            |   |             |  

The amount
    recognised in equity includes £38m (2004 £30m) credit to
equity in respect of tax on items taken directly to equity and the retranslation
of foreign currency
deferred tax assets and liabilities £17m credit (2004 £12m charge).
In 2004, balance sheet reclassifications of £29m were made between corporation
tax payable and deferred tax assets.

Deferred tax assets of £492m (2004 £259m) have not been recognised
due to the degree of uncertainty over the utilisation of the underlying tax losses
and deductions in certain jurisdictions. These valuation allowances have been
set against gross deferred tax assets of £998m (2004 £717m). The gross
deferred tax assets arise as a result of restructuring provisions £8m (2004 £10m),
pensions £460m (2004 £337m), employee liabilities £102m (2004 £59m),
other provisions £24m (2004 £38m), stock valuation £17m (2004 £7m),
provisions on disposal of businesses £25m (2004 £8m), losses £111m
(2004 £95m), intangibles £50m (2004 £47m), foreign tax credits £59m
(2004 £54m) and other timing differences of £142m (2004 £62m).
The change in valuation allowances during the year ended 31 December 2005 was £233m
(2004 £63m) and the valuation allowance has been decreased by £11m
(2004 £6m) by a change in circumstances.

Operating losses of £351m (2004 £313m) 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 £111m (2004 £95m) against which are set valuation
adjustments of £85m (2004 £52m). £3m of these losses, net of valuation
allowances, have expiration dates through to 2012 and the balance can be carried
forward indefinitely. In addition, there are deductible temporary differences
of £887m (2004 £622m) against which are set valuation allowances of £407m
(2004 £207m). There are also contingent deferred tax assets related to certain
potential capital loss carry forwards that are under discussion with the relevant
taxing authorities. As the extent of those losses is uncertain, management has
not quantified them or any related deferred tax asset.

The deferred tax adjustments to net income and net equity to conform with US
GAAP are disclosed in note 36.

No taxes have been provided
    for liabilities which may arise on the distribution of unremitted earnings
    of subsidiaries on the basis of control, except where
distributions of such profits are planned. Cumulative unremitted earnings of
overseas subsidiaries and associates totalled approximately £1,174m at 31
December 2005 (2004 £1,527m). It is not practicable to calculate the tax
which would arise on remittance of these amounts: it would be substantially lower
than statutory rates after giving effect to foreign tax credits.



|Accounts | ICI
        Annual Report and Accounts 200585
|-------- | ---------------------------------------------

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Notes relating to the Group accounts

17 Inventories

|                                    | 2005 |  | 2004 | 
|----------------------------------- | ---- |  | ---- | 
|                                    | £m   |  | £m   | 
|                                    |      |  |      | 
|Raw materials and
consumables       | 211  |  | 212  | 
|                                    |      |  |      | 
|Stocks in process                   | 18   |  | 19   | 
|                                    |      |  |      | 
|Finished goods and
goods for resale | 429  |  | 417  | 
|                                    |      |  |      | 
|                                    | 658  |  | 648  | 
|                                    |      |  |      | 

|                                                        |      |   |      |  
|------------------------------------------------------- | ---- | - | ---- | -
|                                                        | 2005 |   | 2004 |  
|                                                        | £m   |   | £m   |  
|                                                        |      |   |      |  
|Analysis of inventory
write-downs recognised in period: |      |   |      |  
|                                                        |      |   |      |  
|Write-down of inventory                                 | 23   |   | 21   |  
|                                                        |      |   |      |  
|Reversal of inventory
write-downs                       | (13  | ) | (18  | )
|                                                        |      |   |      |  
|                                                        | 10   |   | 3    |  
|                                                        |      |   |      |  

18 Trade and other receivables

|                                              | 2005  |   | 2004  |  
|--------------------------------------------- | ----- | - | ----- | -
|                                              | £m    |   | £m    |  
|                                              |       |   |       |  
|Current                                       |       |   |       |  
|                                              |       |   |       |  
|Trade debtors                                 | 866   |   | 795   |  
|                                              |       |   |       |  
|Less: amounts set
aside for doubtful accounts | (37   | ) | (39   | )
|                                              |       |   |       |  
|                                              | 829   |   | 756   |  
|                                              |       |   |       |  
|Taxation recoverable                          | 39    |   | 10    |  
|                                              |       |   |       |  
|Other prepayments
and accrued income          | 80    |   | 82    |  
|                                              |       |   |       |  
|Other debtors                                 | 119   |   | 138   |  
|                                              |       |   |       |  
|                                              | 1,067 |   | 986   |  
|                                              |       |   |       |  
|Non-current                                   |       |   |       |  
|                                              |       |   |       |  
|Other debtors                                 | 74    |   | 65    |  
|                                              |       |   |       |  
|Other prepayments
and accrued income          | 7     |   | 7     |  
|                                              |       |   |       |  
|                                              | 81    |   | 72    |  
|                                              |       |   |       |  
|                                              | 1,148 |   | 1,058 |  
|                                              |       |   |       |  

Trade debtors
    includes amounts which have been securitised with a financial institution.
    An amount of £nil (2004 £104m) 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 £196m at 31 December 2005 (2004 £168m)
(up to a maximum of its loan).

The Company has also provided an
    asset-backed guarantee, via a wholly owned subsidiary, ICI Receivables Funding
    Ltd (the SPV) specifically incorporated to provide the
guarantee, for £250m to support the Companys commitments for the ICI Pension Fund (see note 33). The asset-backed guarantee is secured by way of fixed and floating charges over certain trade debtors and cash of Group companies, which have
been assigned to the SPV. At 31 December 2005, £268m (2004 £251m) of trade debtors included above were assigned to the SPV and £5m (2004 £80m)
of cash and cash equivalents.

19 Cash and cash equivalents

|                                                                                             | 2005 |   | 2004 |  
|-------------------------------------------------------------------------------------------- | ---- | - | ---- | -
|                                                                                             | £m   |   | £m   |  
|                                                                                             |      |   |      |  
|Cash at bank                                                                                 | 366  |   | 394  |  
|                                                                                             |      |   |      |  
|Investments and short-term deposits*                                                         | 156  |   | 83   |  
|                                                                                             |      |   |      |  
|Cash and cash equivalents per balance sheet                                                  | 522  |   | 477  |  
|                                                                                             |      |   |      |  
|Overdrafts                                                                                   | (6   | ) | (8   | )
|                                                                                             |      |   |      |  
|Cash and cash
equivalents per cash flow statement                                            | 516  |   | 469  |  
|                                                                                             |      |   |      |  
|* Investments and short-term deposits had a maturity of three months or less
on acquisition. |      |   |      |  

The amount
    of cash and cash equivalent balances that are not available for use by the
    Group are £64m (2004 £46m) and relate to balances held by
    the insurance
captive.

|86ICI
    Annual Report and Accounts 2005 | Accounts
|----------------------------------------- | --------

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20 Trade and other payables

|                                                                                                                                             | 2005  |  | 2004  | 
|-------------------------------------------------------------------------------------------------------------------------------------------- | ----- |  | ----- | 
|                                                                                                                                             | £m    |  | £m    | 
|                                                                                                                                             |       |  |       | 
|Current                                                                                                                                      |       |  |       | 
|                                                                                                                                             |       |  |       | 
|Trade creditors                                                                                                                              | 807   |  | 740   | 
|                                                                                                                                             |       |  |       | 
|Value added taxes, payroll taxes and social security                                                                                         | 28    |  | 27    | 
|                                                                                                                                             |       |  |       | 
|Accruals                                                                                                                                     | 250   |  | 239   | 
|                                                                                                                                             |       |  |       | 
|Other creditors*                                                                                                                             | 400   |  | 297   | 
|                                                                                                                                             |       |  |       | 
|                                                                                                                                             | 1,485 |  | 1,303 | 
|                                                                                                                                             |       |  |       | 
|Non-current                                                                                                                                  |       |  |       | 
|                                                                                                                                             |       |  |       | 
|Accruals                                                                                                                                     | 28    |  | 11    | 
|                                                                                                                                             |       |  |       | 
|Other creditors*                                                                                                                             | 12    |  | 4     | 
|                                                                                                                                             |       |  |       | 
|                                                                                                                                             | 40    |  | 15    | 
|                                                                                                                                             |       |  |       | 
|* Includes obligations under finance leases (note 31).                                                                                       |       |  |       | 
|                                                                                                                                             |       |  |      
|Under US GAAP, provisions for liabilities and charges (note 23) would be shown
under other creditors, split between current and non-current. |       |  |      

21 Current
tax liability

The
    current tax liability of £423m (2004 £387m) represents the amount
    of income taxes payable in respect of current and prior periods. Also included
    within this balance is the provision for potential liabilities for taxation
    arising in prior years and various tax exposures. In particular, a provision
    of £74m (2004 £84m) exists for the exposures arising from the Groups
    reshaping and disposal programme and a provision of £60m (2004 £71m)
    to cover exposure in respect of transfer pricing issues in various jurisdictions
    around the world and further provisions totalling £114m (2004 £109m)
  in respect of various other tax exposures.

Provisions
    for tax contingencies require management to make judgements and estimates
    in relation to tax issues and exposures. Amounts 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 the current tax liability
    above.

|                                                                                                                                                                                            |       |     | 2005  |  | 2004  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----- | --- | ----- |  | ----- | 
|                                                                                                                                                                                            | notes |     | £m    |  | £m    | 
|                                                                                                                                                                                            |       |     |       |  |       | 
|Current liabilities                                                                                                                                                                         |       |     |       |  |       | 
|                                                                                                                                                                                            |       |     |       |  |       | 
|Short-term
    borrowings                                                                                                                                                                   | 22    | (a) | 14    |  | 135   | 
|                                                                                                                                                                                            |       |     |       |  |       | 
|External
    loans less than 1 year                                                                                                                                                         | 22    | (b) | 166   |  | 165   | 
|                                                                                                                                                                                            |       |     |       |  |       | 
|Derivative
    liabilities less than 1 year                                                                                                                                                | 30    |     | 51    |  |       | 
|                                                                                                                                                                                            |       |     |       |  |       | 
|                                                                                                                                                                                            |       |     | 231   |  | 300   | 
|                                                                                                                                                                                            |       |     |       |  |       | 
|Non-current liabilities                                                                                                                                                                     |       |     |       |  |       | 
|                                                                                                                                                                                            |       |     |       |  |       | 
|External
    loans greater than 1 year                                                                                                                                                      | 22    | (b) | 1,072 |  | 1,114 | 
|                                                                                                                                                                                            |       |     |       |  |       | 
|Derivative
    liabilities greater than 1 year                                                                                                                                             | 30    |     | 25    |  |       | 
|                                                                                                                                                                                            |       |     |       |  |       | 
|                                                                                                                                                                                            |       |     | 1,097 |  | 1,114 | 
|                                                                                                                                                                                            |       |     |       |  |       | 
|†Derivative
        liabilities are only recognised since the adoption of IAS 39 on 1 January
    2005. As noted in the basis of preparation, comparative information was not
    restated.

(a) Short-term borrowings

|                                                                                                                                                                                                                                                                                                      |      |  |      |  | Average interest | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | ---- |  | ---------------- | 
|                                                                                                                                                                                                                                                                                                      |      |  |      |  | rate*            | 
|                                                                                                                                                                                                                                                                                                      |      |  |      |  |                  | 
|                                                                                                                                                                                                                                                                                                      | 2005 |  | 2004 |  | 2005             | 
|                                                                                                                                                                                                                                                                                                      | £m   |  | £m   |  | %                | 
|                                                                                                                                                                                                                                                                                                      |      |  |      |  |                  | 
|Bank borrowings                                                                                                                                                                                                                                                                                       |      |  |      |  |                  | 
|                                                                                                                                                                                                                                                                                                      |      |  |      |  |                  | 
|Secured  by
floating charge                                                                                                                                                                                                                                                                          |     |  | 112  |  |                  | 
|                                                                                                                                                                                                                                                                                                      |      |  |      |  |                  | 
|Unsecured                                                                                                                                                                                                                                                                                             | 14   |  | 8    |  |                  | 
|                                                                                                                                                                                                                                                                                                      |      |  |      |  |                  | 
|                                                                                                                                                                                                                                                                                                      | 14   |  | 120  |  | 2.5              | 
|                                                                                                                                                                                                                                                                                                      |      |  |      |  |                  | 
|Other borrowings                                                                                                                                                                                                                                                                                      |      |  |      |  |                  | 
|                                                                                                                                                                                                                                                                                                      |      |  |      |  |                  | 
|Unsecured                                                                                                                                                                                                                                                                                             |     |  | 15   |  |                  | 
|                                                                                                                                                                                                                                                                                                      |      |  |      |  |                  | 
|                                                                                                                                                                                                                                                                                                      |     |  | 15   |  |                 | 
|                                                                                                                                                                                                                                                                                                      |      |  |      |  |                  | 
|                                                                                                                                                                                                                                                                                                      | 14   |  | 135  |  |                  | 
|                                                                                                                                                                                                                                                                                                      |      |  |      |  |                  | 
|Maximum short-term borrowings outstanding during year                                                                                                                                                                                                                                                 | 455  |  | 140  |  |                  | 
|                                                                                                                                                                                                                                                                                                      |      |  |      |  |                  | 
|* 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.



|Accounts | ICI
    Annual Report and Accounts 200587
|-------- | -----------------------------------------

---



Back to Contents

Notes
        relating to the Group accounts



22Financial
liabilities (continued)

(b)
Loans

|                                                                     | Repayment |             | 2005 |       | 2004
|-------------------------------------------------------------------- | --------- | ----------- | ---- | ----- | ----
|                                                                     |           | dates       |      | £m    |     
|                                                                     |           |             |      |       |     
|Secured loans                                                        |           |             |      |       |     
|                                                                     |           |             |      |       |     
|US dollars                                                           |           | 2005        |      |      |     
|                                                                     |           |             |      |       |     
|Other currencies                                                     |           | 20062013   |      | 2     |     
|                                                                     |           |             |      |       |     
|Total secured                                                        |           |             |      | 2     |     
|                                                                     |           |             |      |       |     
|Secured
    by fixed charge         bank
    loans                  |           |             |      |      |     
|                                                                     |           |             |      |       |     
|Secured
            by floating charge      bank
    loans          |           |             |      | 2     |     
|                                                                     |           |             |      |       |     
|Unsecured loans                                                      |           |             |      |       |     
|                                                                     |           |             |      |       |     
|Sterling                                                             |           |             |      |       |     
|                                                                     |           |             |      |       |     
|93
    /4 %
    Bonds                                                |           | 2005        |      |      |     
|                                                                     |           |             |      |       |     
|7.625% Bonds                                                         |           | 2007        |      | 316   |     
|                                                                     |           |             |      |       |     
|Others                                                               |           | 2006        |      | 10    |     
|                                                                     |           |             |      |       |     
|                                                                     |           |             |      | 326   |     
|                                                                     |           |             |      |       |     
|US dollars                                                           |           |             |      |       |     
|                                                                     |           |             |      |       |     
|87
    /   8% Debentures                                             |           | 2006        |      | 141   |     
|                                                                     |           |             |      |       |     
|71
    /20 %
    Notes                                               |           | 2007        |      | 141   |     
|                                                                     |           |             |      |       |     
|55
    /8       %
    Notes                                          |           | 2013        |      | 282   |     
|                                                                     |           |             |      |       |     
|43
    / 8 %
    Notes                                               |           | 2008        |      | 282   |     
|                                                                     |           |             |      |       |     
|Variable
rate medium-term notes                                      |           | 2010        |      | 24    |     
|                                                                     |           |             |      |       |     
|Others                                                               |           | 2006  2008 |      | 33    |     
|                                                                     |           |             |      |       |     
|                                                                     |           |             |      | 903   |     
|                                                                     |           |             |      |       |     
|Other currencies                                                     |           | 2006  2012 |      | 7     |     
|                                                                     |           |             |      |       |     
|Total unsecured                                                      |           |             |      | 1,236 |     
|                                                                     |           |             |      |       |     
|Total loans  before
    financial derivatives(see table on page 89) |           |             |      | 1,238 |     
|                                                                     |           |             |      |       |     
|Financial derivatives                                                |           |             |      |       |     
|                                                                     |           |             |      |       |     
|Total loans after financial derivatives                             |           |             |      |       |     
|                                                                     |           |             |      |       |     

The financial instruments disclosures in note 30 detail the fair
value hedge relationships between the Groups fixed rate loans and interest
rate swaps. Following the implementation of IAS 32 and IAS 39, certain loans
outstanding at 31 December 2005 are reported in the table above at their fair
value. The comparative information in these financial statements is not in accordance
with IAS 32 and IAS 39 as the
Group has elected to apply the exemption in IFRS 1 and therefore the 2004 loans
in the table above are presented at amortised cost, in accordance with UK GAAP.

In 2005, the effect of financial derivatives has been disclosed separately in derivative liabilities in the balance sheet.

The secured debt referred to in this note and the secured short-term
borrowings referred to above were secured by property, plant and other assets
with a net book value at 31
December 2005 of £4m (2004 £179m).

|               |                       | Repayment   |  | Currency |  | Rate    |   | Amount |  
|-------------- | --------------------- | ----------- |  | -------- |  | ------- | - | ------ | -
|               |                       | dates       |  |          |  | %       |   | £m     |  
|               |                       |             |  |          |  |         |   |        |  
|New finance    | Bank loan             | 2005  2006 |  | Various  |  | Various |   | 6      |  
|               |                       |             |  |          |  |         |   |        |  
|               | Euro commercial paper | 2005        |  | Various  |  | Various |   | 500    |  
|               |                       |             |  |          |  |         |   |        |  
|               | Money market loans    | 2005        |  | Various  |  | Various |   | 1,671  |  
|               |                       |             |  |          |  |         |   |        |  
|               |                       |             |  |          |  |         |   | 2,177  |  
|               |                       |             |  |          |  |         |   |        |  
|Finance repaid | Bank loan             |             |  | Various  |  | Various |   | (97    | )
|               |                       |             |  |          |  |         |   |        |  
|               | Euro commercial paper |             |  | Various  |  | Various |   | (500   | )
|               |                       |             |  |          |  |         |   |        |  
|               | Money market loans    |             |  | Various  |  | Various |   | (1,671 | )
|               |                       |             |  |          |  |         |   |        |  
|               | Bond repayment        |             |  | GBP      |  | 9.75    | % | (100   | )
|               |                       |             |  |          |  |         |   |        |  
|               |                       |             |  |          |  |         |   | (2,368 | )
|               |                       |             |  |          |  |         |   |        |  

|88ICI
    Annual Report and Accounts 2005 | Accounts
|----------------------------------------- | --------

---



Back to Contents

22Financial
liabilities (continued)

(b)
      Loans
(continued)

Effects
      of financial derivativesThe
following analysis reflects the effects of financial derivatives on the Groups
borrowings at 31 December 2005:

|                    | Before      |  | After       | 
|------------------- | ----------- |  | ----------- | 
|                    | financial   |  | financial   | 
|                    | derivatives |  | derivatives | 
|                    | £m          |  | £m          | 
|                    |             |  |             | 
|Sterling            | 328         |  | 16          | 
|                    |             |  |             | 
|US dollar           | 901         |  | 1,146       | 
|                    |             |  |             | 
|Euro                | 7           |  | 60          | 
|                    |             |  |             | 
|Japanese yen        |            |  | 25          | 
|                    |             |  |             | 
|Other currencies    | 2           |  | 2           | 
|                    |             |  |             | 
|                    | 1,238       |  | 1,249       | 
|                    |             |  |             | 
|Fixed rate loans    | 1,170       |  |            | 
|                    |             |  |             | 
|Floating rate loans | 68          |  | 1,249       | 
|                    |             |  |             | 
|                    | 1,238       |  | 1,249       | 
|                    |             |  |             | 
|                    |             |  |             | 

|                                                                          | 2005  |  | 2004  | 
|------------------------------------------------------------------------- | ----- |  | ----- | 
|                                                                          | £m    |  | £m    | 
|                                                                          |       |  |       | 
|Loan maturities                                                           |       |  |       | 
|                                                                          |       |  |       | 
|Bank loans                                                                |       |  |       | 
|                                                                          |       |  |       | 
|Loans or instalments thereof are repayable:                               |       |  |       | 
|                                                                          |       |  |       | 
|After
    5 years from balance sheet date                                 | 2     |  |      | 
|                                                                          |       |  |       | 
|From
    4 to 5 years                                                     |      |  |      | 
|                                                                          |       |  |       | 
|From
    3 to 4 years                                                     |      |  | 7     | 
|                                                                          |       |  |       | 
|From
    2 to 3 years                                                     | 7     |  | 12    | 
|                                                                          |       |  |       | 
|From
    1 to 2 years                                                     | 13    |  | 12    | 
|                                                                          |       |  |       | 
|Total due after more than one year                                        | 22    |  | 31    | 
|                                                                          |       |  |       | 
|Total due within one year                                                 | 14    |  | 15    | 
|                                                                          |       |  |       | 
|                                                                          | 36    |  | 46    | 
|                                                                          |       |  |       | 
|Other loans                                                               |       |  |       | 
|                                                                          |       |  |       | 
|Loans or instalments thereof are repayable:                               |       |  |       | 
|                                                                          |       |  |       | 
|After
    5 years from balance sheet date                                 | 283   |  | 288   | 
|                                                                          |       |  |       | 
|From
    4 to 5 years                                                     | 25    |  | 1     | 
|                                                                          |       |  |       | 
|From
    3 to 4 years                                                     | 1     |  | 260   | 
|                                                                          |       |  |       | 
|From
    2 to 3 years                                                     | 282   |  | 382   | 
|                                                                          |       |  |       | 
|From
    1 to 2 years                                                     | 459   |  | 152   | 
|                                                                          |       |  |       | 
|Total due after more than one year                                        | 1,050 |  | 1,083 | 
|                                                                          |       |  |       | 
|Total due within one year                                                 | 152   |  | 150   | 
|                                                                          |       |  |       | 
|                                                                          | 1,202 |  | 1,233 | 
|                                                                          |       |  |       | 
|Total loans                                                               |       |  |       | 
|                                                                          |       |  |       | 
|Loans or instalments thereof are repayable:                               |       |  |       | 
|                                                                          |       |  |       | 
|After
    5 years from balance sheet date                                 | 285   |  | 288   | 
|                                                                          |       |  |       | 
|From
    4 to 5 years                                                     | 25    |  | 1     | 
|                                                                          |       |  |       | 
|From
    3 to 4 years                                                     | 1     |  | 267   | 
|                                                                          |       |  |       | 
|From
    2 to 3 years                                                     | 289   |  | 394   | 
|                                                                          |       |  |       | 
|From
    1 to 2 years                                                     | 472   |  | 164   | 
|                                                                          |       |  |       | 
|Total due after more than one year                                        | 1,072 |  | 1,114 | 
|                                                                          |       |  |       | 
|Total due within one year                                                 | 166   |  | 165   | 
|                                                                          |       |  |       | 
|Total loans                                                               | 1,238 |  | 1,279 | 
|                                                                          |       |  |       | 
|Aggregate amount of loans any instalment of which falls due after 5 years | 297   |  | 294   | 
|                                                                          |       |  |       | 



|Accounts | ICI
        Annual Report and Accounts 2005 89
|-------- | ----------------------------------------------

---



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Notes
relating to the Group accounts



23 Provisions
for liabilities and charges

|                                    | Environmental |   | Disposal   |   | Restructuring |   | Other      |   | Total |  
|----------------------------------- | ------------- | - | ---------- | - | ------------- | - | ---------- | - | ----- | -
|                                    | provisions*   |   | provisions |   | provisions    |   | provisions |   |       |  
|                                    |               |   | (note 24)  |   | (note 24)     |   |            |   |       |  
|                                    | £m            |   | £m         |   | £m            |   | £m         |   | £m    |  
|                                    |               |   |            |   |               |   |            |   |       |  
|At 31 December 2004                 | 25            |   | 310        |   | 73            |   | 143        |   | 551   |  
|                                    |               |   |            |   |               |   |            |   |       |  
|IFRS 2005 transitional adjustment   |               |   |            |   |               |   | (70        | ) | (70   | )
|                                    |               |   |            |   |               |   |            |   |       |  
|Provisions made during the year     | 3             |   | 77         |   | 19            |   | 1          |   | 100   |  
|                                    |               |   |            |   |               |   |            |   |       |  
|Provisions used during the year     | (4            | ) | (71        | ) | (50           | ) | (4         | ) | (129  | )
|                                    |               |   |            |   |               |   |            |   |       |  
|Provisions reversed during the year | (2            | ) | (33        | ) | (6            | ) |           |   | (41   | )
|                                    |               |   |            |   |               |   |            |   |       |  
|Increase due to effluxion of time   |              |   | 10         |   |              |   |           |   | 10    |  
|                                    |               |   |            |   |               |   |            |   |       |  
|Transfers to creditors              |              |   |           |   |              |   | (20        | ) | (20   | )
|                                    |               |   |            |   |               |   |            |   |       |  
|Exchange and other movements        | 3             |   | 2          |   | (3            | ) | 1          |   | 3     |  
|                                    |               |   |            |   |               |   |            |   |       |  
|At 31 December 2005                 | 25            |   | 295        |   | 33            |   | 51         |   | 404   |  
|                                    |               |   |            |   |               |   |            |   |       |  
|Current                             | 6             |   | 59         |   | 31            |   | 10         |   | 106   |  
|                                    |               |   |            |   |               |   |            |   |       |  
|Non-current                         | 19            |   | 236        |   | 2             |   | 41         |   | 298   |  
|                                    |               |   |            |   |               |   |            |   |       |  
|                                    | 25            |   | 295        |   | 33            |   | 51         |   | 404   |  
|                                    |               |   |            |   |               |   |            |   |       |  

|Under
        US GAAP, provisions for liabilities and charges would be shown under
    other creditors (note 20).
|-----------------------------------------------------------------------------------------------------------------
|                                                                                                                 
|*Other
    than arising on disposal.                                                                             

Other provisionsThe
IFRS 2005 transitional adjustment represents the transfer of the provision in
respect of own shares
to financial liabilities on adoption of IAS 39Financial
Instruments: Recognition and Measurement.This
adjustment is described further in
note 30.



|90 ICI
        Annual Report and Accounts 2005 | Accounts
|---------------------------------------------- | --------

---



Back to Contents

24 Disposal
and legacy, and restructuring provisions

|                                    | Disposal and legacy |   | Restructuring provisions |  
|----------------------------------- | ------------------- | - | ------------------------ | -
|                                    | provisions          |   |                          |  
|                                    |                     |   |                          |  
|                                    | 2005                |   | 2004                     |  
|                                    | £m                  |   | £m                       |  
|                                    |                     |   |                          |  
|At beginning of year                | 310                 |   | 348                      |  
|                                    |                     |   |                          |  
|Provisions made during the year     | 77                  |   | 50                       |  
|                                    |                     |   |                          |  
|Provisions used during the year     | (71                 | ) | (85                      | )
|                                    |                     |   |                          |  
|Provisions reversed during the year | (33                 | ) | (11                      | )
|                                    |                     |   |                          |  
|Exchange and other movements        | 12                  |   | 8                        |  
|                                    |                     |   |                          |  
|At end of year                      | 295                 |   | 310                      |  
|                                    |                     |   |                          |  
|Comprising                          |                     |   |                          |  
|                                    |                     |   |                          |  
|Severance
    costs                 | 18                  |   | 21                       |  
|                                    |                     |   |                          |  
|Other                               | 277                 |   | 289                      |  
|                                    |                     |   |                          |  
|                                    | 295                 |   | 310                      |  
|                                    |                     |   |                          |  

Disposal and legacy provisionsICI
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 2004

Between 1997 and 2004 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, the
Eutech engineering consultancy, the synetix catalyst business, the 51% owned
pharmaceutical business of ICI India, the Security Systems business, the UK Nitrocellulose
and Energetic Technologies business, the Permabond and Cheese Coatings business
of National Starch and the Explosives business of ICI India. In addition, Irish
Fertiliser Industries Ltd, a business in which the Group had a 49% interest,
ceased
trading.

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 2004 were £1,636m mainly in respect of termination
costs (£295m), post-retirement benefit costs relating to employees transferring
to the purchaser (£329m), transaction costs (£105m), separation costs
(£96m), 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 2006 to at least 2030. During 2004 revisions were
made to these provisions resulting in a release of £4m. During 2005 further
revisions were made resulting in
a net charge of £16m. At 31 December 2005, £201m remained to be spent.

The direct disposal provisions
    relating to the pre-2004 divestments were reviewed
during 2005 resulting
in a net charge of £4m to profit on special items. At 31 December 2005, £74m
remained to be spent relating to pre-2004 divestments principally termination
costs (£16m), transaction costs (£6m)
and site separation costs (£9m). These provisions are expected to be substantially
utilised by the end of 2007.

2004

(i) Quest Food IngredientsThe
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),
post-retirement benefit costs relating to employees transferring to the purchaser
(£6m), separation costs (£9m) and severance costs (£1m). Minor
revisions were made during 2005. At 31 December 2005, £10m remained to be
spent. The majority of provisions are expected to be utilised
by the end of 2006.

(ii) Other disposalsDuring
2004 the Group closed its polyethylene business in Argentina. Provisions of £5m
were charged in respect of transaction costs (£1m) and separation costs
(£4m).
At 31 December 2005, £2m remained to be spent relating to separation costs.
The majority of provisions are expected to be utilised by the end of 2007.

2005

(i) National Starch Vinamul PolymersThe
Group completed the sale of National Starch Vinamul Polymers business on 7 February
2005. Provisions of £23m were charged in respect of transaction costs (£5m),
post-retirement benefit liabilities relating to employees transferring to the
purchaser (£13m) and environmental costs (£5m). As at 31 December 2005, £7m
remained to be spent including post-retirement benefit costs (£2m) and environmental
costs (£5m). Full utilisation is expected by the end of 2006.

(ii) Paints Wood FinishingThe
Group completed the sale of Paints Wood Finishing business on 30 September 2005
creating a provision of £1m in relation to separation costs. This provision
is expected to be
utilised in 2007.



|Accounts | ICI
        Annual Report and Accounts 2005 91
|-------- | ----------------------------------------------

---



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Notes
relating to the Group accounts



24   Disposal
and legacy, and restructuring provisions (continued)

Restructuring
provisions

Prior to 2004

The Group
    undertook a series of restructuring actions between 1999 and 2001 across
its portfolio affecting all segments.

The total
    provisions before tax included in special items of £319m for these restructuring
    programmes was charged against profits. The total included £158m relating
    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 2005, £4m of provisions
remained to
be spent, including £2m relating to the severance of 29 employees. This
provision is expected to be utilised in 2006.

In 2003
    the Group undertook a series of restructuring programmes 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 Natural Polymers Group.
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                       
|(ii)  | Quest staff
          reductions in the Foods 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
            and other 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 charge to special items in 2003 included £111m
    relating to
the termination of some 2,130 employees, £48m for asset write-downs and £42m
for other costs.

2004

During
    2004 an extension to the 2003 restructuring programme was approved in Quest
    following the disposal of the Food Ingredients business. Revisions were made
    to the estimated cost
of the 2003 programme resulting in £8m being charged in 2004 as a loss on
special items, relating to termination of employees split between National Starch
(£1m) and Quest (£7m).

2005

During
    2005, restructuring was initiated to eliminate further costs in National
Starch, Paints and Quest.

Charges
    of £19m relating to termination of employees were incurred in 2005 and
    further charges of £9m are expected in 2006, bringing the total charge
    in special items for
the 2003 programme to £231m. A charge of £2m was incurred by National
Starch in 2005, with a further £4m expected in 2006, a charge of £12m
was incurred by Quest in 2005, with a further £4m expected in 2006 and a
charge of £5m for Paints with a further £1m expected in 2006. Releases
of £6m (Uniqema £4m and Corporate £2m) were made in the year.
Spend of £49m was incurred during 2005, with the remainder expected to be
substantially utilised
by the end of 2006. At 31 December 2005, £29m remained to be spent including £25m
relating to the termination of 287 employees.

25Post-retirement
benefits

The
      Group accounts for post-retirement benefits in accordance with IAS 19 Employee
      Benefits.
      Analysis is also provided, in note 36, of the aggregate net periodic benefit
      cost and funded status of the Groups post-retirement schemes restated
      in accordance with US GAAP and in compliance with the requirements of SFAS
      No. 87 Employers 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 December 2003).

The Group
    operates 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 many existing employees are 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-administrated funds.
    Formal funding 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 largest
    pension plan in the Group is the ICI Pension Fund in the UK which accounts
    for approximately 80% of the Groups pension plan defined benefit obligations.
    There are also other large, funded pension plans in the UK, US, Canada, the
    Netherlands and Belgium that account for approximately 17% of the Groups
    pension plan defined benefit obligations and other large, unfunded pension
    plans in the US, Canada and Germany that account for approximately 2% of
    the Groups pension plan defined benefit obligations. The remainder
    of the obligations comprise a large number of small plans, funded and unfunded,
    located throughout the world in the countries in
which ICI operates.

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 2005 approximately 17,000 (2004 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.



|92ICI
    Annual Report and Accounts 2005 | Accounts
|----------------------------------------- | --------

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Back to Contents

25   Post-retirement
benefits (continued)

Key
financial assumptions  Group The principal
weighted average rates used at 31 December were:

|                                                | 2005   |  | 2004   | 
|----------------------------------------------- | ------ |  | ------ | 
|                                                | % p.a. |  | % p.a. | 
|                                                |        |  |        | 
|Discount rate                                   | 4.8    |  | 5.3    | 
|                                                |        |  |        | 
|Inflation rate                                  | 2.7    |  | 2.6    | 
|                                                |        |  |        | 
|Long-term rate of increase in future earnings   | 4.2    |  | 4.0    | 
|                                                |        |  |        | 
|Increase in pensions in payment                 | 2.7    |  | 2.4    | 
|                                                |        |  |        | 
|Post-retirement healthcare cost inflation rate  | 9.0    |  | 9.7    | 
|                                                |        |  |        | 
|                                                |        |  |        | 
|                                                |        |  |        | 
|Expected rates of return on plan assets:        |        |  |        | 
|                                                |        |  |        | 
|Equities                                        | 8.2    |  | 8.2    | 
|                                                |        |  |        | 
|Bonds                                           | 4.7    |  | 4.9    | 
|                                                |        |  |        | 
|Other                                           | 5.7    |  | 4.6    | 
|                                                |        |  |        | 
|                                                |        |  |        | 
|                                                |        |  |        | 
|Expected rate of return on reimbursement rights | 5.6    |  | 4.6    | 
|                                                |        |  |        | 

The overall expected long-term rate of return on asset assumption
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 obligations. 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.

Mortality assumptions  UKFollowing
an in depth analysis of the mortality experience in the two main UK funds (Funds) carried out as part of the formal valuation of the Funds as at 31 March 2005,
it was decided to make a change to the mortality assumptions used in both Funds formal
valuations, both in terms of the current mortality table applied and the allowance
for future improvements in longevity. The updated mortality tables adopted as
at 31 March 2005 were PMA92C05MC with a +1.75 year age-rating for male members
retiring in normal health and PFA92C05MC with a +2.25 age-rating for female members
retiring in normal health, with allowance for future mortality improvements
in line with the medium cohort. This change has been carried through into the
calculation of the pension liabilities reflected in the balance sheet as at 31
December 2005 for both of the main UK Funds.

The table below illustrates the effect of this change on the expected age at
death of an average member retiring currently at age 62 and one who retires at
age 62 in 10 years time. The figures at 31 December 2004 are based on the demographic
assumptions underlying the previous formal valuation of the ICI Pension Fund
as at 31 March 2003 and were applied in the calculation of the pension liabilities
at 31 December 2004. The figures at 31 December 2005 are those derived from the
31 March 2005 valuation. Shorter longevity assumptions are used for members who
retire on grounds of ill-health.

|                               | At       |  | At       | 
|------------------------------ | -------- |  | -------- | 
|                               | 31Dec    |  | 31Dec    | 
|                               | 2005     |  | 2004     | 
|                               | in years |  | in years | 
|                               |          |  |          | 
|Retiring today at age 62       |          |  |          | 
|                               |          |  |          | 
|Male                           | 85.0     |  | 83.9     | 
|                               |          |  |          | 
|Female                         | 87.5     |  | 86.6     | 
|                               |          |  |          | 
|                               |          |  |          | 
|                               |          |  |          | 
|Retiring in 10 years at age 62 |          |  |          | 
|                               |          |  |          | 
|Male                           | 85.8     |  | 84.7     | 
|                               |          |  |          | 
|Female                         | 88.2     |  | 87.3     | 
|                               |          |  |          | 

Assumed
  healthcare cost trend rates have a significant effect on the amounts recognised
  in profit or loss. A one percentage point movement in assumed healthcare cost
  trend rates
would have the following effects:

|                                                                      | One        |   | One        | 
|--------------------------------------------------------------------- | ---------- | - | ---------- | 
|                                                                      | percentage |   | percentage | 
|                                                                      | point      |   | point      | 
|                                                                      | increase   |   | decrease   | 
|                                                                      | £m         |   | £m         | 
|                                                                      |            |   |            | 
|Effect on the aggregate of the current service cost and interest cost | (0.5       | ) | 0.5        | 
|                                                                      |            |   |            | 
|Effect on the other post-retirement defined benefit obligation        | (7.9       | ) | 6.8        | 
|                                                                      |            |   |            | 



|Accounts | ICI
    Annual Report and Accounts 200593
|-------- | -----------------------------------------

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Back to Contents

Notes
relating to the Group accounts



25   Post-retirement
benefits (continued)

Defined
benefit plans  pensions and other post-retirement plan disclosures

|Amounts
    recognised on the Group balance sheet         |         |   |                |   |       |  
|--------------------------------------------------------- | ------- | - | -------------- | - | ----- | -
|                                                          | Pension |   | Other          |   | Total |  
|                                                          | plans   |   | post-retiremen |   |       |  
|                                                          |         |   | plans          |   |       |  
|                                                          |         |   |                |   |       |  
|                                                          | 2005    |   | 2004           |   | 2005  |  
|                                                          | £m      |   | £m             |   | £m    |  
|                                                          |         |   |                |   |       |  
|Plan assets                                               |         |   |                |   |       |  
|                                                          |         |   |                |   |       |  
|Equities                                                  | 1,511   |   | 1,439          |   |      |  
|                                                          |         |   |                |   |       |  
|Bonds                                                     | 6,355   |   | 5,795          |   |      |  
|                                                          |         |   |                |   |       |  
|Other                                                     | 323     |   | 398            |   | 5     |  
|                                                          |         |   |                |   |       |  
|Total fair value of plan assets                           | 8,189   |   | 7,632          |   | 5     |  
|                                                          |         |   |                |   |       |  
|Present value of defined benefit obligation               | 9,680   |   | 8,569          |   | 202   |  
|                                                          |         |   |                |   |       |  
|Net (deficit) in the plans                                | (1,491  | ) | (937           | ) | (197  | )
|                                                          |         |   |                |   |       |  
|Fair value of reimbursement rights recognised as an asset |         |   |                |   | 1     |  
|                                                          |         |   |                |   |       |  
|Restrictions on assets recognised                         | (1      | ) | (1             | ) |      |  
|                                                          |         |   |                |   |       |  
|Liability recognised in the Group balance sheet           | (1,492  | ) | (938           | ) | (196  | )
|                                                          |         |   |                |   |       |  
|Represented by                                            |         |   |                |   |       |  
|                                                          |         |   |                |   |       |  
|(Deficits)                                                | (1,503  | ) | (948           | ) | (196  | )
|                                                          |         |   |                |   |       |  
|Surpluses                                                 | 11      |   | 10             |   |      |  
|                                                          |         |   |                |   |       |  
|                                                          |         |   |                |   |       |  
|                                                          |         |   |                |   |       |  
|Analysis of net recognised (deficit)                      |         |   |                |   |       |  
|                                                          |         |   |                |   |       |  
|ICI UK Pension Fund                                       | (817    | ) | (411           | ) |      |  
|                                                          |         |   |                |   |       |  
|Other funded pension plans                                | (449    | ) | (336           | ) |      |  
|                                                          |         |   |                |   |       |  
|Total funded plans                                        | (1,266  | ) | (747           | ) |      |  
|                                                          |         |   |                |   |       |  
|Total unfunded plans                                      | (226    | ) | (191           | ) | (196  | )
|                                                          |         |   |                |   |       |  
|Liability recognised in the Group balance sheet           | (1,492  | ) | (938           | ) | (196  | )
|                                                          |         |   |                |   |       |  



|Analysis
    of the amounts recognised in the Group income statement |         |   |                 |   |      
|-------------------------------------------------------------------- | ------- | - | --------------- | - | -----
|                                                                     |         |   |                 |   |      
|                                                                     | Pension |   | Other           |   | Total
|                                                                     | plans   |   | post-retirement |   |      
|                                                                     |         |   | plans           |   |      
|                                                                     |         |   |                 |   |      
|                                                                     | 2005    |   | 2004            |   | 2005 
|                                                                     | £m      |   | £m              |   | £m   
|                                                                     |         |   |                 |   |      
|Amounts in net operating costs                                       |         |   |                 |   |      
|                                                                     |         |   |                 |   |      
|Current service costs                                                | 50      |   | 57              |   | 5    
|                                                                     |         |   |                 |   |      
|Past service cost                                                    | 12      |   | 22              |   | (13  
|                                                                     |         |   |                 |   |      
|Curtailments                                                         | (23     | ) |                |   | (17  
|                                                                     |         |   |                 |   |      
|Settlements                                                          | (2      | ) |                |   |     
|                                                                     |         |   |                 |   |      
|                                                                     | 37      |   | 79              |   | (25  
|                                                                     |         |   |                 |   |      
|Amounts in profits less losses on disposal of operations             |         |   |                 |   |      
|                                                                     |         |   |                 |   |      
|Past service cost                                                    |        |   |                |   | (23  
|                                                                     |         |   |                 |   |      
|Curtailments                                                         |        |   |                |   | (12  
|                                                                     |         |   |                 |   |      
|Settlements                                                          | (11     | ) | (15             | ) | (1   
|                                                                     |         |   |                 |   |      
|                                                                     | (11     | ) | (15             | ) | (36  
|                                                                     |         |   |                 |   |      
|Amounts in net finance expense                                       |         |   |                 |   |      
|                                                                     |         |   |                 |   |      
|Expected return on plan assets                                       | (414    | ) | (414            | ) |     
|                                                                     |         |   |                 |   |      
|Interest cost                                                        | 440     |   | 435             |   | 11   
|                                                                     |         |   |                 |   |      
|                                                                     | 26      |   | 21              |   | 11   
|                                                                     |         |   |                 |   |      
|Total amounts charged/(credited) to the income statement             | 52      |   | 85              |   | (50  
|                                                                     |         |   |                 |   |      

|94ICI
        Annual Report and Accounts 2005 | Accounts
|--------------------------------------------- | --------

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25   Post-retirement
benefits (continued)

Defined
            benefit plans  pensions and other post-retirement plan disclosures
(continued)

Analysis
            of the amounts recognised in the statement of Group recognised income and
expense

|                                                                     | 2005    |  | 2004           
|-------------------------------------------------------------------- | ------- |  | ---------------
|                                                                     |         |  |                
|                                                                     | Pension |  | Other          
|                                                                     | plans   |  | post-retirement
|                                                                     |         |  | plans          
|                                                                     | £m      |  | £m             
|                                                                     |         |  |                
|Excess of actual return over expected return on plan assets          | 495     |  |               
|                                                                     |         |  |                
|as % of plan assets                                                  | 6.0%    |  |               
|                                                                     |         |  |                
|Excess of actual return over expected return on reimbursement rights |         |  |               
|                                                                     |         |  |                
|as % of plan reimbursement rights                                    |         |  |               
|                                                                     |         |  |                
|Experience (gains) losses arising on plan liabilities                | 1,130   |  | (10            
|                                                                     |         |  |                
|as % of plan liabilities                                             | 11.7%   |  | (5.0           
|                                                                     |         |  |                
|Net actuarial (gains) losses recognised in the statement             |         |  |                
|of
    the Group recognised income and expense                       | 635     |  | (10            
|                                                                     |         |  |                
|as % of plan liabilities                                             | 6.6%    |  | (5.0           
|                                                                     |         |  |                
|Cumulative amount of actuarial (gains) losses recognised in the      |         |  |                
|statement
    of Group recognised income and expense                 | 697     |  | 20             
|                                                                     |         |  |                

History
of experience adjustments  pension plans

|                                            | 2005  |  | 2004 
|------------------------------------------- | ----- |  | -----
|                                            | £m    |  | £m   
|                                            |       |  |      
|Present value of defined benefit obligation | 9,680 |  | 8,569
|                                            |       |  |      
|Fair value of plan assets                   | 8,189 |  | 7,632
|                                            |       |  |      
|Deficit in the plan                         | 1,491 |  | 937  
|                                            |       |  |      
|Experience adjustments on plan liabilities  | 1,130 |  | 291  
|                                            |       |  |      
|Experience adjustments on plan assets       | 495   |  | 229  
|                                            |       |  |      

History of experience adjustments  other post-retirement
plans

|                                                        | 2005 |   |  | 2004
|------------------------------------------------------- | ---- | - |  | ----
|                                                        | £m   |   |  | £m  
|                                                        |      |   |  |     
|Present value
            of defined benefit obligation | 202  |   |  | 252 
|                                                        |      |   |  |     
|Fair value of plan assets                               | 5    |   |  | 5   
|                                                        |      |   |  |     
|Deficit in the plan                                     | 197  |   |  | 247 
|                                                        |      |   |  |     
|Experience adjustments on plan liabilities              | (10  | ) |  | 30  
|                                                        |      |   |  |     
|Experience adjustments on plan assets                   |     |   |  |    
|                                                        |      |   |  |     

The history of experience adjustments starts from 1 January 2004, date of transition to IFRS.

|Accounts | ICI
        Annual Report and Accounts 200595
|-------- | ---------------------------------------------

---



Back to Contents

Notes
relating to the Group accounts

25Post-retirement
benefits (continued)

Defined
      benefit plans  pensions and other post-retirement plan disclosures
(continued)

Movements
  in present value of defined benefit obligation during the year

|                                               | Pension |   | Other           |       | Total |     
|---------------------------------------------- | ------- | - | --------------- | ----- | ----- | ----
|                                               | plans   |   | post-retirement |       |       |     
|                                               |         |   | plans           |       |       |     
|                                               |         |   |                 |       |       |     
|                                               | 2005    |   |                 | 2004  |       | 2005
|                                               | £m      |   |                 | £m    |       | £m  
|                                               |         |   |                 |       |       |     
|Opening defined
            benefit obligation | 8,569   |   |                 | 8,375 |       | 252 
|                                               |         |   |                 |       |       |     
|Movement
            in year:                  |         |   |                 |       |       |     
|                                               |         |   |                 |       |       |     
|Current
            service cost               | 50      |   |                 | 57    |       | 5   
|                                               |         |   |                 |       |       |     
|Past
              service cost  vested       | 12      |   |                 | 22    |       | (41 
|                                               |         |   |                 |       |       |     
|Past
              service cost  unvested     |        |   |                 |      |       | (5  
|                                               |         |   |                 |       |       |     
|Effect
            of curtailments             | (23     | ) |                 |      |       | (29 
|                                               |         |   |                 |       |       |     
|Effect
            of settlements              | (36     | ) |                 | (40   | )     | (1  
|                                               |         |   |                 |       |       |     
|Interest
            cost                      | 440     |   |                 | 435   |       | 11  
|                                               |         |   |                 |       |       |     
|Contributions
            by plan participants | 4       |   |                 | 5     |       |    
|                                               |         |   |                 |       |       |     
|Benefits
            paid                      | (541    | ) |                 | (541  | )     | (13 
|                                               |         |   |                 |       |       |     
|Actuarial
            (gains) losses           | 1,130   |   |                 | 291   |       | (10 
|                                               |         |   |                 |       |       |     
|Exchange
            adjustments               | 75      |   |                 | (35   | )     | 33  
|                                               |         |   |                 |       |       |     
|Closing defined benefit obligation             | 9,680   |   |                 | 8,569 |       | 202 
|                                               |         |   |                 |       |       |     
|Split between                                  |         |   |                 |       |       |     
|                                               |         |   |                 |       |       |     
|Funded                                         | 9,406   |   |                 | 8,335 |       |    
|                                               |         |   |                 |       |       |     
|Unfunded                                       | 274     |   |                 | 234   |       | 202 
|                                               |         |   |                 |       |       |     

Movements
in fair value of plan assets during the year

|                                               | Pension |   | Other           |       | Total |     
|---------------------------------------------- | ------- | - | --------------- | ----- | ----- | ----
|                                               | plans   |   | post-retirement |       |       |     
|                                               |         |   | plans           |       |       |     
|                                               |         |   |                 |       |       |     
|                                               | 2005    |   |                 | 2004  |       | 2005
|                                               | £m      |   |                 | £m    |       | £m  
|                                               |         |   |                 |       |       |     
|Opening fair
            value of plan assets  | 7,632   |   |                 | 7,402 |       | 5   
|                                               |         |   |                 |       |       |     
|Movement
            in year:                  |         |   |                 |       |       |     
|                                               |         |   |                 |       |       |     
|Effect
            of settlements              | (23     | ) |                 | (25   | )     |    
|                                               |         |   |                 |       |       |     
|Expected
            return on plan assets     | 414     |   |                 | 414   |       |    
|                                               |         |   |                 |       |       |     
|Contributions
            by plan participants | 4       |   |                 | 5     |       |    
|                                               |         |   |                 |       |       |     
|Contributions
            by employer         | 152     |   |                 | 176   |       | 13  
|                                               |         |   |                 |       |       |     
|Benefits
            paid                      | (541    | ) |                 | (541  | )     | (13 
|                                               |         |   |                 |       |       |     
|Actuarial
            gains (losses)           | 495     |   |                 | 229   |       |    
|                                               |         |   |                 |       |       |     
|Exchange
            adjustments               | 56      |   |                 | (28   | )     |    
|                                               |         |   |                 |       |       |     
|Closing fair value of plan assets              | 8,189   |   |                 | 7,632 |       | 5   
|                                               |         |   |                 |       |       |     

|† | Includes
        amounts paid against restructuring provisions of £12m (2004 £40m);
        included within outflows from special items in operating profit in the
    Groupcash flow statement.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Movements in reimbursement rights during the year

|                                         | Other           |  
|---------------------------------------- | --------------- | -
|                                         | post-retirement |  
|                                         | plans           |  
|                                         |                 |  
|                                         | 2005            |  
|                                         | £m              |  
|                                         |                 |  
|Opening reimbursement
            rights | 5               |  
|                                         |                 |  
|Movement
            in year:            |                 |  
|                                         |                 |  
|Effect
            of plan amendment     | (5              | )
|                                         |                 |  
|Actuarial
            gains (losses)     |                |  
|                                         |                 |  
|Exchange
            adjustments         | 1               |  
|                                         |                 |  
|Closing reimbursement rights             | 1               |  
|                                         |                 |  

|96ICI
    Annual Report and Accounts 2005 | Accounts
|----------------------------------------- | --------

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Post-retirement
benefits (continued)

Defined
            benefit plans  pensions and other post-retirement plan disclosures
(continued)

Estimated
      future benefit payments

|Benefits expected to be paid, reflecting future service, as appropriate | £m   
|----------------------------------------------------------------------- | -----
|                                                                        |      
|Payable in
            the year to 31 December                          |      
|                                                                        |      
|2006                                                                    | 560  
|                                                                        |      
|2007                                                                    | 556  
|                                                                        |      
|2008                                                                    | 557  
|                                                                        |      
|2009                                                                    | 560  
|                                                                        |      
|2010                                                                    | 563  
|                                                                        |      
|2011 to 2015                                                            | 2,863
|                                                                        |      

Expected contributionsThe Group
  expects to contribute £202m to its defined benefit pension plans in 2006,
  and £13m to the other post-retirement healthcare plans. The £202m contribution
  to
  the defined benefit pension plans include a £122m top-up payment
  to the ICI UK Pension Fund and a £12m top-up payment to the
ICI UK Specialty Chemicals Pension Fund.

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.

|Accounts | ICI
        Annual Report and Accounts 200597
|-------- | ---------------------------------------------

---



Back to Contents

Notes relating to the Group accounts



26Reconciliation
of changes in equity

|                                   | Share   |  | Share   |  | Translation |   | Associate |  | Hedging |   | Retained |   | Equity  |   | Minority  |   | Total  |  
|---------------------------------- | ------- |  | ------- |  | ----------- | - | --------- |  | ------- | - | -------- | - | ------- | - | --------- | - | ------ | -
|                                   | capital |  | premium |  | reserve     |   | reserve   |  | reserve |   | earnings |   | holders |   | interests |   | equity |  
|                                   |         |  | account |  |             |   |           |  |         |   |          |   | of the  |   |           |   |        |  
|                                   |         |  |         |  |             |   |           |  |         |   |          |   | parent  |   |           |   |        |  
|                                   | £m      |  | £m      |  | £m          |   | £m        |  | £m      |   | £m       |   | £m      |   | £m        |   | £m     |  
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|At 1 January 2004                  | 1,191   |  | 933     |  |             |   | 9         |  |         |   | (2,773   | ) | (640    | ) | 68        |   | (572   | )
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|Total recognised income            |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|and expense                        |         |  |         |  | (31         | ) | 2         |  |        |   | 410      |   | 381     |   | 34        |   | 415    |  
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|Dividends                          |         |  |         |  |             |   |           |  |         |   | (82      | ) | (82     | ) | (13       | ) | (95    | )
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|Share-based payments               |         |  |         |  |             |   |           |  |         |   | 8        |   | 8       |   |          |   | 8      |  
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|Movements in respect of own shares |         |  |         |  |             |   |           |  |         |   | 1        |   | 1       |   |          |   | 1      |  
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|Other movements                    |        |  |        |  |            |   |          |  |        |   |         |   |        |   | (4        | ) | (4     | )
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|At 31 December 2004                | 1,191   |  | 933     |  | (31         | ) | 11        |  |        |   | (2,436   | ) | (332    | ) | 85        |   | (247   | )
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|IFRS 2005 transition               |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|adjustments                        |        |  |        |  |            |   |          |  | (1      | ) | (62      | ) | (63     | ) |          |   | (63    | )
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|Total recognised income            |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|and expense                        |         |  |         |  | 75          |   | 3         |  | 2       |   | (200     | ) | (120    | ) | 38        |   | (82    | )
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|Dividends                          |         |  |         |  |             |   |           |  |         |   | (91      | ) | (91     | ) | (17       | ) | (108   | )
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|Share-based payments               |         |  |         |  |             |   |           |  |         |   | 7        |   | 7       |   |          |   | 7      |  
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|Shares issued/movement             |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|in
    respect of own shares       | 1       |  | 1       |  |             |   |           |  |         |   | 5        |   | 7       |   |          |   | 7      |  
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|Acquisition of additional          |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|minority
    interests             |         |  |         |  |             |   |           |  |         |   | 2        |   | 2       |   | (2        | ) |       |  
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|Other movements                   |        |  |        |  |            |   |          |  |        |   | (23      | ) | (23     | ) | 23        |   |       |  
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  
|At 31 December 2005                | 1,192   |  | 934     |  | 44          |   | 14        |  | 1       |   | (2,798   | ) | (613    | ) | 127       |   | (486   | )
|                                   |         |  |         |  |             |   |           |  |         |   |          |   |         |   |           |   |        |  

| | Following
        a review during the year of the Groups reserves, an amount totalling £23m
        has been reclassified from reserves of the equity holders of the parent
        company to the minority interest reserves of the Groups Pakistan
        PTA business. There was and is no impact on the income statement as a
    result of this reclassification.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As noted in the basis of preparation on page 63, IAS 32 Financial Instruments: Disclosure and
Presentation,and IAS 39 Financial Instruments:Recognition and Measurementcame
  into effect on 1 January 2005 and the Group took the exemption not to restate
  comparatives. As a result of these standards, a number of financial instruments
  have been recognised or revalued in the opening balance sheet at 1 January
  2005 decreasing reserves by £63m. The own shares that the Group has
acquired, or is committed to acquire under forward contracts, to hedge its obligations under various share option schemes, have been included in treasury stock under IAS 32 and debited to reserves on transition. This has been partly offset by the
release of a provision held under UK GAAP relating to the same liability, resulting in a debit of £56m to reserves. Interest rate swaps and loans previously held at carrying value have been restated to fair value on transition resulting in an
additional net debit to reserves of £6m. There has also been a further £1m
debit arising from the inclusion of corn futures in the National Starch business.

Translation reserveThe
translation reserve comprises all foreign exchange differences arising from the
translation of foreign operations as well as from the translation of liabilities
that hedge the
Groups net investment in a foreign subsidiary.

Hedging reserveThe hedging
reserve comprises the effective portion of the cumulative net change in the fair
value of cash flow hedging instruments related to hedged transactions that have
not yet
occurred.

Associate reserveThe associate
reserve comprises profits less losses of the Groups associated undertakings
(see note 14).

Retained earningsRetained
earnings includes net profit and loss for the year and the reserves relating
to own shares. Own shares relate to 4.3 million (2004 8.3 million) shares of
the Company held by the Imperial Chemical Industries PLC Employee Benefit Trust
which are under option to, or conditionally gifted to, employees under the arrangements
described in note 7. The deduction in reserves is £27m (2004 £52m)
and the shares have a
market value at 31 December 2005 of £14m (2004 £20m).

|98 ICI
        Annual Report and Accounts 2005 | Accounts
|---------------------------------------------- | --------

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  to Contents

26Reconciliation
  of changes in equity (continued)

Called up £1
  Ordinary share capital of the parent company

|                                                        | Authorised |  | Allotted  | 
|------------------------------------------------------- | ---------- |  | --------- | 
|                                                        |            |  | called-up | 
|                                                        |            |  | and fully | 
|                                                        |            |  | paid      | 
|                                                        | £m         |  | £m        | 
|                                                        |            |  |           | 
|At 1 January
      2004                                 | 1,400      |  | 1,191     | 
|                                                        |            |  |           | 
|Employee share
      option schemes  options exercised |            |  |          | 
|                                                        |            |  |           | 
|At 31 December
      2004                               | 1,400      |  | 1,191     | 
|                                                        |            |  |           | 
|Employee share
      option schemes  options exercised |            |  | 1         | 
|                                                        |            |  |           | 
|At 31
      December 2005                               | 1,400      |  | 1,192     | 
|                                                        |            |  |           | 

Limitation of borrowings
  
  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 purposes
  of calculating the basis of the borrowings 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 £1,539m
  at 31 December 2005 (2004 £1,095m).

The Group has acquired, or
  is committed to acquire under forward contracts, 34.7 million 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. 4.3 million shares purchased in the market are held
  by a trust. In addition, the trust has entered into forward commitments to purchase
  26.4 million shares at a weighted average cost of £4.78 per share (total
  balance sheet liability of £126m) in 2006, 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 2005, no collateral is posted with the
  counterparties to these transactions. The contracts include the right to either
  take delivery of shares or to net settle the contracts in cash.
  These shares are intended to satisfy requirements for share options exercisable
  in the period 2006 to 2015.

27Dividends

|                                                                          | 2005                              |  | 2004 |  | 2005 |  | 2004 | 
|------------------------------------------------------------------------- | --------------------------------- |  | ---- |  | ---- |  | ---- | 
|                                                                          | Pence
      per £1 Ordinary Share |  | £m   |  | £m   | 
|                                                                          |                                   |  |      |  |      |  |      | 
|2004 second
      interim, paid 15 April 2005                             | 3.90                              |  | 3.50 |  | 46   |  | 42   | 
|                                                                          |                                   |  |      |  |      |  |      | 
|2005 first
      interim, paid 7 October 2005                             | 3.75                              |  | 3.40 |  | 45   |  | 40   | 
|                                                                          |                                   |  |      |  |      |  |      | 
|Amounts recognised
      as distributions to equity holders in the period | 7.65                              |  | 6.90 |  | 91   |  | 82   | 
|                                                                          |                                   |  |      |  |      |  |      | 



|                                                    | 2006                 | 
|--------------------------------------------------- | -------------------- | 
|                                                    | Pence per
      £1   | 
|                                                    | Ordinary
      Share | 
|                                                    |                      | 
|2005 second
      interim, payable on 14 April 2006 | 3.95                 | 
|                                                    |                      | 

The proposed 2005 second interim
  dividend will be submitted to the shareholders for confirmation at the Annual
  General Meeting and has not been recognised as a distribution to equity holders
  in reserves or included as a liability in these financial statements.

Impkemix Trustee 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 shareholders.

|Accounts | ICI
      Annual Report and Accounts 2005 99
|-------- | --------------------------------------------

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Notes
  relating to the Group accounts



28Analysis of net debt

|                                         | Financing
       debt |   | Cash         |   | Net debt   |  
|---------------------------------------- | ---------------------- | - | ------------ | - | ---------- | -
|                                         |                        |   | and cash     |   |            |  
|                                         |                        |   | equivalents* |   |            |  
|                                         |                        |   |              |   |            |  
|                                         | Loans                  |   | Derivatives  |   | Short-term |  
|                                         | Due after              |   | Due within   |   |            |  
|                                         | one year               |   | one year     |   |            |  
|                                         |                        |   |              |   |            |  
|                                         |                        |   |              |   |            |  
|                                         | £m                     |   | £m           |   | £m         |  
|                                         |                        |   |              |   |            |  
|At 31 December
      2004                | (1,114                 | ) | (168         | ) |            |  
|                                         |                        |   |              |   |            |  
|IFRS 2005 transitional
      adjustments | (37                    | ) | 27           |   | (73        | )
|                                         |                        |   |              |   |            |  
|Exchange adjustments                     | (96                    | ) | (2           | ) | 47         |  
|                                         |                        |   |              |   |            |  
|Cash flow                                | 5                      |   | 126          |   | (26        | )
|                                         |                        |   |              |   |            |  
|Acquisitions
      and disposals         |                       |   |             |   |           |  
|                                         |                        |   |              |   |            |  
|Fair value
      movements               | 17                     |   | 4            |   | 11         |  
|                                         |                        |   |              |   |            |  
|Other non-cash
      changes             | 153                    |   | (153         | ) |           |  
|                                         |                        |   |              |   |            |  
|At 31 December
      2005                | (1,072                 | ) | (166         | ) | (41        | )
|                                         |                        |   |              |   |            |  
|                                         |                        |   |              |   |            |  
|                                         |                        |   |              |   |            |  
|At 1 January
      2004                  | (1,353                 | ) | (534         | ) |            |  
|                                         |                        |   |              |   |            |  
|Exchange adjustments                     | 69                     |   | 30           |   |            |  
|                                         |                        |   |              |   |            |  
|Cash flow                                | 39                     |   | 470          |   |            |  
|                                         |                        |   |              |   |            |  
|Acquisitions
      and disposals         | (3                     | ) |             |   |            |  
|                                         |                        |   |              |   |            |  
|Other non-cash
      changes             | 134                    |   | (134         | ) |            |  
|                                         |                        |   |              |   |            |  
|At 31 December
      2004                | (1,114                 | ) | (168         | ) |            |  
|                                         |                        |   |              |   |            |  

|*   Cash
      and cash equivalents in the analysis of net debt includes cash at
      bank, deposits repayable on demand, overdrafts and investments and short-term
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|deposits which
      had a maturity of three months or less on acquisition.                                                                                           

Reflected in the Group
  balance sheet at 31 December 2005

|Non-current
      financial assets      |        |   |      |   | 33  |   |    |   |    |   |    |  | 33     |   |     |   | 33     |  
|--------------------------------------- | ------ | - | ---- | - | --- | - | -- | - | -- | - | -- |  | ------ | - | --- | - | ------ | --
|                                        |        |   |      |   |     |   |    |   |    |   |    |  |        |   |     |   |        |   
|Current financial
      assets          |        |   |      |   | 2   |   |    |   |    |   | 28 |  | 30     |   |     |   | 30     |   
|                                        |        |   |      |   |     |   |    |   |    |   |    |  |        |   |     |   |        |   
|Cash and cash
      equivalents         |        |   |      |   |     |   |    |   |    |   |    |  |        |   | 522 |   | 522    |   
|                                        |        |   |      |   |     |   |    |   |    |   |    |  |        |   |     |   |        |   
|Current financial
      liabilities     |        |   | (166 | ) | (51 | ) | (8 | ) |    |   |    |  | (225   | ) | (6  | ) | (231   | ) 
|                                        |        |   |      |   |     |   |    |   |    |   |    |  |        |   |     |   |        |   
|Non-current
      financial liabilities | (1,072 | ) |      |   | (25 | ) |    |   |    |   |    |  | (1,097 | ) |     |   | (1,097 | ) 
|                                        |        |   |      |   |     |   |    |   |    |   |    |  |        |   |     |   |        |   
|Other creditors                         |        |   |      |   |     |   |    |   | (2 | ) |    |  | (2     | ) |     |   | (2     | )
|                                        |        |   |      |   |     |   |    |   |    |   |    |  |        |   |     |   |        |   
|At 31 December
      2005               | (1,072 | ) | (166 | ) | (41 | ) | (8 | ) | (2 | ) | 28 |  | (1,261 | ) | 516 |   | (745   | ) 
|                                        |        |   |      |   |     |   |    |   |    |   |    |  |        |   |     |   |        |   

| | Together with other items.
|- | --------------------------

As reported in note 30, a number
  of financial instruments have been recognised in the opening balance sheet at
  1 January 2005. Certain instruments have been included in net debt resulting
  in net debt being adjusted at 1 January 2005 as shown above. The own shares
  that the Group has acquired, or is committed to acquire under forward contracts,
  to hedge its obligations under various share option schemes are included in
  treasury stock under IAS 32. The amount included in net debt as at 1 January
  2005, reflecting the extent that the contracts are out of the money,
  is £63m. Interest rate swaps are now recognised at fair value and certain
  loans previously held at amortised cost are now adjusted for fair value attributable
  to hedged risk. This resulted in an increase in net debt of £6m through
  an increase in the value of loans of £14m, partly offset by a reduction
  in the value of swaps of £8m.

29   Acquisitions
  and disposals

Acquisitions
  On 1 September 2005, the Group acquired the trade and assets of
  the Celanese redispersible powder polymers business for £15m, satisfied
  in cash. The business produces polymer emulsions. Goodwill of £5m has arisen
  on the acquisition, reflecting some of the expected synergies to be gained as
  the acquisition is fully integrated into the business. The results of the Group
  for the year include less than £1m of profit attributable to the acquisition.
  It is not practicable to identify the revenue and result of the acquired business
  as if it was assumed to have been acquired at the start of the year, due to
  the synergies arising from the integration of the business into existing operations.

|100 ICI
      Annual Report and Accounts 2005 | Accounts
|--------------------------------------------- | --------

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29 Acquisitions and disposals
  (continued)

The acquisition had the following
  effect on the Groups assets and liabilities:

Net assets at the
  acquisition date

|                                                  | 2005       | 
|------------------------------------------------- | ---------- | 
|                                                  | Recognised | 
|                                                  | values     | 
|                                                  | £m         | 
|                                                  |            | 
|Property,
      plant and equipment               | 5          | 
|                                                  |            | 
|Intangible
      assets                           | 3          | 
|                                                  |            | 
|Inventories                                       | 2          | 
|                                                  |            | 
|Net identifiable
      assets and liabilities     | 10         | 
|                                                  |            | 
|Goodwill
      on acquisition                     | 6          | 
|                                                  |            | 
|Consideration
      paid, satisfied in cash       | 15         | 
|                                                  |            | 
|                                                  |            | 
|                                                  |            | 
|Cash acquired                                     |           | 
|                                                  |            | 
|Net cash
      outflow                            | 15         | 
|                                                  |            | 
|                                                  |            | 
|Reconciliation
      to Group cash flow statement |            | 
|                                                  |            | 
|Net cash
      outflow from material acquisitions | 15         | 
|                                                  |            | 
|Cash outflow
      from other acquisitions        | 8          | 
|                                                  |            | 
|Total cash
      outflow from acquisitions        | 23         | 
|                                                  |            | 

There were no fair value adjustments
  to the recognised values of the assets and liabilities above.

DisposalsOn 7 February 2005, the Group completed the sale of the Vinamul
  Polymers business (part of the Specialty Synthetic Polymers division of National
  Starch) for £111m, satisfied in cash, and the control of the business passed
  to the acquirer. The net disposal proceeds were used to reduce Group debt.

On 30 April 2004, the Group
  completed the sale of the Quest Food Ingredients business for £249m, satisfied
  in cash, on which date the control of the business passed to the acquirer. The
  disposal was effected in order for Quest to focus on its flavour and fragrance
  businesses.

These disposals had the following
  effect on the Groups assets and liabilities:

|                                                                      | 2005     |   | 2004        |  
|--------------------------------------------------------------------- | -------- | - | ----------- | -
|                                                                      | National |   | Quest Food  |  
|                                                                      | Starch   |   | Ingredients |  
|                                                                      | Vinamul  |   |             |  
|                                                                      | Polymers |   |             |  
|                                                                      | £m       |   | £m          |  
|                                                                      |          |   |             |  
|Property,
      plant and equipment                                   | (96      | ) | (60         | )
|                                                                      |          |   |             |  
|Intangible
      assets                                               | (1       | ) |            |  
|                                                                      |          |   |             |  
|Inventories                                                           | (12      | ) | (24         | )
|                                                                      |          |   |             |  
|Trade and
      other receivables                                     | (17      | ) | (13         | )
|                                                                      |          |   |             |  
|Cash and
      cash equivalents                                       | (3       | ) | (4          | )
|                                                                      |          |   |             |  
|Trade and
      other payables                                        | 21       |   | 11          |  
|                                                                      |          |   |             |  
|Post-retirement
      benefit liabilities                             | 23       |   | 21          |  
|                                                                      |          |   |             |  
|Net identifiable
      assets and liabilities (at date of completion) | (85      | ) | (69         | )
|                                                                      |          |   |             |  
|                                                                      |          |   |             |  
|                                                                      |          |   |             |  
|Consideration
      received, satisfied in cash                       | (114     | ) | (253        | )
|                                                                      |          |   |             |  
|Cash disposed
      of                                                | 3        |   | 4           |  
|                                                                      |          |   |             |  
|Net cash
      (inflow)                                               | (111     | ) | (249        | )
|                                                                      |          |   |             |  
|                                                                      |          |   |             |  
|Reconciliation
      to Group cash flow statement                     |          |   |             |  
|                                                                      |          |   |             |  
|Net cash
      (inflow) from material disposals                       | (111     | ) | (249        | )
|                                                                      |          |   |             |  
|Cash (inflow)
      from other disposals                              | (17      | ) | (42         | )
|                                                                      |          |   |             |  
|Payments
      in respect of disposals in 2004 or later               | 20       |   | 12          |  
|                                                                      |          |   |             |  
|Total cash
      (inflow) from disposals                              | (108     | ) | (279        | )
|                                                                      |          |   |             |  



|Accounts | ICI
      Annual Report and Accounts 2005101
|-------- | --------------------------------------------

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  to Contents

Notes
  relating to the Group accounts



30 Financial instruments

Exposure to credit, interest
  rate, commodity price and currency risks arise in the normal course of the Groups
  business. Derivative financial instruments are used to hedge exposure to fluctuations
  in foreign exchange rates, interest rates and commodity price movements. The
  Groups treasury objectives, risk management strategies and policies are
  discussed in the Operating and financial review on pages 22 and 23.

(a) Exemption to restate
  comparative information for IAS 32 and IAS 39The comparative information in these financial statements
  does not comply with IAS 32 and IAS 39 as the Group has elected to apply the
  exemption in IFRS 1. As a result of these standards, a number of financial instruments
  have been recognised or revalued in the opening balance sheet at 1 January 2005
  decreasing reserves by £63m (see note 26). The own shares that the Group
  has acquired, or is committed to acquire under forward contracts, to hedge its
  obligations under various share option schemes, have been included as treasury
  stock under IAS 32 and debited to reserves on transition. This has been partly
  offset by the release of a provision held under UK GAAP relating to the same
  liability, resulting in a debit of £56m to reserves. Interest rate swaps
  have been restated to fair value and certain loans previously held at amortised
  cost are now adjusted for fair value attributable to hedged risk resulting in
  an additional net debit to reserves of £6m. There has also been a further
  £1m debit arising from the inclusion of corn futures in the National Starch
  business.

(b) Interest rate
  riskThe interest rate profile of the Groups financial
  assets and financial liabilities at 31 December 2005, 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 and 23.

HedgingInterest rate swaps, denominated in US dollars and Sterling,
  have been executed to hedge the Groups exposure to interest rate risks
  in accordance with its interest rate policy. These swaps are matched in maturity
  to the underlying debt. At 31 December 2005, the Group had interest rate swaps
  with a notional contract amount of £2,330m (2004 £1,860m). The maturity
  profile of the net fixed rate exposure on loans is spread over several years
  to reduce re-financing and re-pricing risk and matures between 2006 and 2013.

Interest rate swaps (including
  those in effective fair value hedging relationships) are measured at fair value
  under IAS 39. The fair value of interest rate swaps at 1 January 2005 was adjusted
  against the opening balance of the hedging reserve at that date. This amounted
  to a gain of £8m. The fair value adjustment relating to loans that form
  part of designated fair value hedge relationships at 1 January 2005 was a loss
  of £14m.

The fair value of interest
  rate swaps recognised as hedges at 31 December 2005 is a net liability of £4m
  (comprised of assets of £17m and liabilities of £21m).

From 1 January 2005 interest
  rate swaps designated as fair value hedges are fair valued through the income
  statement as part of net finance expense. Underlying loans that form part of
  fair value hedge relationships are adjusted for fair value attributable to hedged
  risk through the income statement to offset any mark-to-market adjustment arising
  on the interest rate swaps. Hedge documentation is prepared for all fair value
  hedges at inception and effectiveness testing is carried out quarterly. All
  designated hedges have remained effective throughout the current financial year.

Financial assets

|                                | 2005     |            
|------------------------------- | -------- | -----------
|                                |          |            
|                                | At fixed | At floating
|                                | interest | interest   
|                                | rates    | rates      
|                                | £m       | £m         
|                                |          |            
|Cash and
      cash equivalents |          |            
|                                |          |            
|Sterling                        |         | 71         
|                                |          |            
|US
      dollar                 |         | 21         
|                                |          |            
|Euro                            |         | 19         
|                                |          |            
|Japanese
      yen              |         | 4          
|                                |          |            
|Other
      currencies          |         | 149        
|                                |          |            
|                                |         | 264        
|                                |          |            
|                                |          |            
|                                |          |            
|Other financial
      assets    |          |            
|                                |          |            
|Sterling                        |          |            
|                                |          |            
|US
      dollar                 |          |            
|                                |          |            
|Euro                            |          |            
|                                |          |            
|Japanese
      yen              |          |            
|                                |          |            
|Other
      currencies          |          |            
|                                |          |            
|                                |          |            
|                                |          |            
|Total financial
      assets    |          |            
|                                |          |            



|102
      ICI Annual Report and Accounts 2005 | Accounts
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30 Financial instruments
  (continued)

(b) Interest rate
  risk (continued)

Financial assets (continued)

At 31 December 2005 the financial
  assets of the Group comprised (*):

|                                                                                                   | 2005  |  
|-------------------------------------------------------------------------------------------------- | ----- | -
|                                                                                                   | £m    |  
|                                                                                                   |       |  
|Non-current
      assets                                                                           |       |  
|                                                                                                   |       |  
|Investments
      in associates                                                                    | 19    |  
|                                                                                                   |       |  
|Financial
      assets  investments (1)                                                           | 20    |  
|                                                                                                   |       |  
|Financial
      assets  loans (2)                                                                 | 20    |  
|                                                                                                   |       |  
|Trade
      and other receivables (2)                                                              | 74    |  
|                                                                                                   |       |  
|                                                                                                   | 133   |  
|                                                                                                   |       |  
|Current
      assets                                                                               |       |  
|                                                                                                   |       |  
|Trade
      and other receivables (2)                                                              | 994   |  
|                                                                                                   |       |  
|Financial
      assets (1)                                                                         | 28    |  
|                                                                                                   |       |  
|Cash
      and cash equivalents                                                                    | 522   |  
|                                                                                                   |       |  
|Less financial
      assets of insurance subsidiaries*                                             | (151  | )
|                                                                                                   |       |  
|                                                                                                   | 1,393 |  
|                                                                                                   |       |  
|                                                                                                   | 1,526 |  
|                                                                                                   |       |  
|* Includes
      cash and cash equivalents of £128m and trade and other receivables
      of £23m. |       |  

Applying the categorisation
  rules of financial assets in accordance with IAS 39 the above classes of assets
  are: (1) Held-to-maturity investments and (2) Loans and receivables. None of
  the Groups financial assets, with the exception of derivative assets,
  are held at fair value.

As the comparative information
  in these financial statements is not in accordance with IAS 32 and IAS 39, the
  following table for 2004 is presented in accordance with UK GAAP.

|                                                                          | 2004      |         
|------------------------------------------------------------------------- | --------- | --------
|                                                                          |           |         
|                                                                          | All fixed | At      
|                                                                          | interest  | floating
|                                                                          | rates     | interest
|                                                                          |           | rates   
|                                                                          | £m        | £m      
|                                                                          |           |         
|Cash and
      cash equivalents                                           |           |         
|                                                                          |           |         
|Sterling                                                                  |          | 82      
|                                                                          |           |         
|US
      dollar                                                           |          | 39      
|                                                                          |           |         
|Euro                                                                      |          | 3       
|                                                                          |           |         
|Japanese
      yen                                                        |          |        
|                                                                          |           |         
|Other
      currencies                                                    |          | 37      
|                                                                          |           |         
|                                                                          |          | 161     
|                                                                          |           |         
|Fixed asset
      investments and debtors due after more than one year    |           |         
|                                                                          |           |         
|Sterling                                                                  |           |         
|                                                                          |           |         
|US
      dollar                                                           |           |         
|                                                                          |           |         
|Euro                                                                      |           |         
|                                                                          |           |         
|Other
      currencies                                                    |           |         
|                                                                          |           |         
|Total financial
      assets                                              |           |         
|                                                                          |           |         
|                                                                          |           |         
|As at 31
      December 2004 the financial assets of the Group comprised: |           |         
|                                                                          |           |         
|                                                                          |           |         
|                                                                          |           |         
|Investments
      in participating and other investments                  |           |         
|                                                                          |           |         
|Other investments                                                         |           |         
|                                                                          |           |         
|Shares                                                                    |           |         
|                                                                          |           |         
|Loans                                                                     |           |         
|                                                                          |           |         
|Debtors due
      after more than one year                                |           |         
|                                                                          |           |         
|Current asset
      investments and short-term deposits                   |           |         
|                                                                          |           |         
|Cash                                                                      |           |         
|                                                                          |           |         
|Less financial
      assets of insurance subsidiaries                     |           |         
|                                                                          |           |         
|                                                                          |           |         
|                                                                          |           |         



|Accounts | ICI
      Annual Report and Accounts 2005103
|-------- | --------------------------------------------

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Notes
  relating to the Group accounts

30 Financial instruments
  (continued)

(b) Interest
  rate risk (continued)

Financial assets (continued)

Floating rate financial assets
  comprise bank deposits bearing interest at rates fixed in advance for periods
  ranging from 1 day to 12 months by reference to the relevant inter-bank rate.
  The weighted average interest rates for fixed asset investment loans are 6.3%
  and for cash and cash equivalents 4.3%.

Purchases or sales of financial
  assets are accounted for at settlement date.

Financial liabilities

|                   | 2005     | 
|------------------ | -------- | 
|                   |          | 
|                   | At fixed | 
|                   | interest | 
|                   | rates    | 
|                   | £m       | 
|                   |          | 
|Sterling           |         | 
|                   |          | 
|US dollar          |         | 
|                   |          | 
|Euro               |         | 
|                   |          | 
|Japanese
      yen |         | 
|                   |          | 
|Other currencies   |         | 
|                   |          | 
|                   |         | 
|                   |          | 

The weighted average interest
  rates for fixed financial liabilities are: Sterling n/a (2004 n/a); US dollar
  n/a (2004 7.8%); Euro n/a (2004 3.3%); Japanese yen n/a (2004 n/a); other currencies
  n/a (2004 n/a). Floating rate financial liabilities bear interest based upon
  short-term inter-bank rates.

The weighted average period
  for which rates are fixed are: Sterling n/a (2004 n/a); US dollar n/a (2004
  2 years); Euro n/a (2004 8 years); Japanese yen n/a (2004 n/a); other currencies
  n/a (2004 n/a).

Interest rate swaps have
  created a fully floating book during the current financial year in line with
  Group policy. The impact on loans, post interest rate swaps, is that interest
  rates will re-price between 3 months and 12 months. Short-term borrowings re-price
  within 3 months. The sensitivity analysis provided in the Operating and financial
  review on page 23 indicates the Groups risks in relation to interest rate
  changes.

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 financial liabilities.

At 31 December 2005 the financial
  liabilities of the Group comprised:

|                                   | 2005  |  
|---------------------------------- | ----- | -
|                                   | £m    |  
|                                   |       |  
|Non-current
      liabilities      |       |  
|                                   |       |  
|Loans                              | 1,072 |  
|                                   |       |  
|Derivative
      liabilities       | 25    |  
|                                   |       |  
|Derivative
      assets(*)         | (33   | )
|                                   |       |  
|Finance
      leases               | 1     |  
|                                   |       |  
|Other
      creditors              | 39    |  
|                                   |       |  
|                                   | 1,104 |  
|                                   |       |  
|Current liabilities                |       |  
|                                   |       |  
|Short-term
      borrowings        | 14    |  
|                                   |       |  
|Current
      instalments of loans | 166   |  
|                                   |       |  
|Derivative
      liabilities       | 51    |  
|                                   |       |  
|Derivative
      assets (*)        | (2    | )
|                                   |       |  
|Trade
      and other payables     | 807   |  
|                                   |       |  
|Finance
      leases               | 1     |  
|                                   |       |  
|Other
      creditors              | 1,098 |  
|                                   |       |  
|                                   | 2,135 |  
|                                   |       |  
|                                   | 3,239 |  
|                                   |       |  

|(*) | Note: Derivative assets
      (relating to interest rate swaps) are included within the financial liabilities
      table as the majority arise through the management of the debt book. The
      fair value of the underlying loans and related derivative liabilities are
      also presented in the financial liabilities table above and to understand
      the fair value of the overall book it is appropriate to also include derivative
      assets.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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      Annual Report and Accounts 2005 | Accounts
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30Financial
  instruments (continued)

(b) Interest
  rate risk (continued)

Financial liabilities
  (continued)

As the comparative information
  in these financial statements is not in accordance with IAS 32 and IAS 39, the
  following table for 2004 is presented in accordance with UK GAAP.

|                   | 2004     | 
|------------------ | -------- | 
|                   |          | 
|                   | At fixed | 
|                   | interest | 
|                   | rates    | 
|                   | £m       | 
|                   |          | 
|Sterling           | 11       | 
|                   |          | 
|US dollar          | 259      | 
|                   |          | 
|Euro               | 7        | 
|                   |          | 
|Japanese
      yen |         | 
|                   |          | 
|Other currencies   |         | 
|                   |          | 
|                   | 277      | 
|                   |          | 

|                                                   | 2004  | 
|-------------------------------------------------- | ----- | 
|                                                   | £m    | 
|                                                   |       | 
|Short-term
      borrowings                        | 137   | 
|                                                   |       | 
|Current instalments
      of loans                 | 165   | 
|                                                   |       | 
|Loans                                              | 1,117 | 
|                                                   |       | 
|Other creditors
      due after more than one year |       | 
|                                                   |       | 
|Other
      creditors                              | 13    | 
|                                                   |       | 
|Finance
      leases                               | 1     | 
|                                                   |       | 
|                                                   | 1,433 | 
|                                                   |       | 

The interest rate component of cross
  currency swaps is recognised in the income statement as it is not part of an
  effective hedge relationship. Only the foreign exchange component (see section
  (e) of this note) is utilised to hedge net investments in accordance with Group
  policy. The fair value movement on the interest rate component in 2005 was £nil.
  Cross currency swaps have a nominal amount at the balance sheet date of £360m
  and mature on a range of dates up to August 2007.



|Accounts | ICI
      Annual Report and Accounts 2005105
|-------- | --------------------------------------------

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Notes
  relating to the Group accounts

30 Financial instruments
  (continued)

(d) Liquidity risk

The maturity profile of the
  Groups financial liabilities, as defined in section (b) of this note,
  at 31 December 2005 was as follows:

|                                                            | 2005  | 
|----------------------------------------------------------- | ----- | 
|                                                            | £m    | 
|                                                            |       | 
|In one year
      or less                                   | 2,135 | 
|                                                            |       | 
|In more than
      one year but not more than two years     | 475   | 
|                                                            |       | 
|In more than
      two years but not more than three years  | 300   | 
|                                                            |       | 
|In more than
      three years but not more than four years | 1     | 
|                                                            |       | 
|In more than
      four years but not more than five years  | 24    | 
|                                                            |       | 
|In more than
      five years                               | 304   | 
|                                                            |       | 
|                                                            | 3,239 | 
|                                                            |       | 

The comparative information
  in these financial statements does not comply with IAS 32 and IAS 39 as the
  Group has elected to apply the exemption under IFRS 1. The following table for
  2004 has been presented in accordance with UK GAAP.

The maturity profile of the
  Groups financial liabilities, as defined in section (b) of this note,
  at 31 December 2004 was as follows:

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

(e) Foreign currency
  riskThe Group mainly is exposed to foreign currency risk
  arising on sales, purchases and borrowings outside of Group functional currencies.
  All derivatives managing currency exposures are stated in the balance sheet
  at fair value. The Operating and financial review on page 23 indicates the Groups
  sensitivity to currency risks.

Transaction exposure hedgingThe Group hedges all exposures arising from sales and purchases
  where markets exist to hedge working capital exposure in line with foreign currency
  policy. The Group uses forward exchange contracts to hedge its foreign currency
  risk. All of the forward contracts have maturities of less than one year at
  the balance sheet date. Hedge accounting is not applied for derivatives used
  to manage these currency exposures. Both the changes in fair value of the forward
  contracts and the foreign exchange gains and losses relating to the underlying
  monetary items are recognised as part of operating profit. The fair value of
  forward exchange contracts used to manage transaction exposure is £nil
  at 31 December 2005 (2004 £1m).

Forecast cash flow hedgingIn addition to transaction hedging, the Group also hedges foreign
  exchange exposures arising from firm commitments and forecast transactions.
  After 1 January 2005, these transactions are accounted for as cash flow hedges
  in accordance with the defined accounting policy and hedge documentation is
  prepared for all cash flow hedges at inception and effectiveness testing is
  carried out quarterly.

Gains and losses on cash
  flow hedges that have been deferred in the cash flow hedging reserve during
  the period, in addition to those that have been recycled through the income
  statement, are shown in the table below.

Cash flow hedging reserve
  movements

|                                                                              | 2005 |  
|----------------------------------------------------------------------------- | ---- | -
|                                                                              | £m   |  
|                                                                              |      |  
|Brought
      forward cash flow hedging reserve at 1 January 2005             | (1   | )
|                                                                              |      |  
|Amounts deferred
      in the period on effective cash flow hedges            | 2    |  
|                                                                              |      |  
|Amounts removed
      from the reserve and recognised in the income statement |     |  
|                                                                              |      |  
|Amounts removed
      from the reserve and capitalised in the balance sheet   |     |  
|                                                                              |      |  
|Carried
      forward cash flow hedging reserve at 31 December 2005           | 1    |  
|                                                                              |      |  

Note 2: the above table also
  includes effective commodity price hedges where gains and losses have been deferred
  to future periods (see section (f) of this note).

The cash flow relating to
  firm commitments and forecast transactions are all expected to occur in the
  next 15 months.

|106 ICI
      Annual Report and Accounts 2005 | Accounts
|--------------------------------------------- | --------

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30Financial
  instruments (continued)

(e) Foreign
  currency risk (continued)

Hedge of net investment
  in foreign subsidiaries
  The Group hedges its net investment in foreign entities by denominating external
  debt in a mix of foreign currencies, and through the use of cross currency swaps
  and liquidity forwards. Section (b) of this note shows the currency mix of debt
  at 31 December 2005 and 31 December 2004 after taking into account the impact
  of derivatives. The Group applies hedge accounting, in accordance with the defined
  accounting policy, for all net investment hedges. Hedge documentation is prepared
  for all net investment hedges at inception and effectiveness testing is carried
  out quarterly from 1 January 2005.

The Group recognises gains and
  losses on debt, cross currency swaps and liquidity forwards in equity, up to
  the level of net assets in accordance with Group Policy. For all or part of
  the year the borrowings have exceeded the net assets on a currency-by-currency
  basis. For the portion that has exceeded the net assets, the gains and losses
  are recognised in the income statement. This has resulted in a gain of £2m
  (2004 £15m) for the year which has been disclosed on the face of the income
  statement within special items.

(f) Commodity
  price riskThe Group purchases corn futures in the US and Europe to hedge its price
  exposure to this commodity. These futures are accounted for as hedges in accordance
  with the defined accounting policy from 1 January 2005. Hedge documentation
  is prepared for all hedge relationships at inception and effectiveness testing
  is carried out quarterly.

The fair value of unrealised
  futures is recognised on the balance sheet. Once purchased, all gains and losses
  on futures are capitalised into the carrying value of the raw materials.

The hedges have been fully
  effective during the period and at 31 December 2005 a gain of £1m has been
  deferred in the cash flow hedging reserve. The movements in the cash flow hedging
  reserve are included in the table in section (e) of this note.

(g)  Fair values
  
  The fair values together with the carrying amounts shown in the balance sheet
  are as follows (comparative carrying amounts are not restated for IAS 39).

|                                    | 2005      |  
|----------------------------------- | --------- | -
|                                    |           |  
|                                    | Notional  |  
|                                    | principal |  
|                                    | amounts   | *
|                                    | At 31 Dec |  
|                                    |           |  
|                                    | £m        |  
|                                    |           |  
|Investments
      in associates    | 19        |  
|                                    |           |  
|Other investments                  | 40        |  
|                                    |           |  
|Cash and
      cash equivalents    | 394       |  
|                                    |           |  
|Trade and
      other receivables  | 1,045     |  
|                                    |           |  
|Current asset
      investments    | 28        |  
|                                    |           |  
|Short-term
      borrowings         | (14       | )
|                                    |           |  
|Loans                               | (1,245    | )
|                                    |           |  
|Trade and
      other payables     | (807      | )
|                                    |           |  
|Other creditors
      and accruals | (1,137    | )
|                                    |           |  
|Financial
      liabilities         | (35       | )
|                                    |           |  
|Currency
      swaps                | 2         |  
|                                    |           |  
|Interest
      rate swaps           | 2,330     |  
|                                    |           |  
|Liquidity
      forwardsø           |          |  
|                                    |           |  
|Total
      net liabilities         |           |  
|                                    |           |  
|                                    |           |  
|                                    |           |  
|Financial
      assets              |           |  
|                                    |           |  
|Financial
      liabilities         |           |  
|                                    |           |  
|                                    |           |  
|                                    |           |  

|* | ( ) = liability                                                                                                   
|- | ------------------------------------------------------------------------------------------------------------------
| | The fair value approximates
        to the carrying value.                                                        
|ø | Liquidity forwards
        are hedging debt and are therefore included in the financial liabilities
        total.

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).

Loans that are part of fair
  value hedge relationships (see section (b) of this note) are held in the balance
  sheet at fair value and at 31 December 2005 amounted to £1,170m. All other
  loans are held at amortised cost and the carrying value in the balance sheet
  is £68m, at 31 December 2005.



|Accounts | ICI
      Annual Report and Accounts 2005 107
|-------- | ---------------------------------------------

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  to Contents

Notes
  relating to the Group accounts

30 Financial instruments
  (continued)

(g) Fair values (continued)As the comparative information in these financial statements is not in accordance
  with IAS 32 and IAS 39, the following table for 2004 is presented in accordance
  with UK GAAP.

|                                                                           | 2004      |  
|-------------------------------------------------------------------------- | --------- | -
|                                                                           |           |  
|                                                                           | Notional  |  
|                                                                           | principal |  
|                                                                           | amounts   | *
|                                                                           | At 31 Dec |  
|                                                                           |           |  
|                                                                           | £m        |  
|                                                                           |           |  
|Interest
      in participating and other investments  other investments | 35        |  
|                                                                           |           |  
|Current asset
      investments and short-term deposits                   | 81        |  
|                                                                           |           |  
|Cash                                                                      | 326       |  
|                                                                           |           |  
|Other financial
      assets                                              | 26        |  
|                                                                           |           |  
|Short-term
      borrowings                                                | (135      | )
|                                                                           |           |  
|Loans                                                                      | (1,279    | )
|                                                                           |           |  
|Other financial
      liabilities                                          | (14       | )
|                                                                           |           |  
|Currency
      swaps                                                       | (3        | )
|                                                                           |           |  
|Interest
      rate swaps                                                  | 1,860     |  
|                                                                           |           |  
|Total net
      liabilities                                                |           |  
|                                                                           |           |  
|Financial
      assets                                                     |           |  
|                                                                           |           |  
|Financial
      liabilities                                                |           |  
|                                                                           |           |  
|                                                                           |           |  
|                                                                           |           |  

|* | ( ) = liability                                         
|- | --------------------------------------------------------
| | The fair value approximates
      to the carrying value.

(h) Estimation of
  fair values The following summarises the major methods and assumptions
  used, applied consistently, in estimating the fair value of financial instruments
  reflected in the tables in section (g).

DerivativesThe fair value of all derivatives are estimated from discounted anticipated
  cash flows utilising a risk-adjusted zero coupon yield curve in the relevant
  currencies.

Interest-bearing loans and borrowingsThe fair value of all the loans is estimated from discounted anticipated
  cash flows utilising a risk-adjusted zero coupon yield curve in the relevant
  currencies. A credit spread is added to yield curves to obtain an accurate basis
  for fair valuation.

Trade and other receivables/payablesFor all receivables and payables, the notional amount is deemed to reflect
  the fair value.

SecuritiesWhere available fair value is based on quoted market prices at the balance
  sheet date without any deduction for transaction costs.

Where discounted cash flow techniques
  are used, estimated cash flows are based on managements best estimates
  and the discount rate is a market related rate for a similar instrument at the
  balance sheet date.

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.

At the balance sheet date there were
  no significant concentrations of credit risk. The maximum exposure to credit
  risk is represented by the carrying amount of each financial asset, including
  derivative financial instruments, in the balance sheet.

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 exposure
  of financial instruments is represented by those financial instruments that
  have a positive fair value at the balance sheet date. At 31 December 2005 the
  aggregate value of all financial instruments with a positive fair value (assets)
  was £16m for currency swaps (2004 £49m), £17m for interest rate
  swaps (2004 £22m) and £6m for forward contracts (2004 £2m).

The Group deposits central funds,
  when available, with highly rated banks in line with Group policy. The central
  funds on deposit at the balance sheet date were £76m (2004 £6m).



|108
      ICI Annual Report and Accounts 2005 | Accounts
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30  Financial
  instruments (continued)

(j)  CollateralThe Group has used financial assets as collateral for the following securitisations
  programmes:

Trade debtors includes amounts
  which have been securitised with a financial institution. An amount of £nil
  (2004 £104m) 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 £196m at 31
  December 2005 (2004 £168m) (up to a maximum of its loan).

The Company has also provided
  an asset-backed guarantee, via a wholly owned subsidiary, ICI Receivables Funding
  Ltd (the SPV) specifically incorporated to provide the guarantee,
  for £250m to support its commitments for the ICI Pension Fund (see note
  33). The asset-backed guarantee is secured by way of fixed and floating charges
  over certain trade debtors and cash of certain Group companies, which have been
  assigned to the SPV. At 31 December 2005, £268m of trade debtors (2004
  £251m), £5m of cash and cash equivalents (2004 £80m) were assigned
  to the SPV. The collateral is held against that commitment.

(k)  Borrowing facilities
  
  Committed undrawn facilities available to the Group at 31 December in respect
  of which all conditions precedent had been met at that date were as follows:

|                                                             | 2005 |  | 2004 | 
|------------------------------------------------------------ | ---- |  | ---- | 
|                                                             | £m   |  | £m   | 
|                                                             |      |  |      | 
|Expiring
      in one year or less                           | 224  |  |     | 
|                                                             |      |  |      | 
|Expiring
      in more than one year and less than two years |     |  | 355  | 
|                                                             |      |  |      | 
|Expiring
      in more than two years                        | 406  |  | 363  | 
|                                                             |      |  |      | 
|                                                             | 630  |  | 718  | 
|                                                             |      |  |      | 

(l) HedgesAs the comparative information in these financial statements is not in accordance
  with IAS 32 and IAS 39, the following table for 2004 is presented in accordance
  with UK GAAP.

The table below analyses movements
  in the fair values of derivatives used to hedge financial assets and financial
  liabilities for 2004:

|                                                                                         | Fair value |   | Fair value  |   | Total net     |  
|---------------------------------------------------------------------------------------- | ---------- | - | ----------- | - | ------------- | -
|                                                                                         | assets     |   | liabilities |   | assets/       |  
|                                                                                         |            |   |             |   | (liabilities) |  
|                                                                                         | £m         |   | £m          |   | £m            |  
|                                                                                         |            |   |             |   |               |  
|Unrecognised
      gains and losses on hedges at 1 January 2004                          | 134        |   | (142        | ) | (8            | )
|                                                                                         |            |   |             |   |               |  
|Gains and
      losses arising in previous years that were recognised during the year    | (47        | ) | 64          |   | 17            |  
|                                                                                         |            |   |             |   |               |  
|Gains and
      losses arising before 1 January that were not recognised during the year | 87         |   | (78         | ) | 9             |  
|                                                                                         |            |   |             |   |               |  
|Gains and
      losses arising in the year that were not recognised during the year      | (14        | ) | 4           |   | (10           | )
|                                                                                         |            |   |             |   |               |  
|Unrecognised
      gains and losses on hedges at 31 December 2004                        | 73         |   | (74         | ) | (1            | )
|                                                                                         |            |   |             |   |               |  
|Of which:                                                                                |            |   |             |   |               |  
|                                                                                         |            |   |             |   |               |  
|Gains and
      losses expected to be recognised within 1 year                           | 2          |   | (40         | ) | (38           | )
|                                                                                         |            |   |             |   |               |  
|Gains and
      losses to be recognised after more than 1 year                           | 71         |   | (34         | ) | 37            |  
|                                                                                         |            |   |             |   |               |  
|                                                                                         | 73         |   | (74         | ) | (1            | )
|                                                                                         |            |   |             |   |               |  

(m) Currency managementAs the comparative information in these financial statements is not in accordance
  with IAS 32 and IAS 39, the following table for 2004 is presented in accordance
  with UK GAAP.

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 for forward exchange contracts used in currency management are as
  follows for 31 December 2004.

|                                          | Notional  |   | Carrying |   | Fair values | *
|----------------------------------------- | --------- | - | -------- | - | ----------- | -
|                                          | principal |   | values   | * |             |  
|                                          | amounts   | * |          |   |             |  
|                                          | £m        |   | £m       |   | £m          |  
|                                          |           |   |          |   |             |  
|Hedging
      working capital             |           |   | 1        |   | 1           |  
|                                          |           |   |          |   |             |  
|Forward contracts
      to buy currency   | 67        |   |          |   |             |  
|                                          |           |   |          |   |             |  
|Forward contracts
      to sell currency  | (58       | ) |          |   |             |  
|                                          |           |   |          |   |             |  
|Hedging
      anticipated cash flows      |           |   |         |   |            |  
|                                          |           |   |          |   |             |  
|Currency
      contracts to buy currency  |          |   |          |   |             |  
|                                          |           |   |          |   |             |  
|Currency
      contracts to sell currency |          |   |          |   |             |  
|                                          |           |   |          |   |             |  
|Hedging
      debt                        |           |   | (13      | ) | (12         | )
|                                          |           |   |          |   |             |  
|Forward contracts
      to buy currency   | 470       |   |          |   |             |  
|                                          |           |   |          |   |             |  
|Forward contracts
      to sell currency  | (483      | ) |          |   |             |  
|                                          |           |   |          |   |             |  

|* | ( ) = liability
|- | ---------------

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



|Accounts | ICI
      Annual Report and Accounts 2005 109
|-------- | ---------------------------------------------

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Notes
  relating to the Group accounts

31 Leases

|                                                                                                                                                        | 2005 |  |  | 2004 | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  |  | ---- | 
|                                                                                                                                                        | £m   |  |  | £m   | 
|                                                                                                                                                        |      |  |  |      | 
|Total rentals
      under operating leases, charged as an expense in the income statement                                                               |      |  |  |      | 
|                                                                                                                                                        |      |  |  |      | 
|Minimum lease
      payments                                                                                                                            | 7    |  |  | 8    | 
|                                                                                                                                                        |      |  |  |      | 
|Sub-lease
      payments                                                                                                                                | 56   |  |  | 50   | 
|                                                                                                                                                        |      |  |  |      | 
|Total                                                                                                                                                   | 63   |  |  | 58   | 
|                                                                                                                                                        |      |  |  |      | 
|                                                                                                                                                        |      |  |  |      | 
|Future
      minimum sub-lease payments of £1m (2004 £1m) are expected to be
      received under non-cancellable sub-leases at the balance sheet date.



|                                                                                                     | 2005 |  |  | 2004 | 
|---------------------------------------------------------------------------------------------------- | ---- |  |  | ---- | 
|                                                                                                     | £m   |  |  | £m   | 
|                                                                                                     |      |  |  |      | 
|Commitments
      under non-cancellable operating leases to pay rentals during the year following    |      |  |  |      | 
|                                                                                                     |      |  |  |      | 
|the year
      of these accounts, analysed according to the period in which each lease
      expires |      |  |  |      | 
|                                                                                                     |      |  |  |      | 
|Expiring
      within 1 year                                                                         | 11   |  |  | 11   | 
|                                                                                                     |      |  |  |      | 
|Expiring
      in years 2 to 5                                                                       | 29   |  |  | 30   | 
|                                                                                                     |      |  |  |      | 
|Expiring
      thereafter                                                                            | 22   |  |  | 21   | 
|                                                                                                     |      |  |  |      | 
|                                                                                                     | 62   |  |  | 62   | 
|                                                                                                     |      |  |  |      | 

|                                                                                                                                                                                                                                                                                                                                                                   | Operating leases |  | Finance
      leases |     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------- |  | -------------------- | ----
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|                                                                                                                                                                                                                                                                                                                                                                   | 2005             |  |                      | 2004
|Obligations
      under leases comprise                                                                                                                                                                                                                                                                                                                            | £m               |  |                      | £m  
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|Rentals
      due within 1 year                                                                                                                                                                                                                                                                                                                                    | 62               |  |                      | 62  
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|Rentals
      due after more than 1 year                                                                                                                                                                                                                                                                                                                           |                  |  |                      |     
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|From
      1 to 2 years                                                                                                                                                                                                                                                                                                                                            | 51               |  |                      | 49  
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|From
      2 to 3 years                                                                                                                                                                                                                                                                                                                                            | 43               |  |                      | 38  
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|From
      3 to 4 years                                                                                                                                                                                                                                                                                                                                            | 32               |  |                      | 28  
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|From
      4 to 5 years                                                                                                                                                                                                                                                                                                                                            | 27               |  |                      | 22  
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|After
      5 years from balance sheet date                                                                                                                                                                                                                                                                                                                        | 107              |  |                      | 102 
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|                                                                                                                                                                                                                                                                                                                                                                   | 260              |  |                      | 239 
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|                                                                                                                                                                                                                                                                                                                                                                   | 322              |  |                      | 301 
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|Less
      amounts representing interest                                                                                                                                                                                                                                                                                                                           |                  |  |                      |     
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|Present
      value of net minimum lease payments                                                                                                                                                                                                                                                                                                                  |                  |  |                      |     
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|Less
      current lease obligations                                                                                                                                                                                                                                                                                                                               |                  |  |                      |     
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|Non-current
      lease obligations                                                                                                                                                                                                                                                                                                                                |                  |  |                      |     
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|                                                                                                                                                                                                                                                                                                                                                                   |                  |  |                      |     
|The
      difference between the future minimum lease payments at the balance sheet
      date and the present value is not significant. Obligations under finance
      leases are included in trade and other payables (note 20). The Group had
      no commitments under finance leases at the balance sheet date which were
      due to commence thereafter.
|                                                                                                                                                                                                                                                                                                                                                                  
|The Group leases items of land and buildings under operating leases, which
      are used in ongoing business activities. The lease terms vary and are subject
      to renewal clauses upon expiry.                                                                                                                                                              



|110
      ICI Annual Report and Accounts 2005 | Accounts
|--------------------------------------------- | --------

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32 Commitments and
  contingent liabilities

|                                                                                                      | 2005 |  |  | 2004 | 
|----------------------------------------------------------------------------------------------------- | ---- |  |  | ---- | 
|                                                                                                      | £m   |  |  | £m   | 
|                                                                                                      |      |  |  |      | 
|Commitments
      for capital expenditure not provided for in these accounts (including acquisitions) |      |  |  |      | 
|                                                                                                      |      |  |  |      | 
|Contracts
      placed for future expenditure                                                         | 19   |  |  | 25   | 
|                                                                                                      |      |  |  |      | 
|Expenditure
      authorised but not yet contracted                                                   | 81   |  |  | 98   | 
|                                                                                                      |      |  |  |      | 
|                                                                                                      | 100  |  |  | 123  | 
|                                                                                                      |      |  |  |      | 
|                                                                                                      |      |  |  |      | 

Contingent liabilities
        existed at 31 December 2005 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. On a consolidated basis, the Group had no contingent liability
        in respect of guarantees of borrowings and uncalled capital for the Group
        at 31 December 2005 (31 December 2004: £nil).The Group is also
        subject to contingencies pursuant to requirements that subsidiaries comply
        with relevant laws, regulations and standards. Such violations, 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 producers of lead pigment and former producers of lead
        pigment based paint as well as other lead product manufacturers and their
        trade associations, in a number of law suits in the United States. These
        law suits seek damages for alleged personal injury caused by lead pigment
        based paint or the costs of removing lead pigment based paint. An alleged
        predecessor of Glidden manufactured lead pigments until the 1950s and
        lead pigment based consumer paint until the 1960s. Glidden is currently
        a defendant in three active suits (The City of New York v. Lead Industries
        Association, Inc, et al. (1989), Smith v. Lead Industries Association,
        Inc, et al. (1999) and Hurkmans v. Salczenco, et al. (2005)) and is also
        named in one unserved case. Glidden continues to believe that it has strong
        defences to all of the pending cases, has denied all liability and will
        continue to defend all such actions.In 1986, a subsidiary
        of ICI purchased a newly formed company, now Glidden, from a predecessor
        of Millennium Holdings LLC (the Seller), now a subsidiary
        of Lyondell Chemical Company. Under the sale agreement, the Seller agreed
        to indemnify Glidden against certain claims relating to certain pre-completion
        liabilities, and Glidden also gave certain indemnities to the Seller.
        Whilst Glidden did not acquire any assets or liabilities for the manufacture
        or sale of lead pigments, the Seller, however, has previously asserted
        that it is entitled to indemnification under the sale agreement for certain
        liabilities it may have relating to lead pigment and/or lead pigment based
        paint litigation. Glidden, which has assumed all of the purchasers
        rights and obligations under the sale agreement, believes that it has
        no such


obligation to indemnify
        the Seller. The above indemnity claims have not been ruled on by any court.In July 2004, ICI
        received a request for information from the European Commission relating
        to alleged cartel activity in the European Methacrylates market. In ICIs
        case, the allegations concern a period starting in 1995 and ending when
        it sold its Acrylics business in 1999. During 2005, the Commission issued
        a statement of objections, alleging that ICIs former Acrylics business
        was involved in breaches of European competition law and, during the fourth
        quarter, ICI provided a written response to the Commission and attended
        an oral hearing. ICIs policy is to conduct its business in full
        compliance with the applicable competition laws. ICI will continue to
        assist the European Commission with this matter. Their decision is expected
        in 2006.During January and
        February 2006, a number of purported class action lawsuits were filed,
        currently in the US District Court for the Eastern District of Pennsylvania
        and the US District Court for the District of New Jersey, on behalf of
        purchasers of methyl methacrylate who claim to have suffered anti-trust
        injury as a result of alleged cartel activity referred to in the paragraph
        above. Along with other parties, ICI has been named as a defendant.With respect to each
        of the claims and proceedings described in the four paragraphs above,
        ICI is unable to make estimates within a reasonable range of outcomes
        of the loss to which the claims or proceedings may give rise. Disclosure
        of the amount sought by claimants and plaintiffs (where known) is not
        considered meaningful with respect to these claims and proceedings, however,
        an unfavourable outcome of one or more of these matters could have a material
        effect on the Groups results of operations, cash flow or financial
        position.The Group is also
        subject to various other claims or 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. Quest has
        settled its dispute, without admission of liability, with two of the affected
        customers. It remains possible that the third affected customer may commence
        proceedings seeking to recover alleged damages.From the early 1970s
        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.Following ICIs
        trading statement on 25 March 2003, three purported class action lawsuits
        were filed in the US Federal District Court for




|Accounts | ICI
      Annual Report and Accounts 2005111
|-------- | --------------------------------------------

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  to Contents

Notes
  relating to the Group accounts

32 Commitments and
  contingent liabilities (continued)

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
        todisclose 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.On 30 April 2004 ICI
        sold its Quest Food Ingredients business to Kerry Group PLC (Kerry)
        for US$440m. Kerry has raised a number of issues regarding potential
        claims under the sale and purchase agreement. No proceedings have been
        commenced.The Directors do not
        believe that the outcome of the matters described in the four paragraphs
        above 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 to other parties certain indemnities, warranties
        and guarantees, including indemnities, warranties and guarantees relating
        to known and potential latent 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) to purchase
        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 2005 is
        estimated at £92m. 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 remained a liability of ETOL which is now in liquidation.
    The present value of the gas purchase commitment guaranteed by ICI at 31 December
    2005 is estimated at £96m. The numbers quoted in the
    two paragraphs above are ICIs current estimates of its maximum potential
    liability. 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
    value of this commitment at 31 December 2005 is estimated at £108m. The ultimate outcome of
       the matters described in this note 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

    that 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, cash flow or financial position.




33Related
        party transactionsRelated party transactions The following information is provided in accordance with IAS 24 Related
        Party Disclosures, as being material transactions with related parties
        during 2005.Related party: IC Insurance
        Ltd and its subsidiaries, disclosed as a principal associate on page 83.Transactions: Funds on
        deposit with ICI Finance PLC amounted to £10m (2004 £10m).Related party: ICI Pension
        Trustees LtdTransactions: In recognition
        of a deficit for funding purposes of £657m and a funding ratio of
        90.9% at 31 March 2005 identified as a result of the completion of the
        valuation of the ICI UK Pension Fund (the Fund), the Company
        has agreed to make top-up contributions to the Fund over the
        next nine years, comprising annual payments of £122m for the first
        four years, starting in 2006, and annual payments of £62m for the
        following five years.


The Company has also
          provided an asset-backed guarantee, via a wholly owned subsidiary,
          ICI 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 receivables of certain
Group companies, which have been assigned to the SPV and by way of cash and cash
equivalents deposited with the SPV. At 31 December 2005, £268m (2004 £251m)
of trade debtors and £5m (2004 £80m) of cash and cash equivalents were
assigned to the SPV.




|112ICI Annual Report and Accounts 2005 | Accounts
|-------------------------------------- | --------

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|34 Interest
      in joint ventures
|-----------------------------------
|                                   

|The Groups
      material joint ventures at 31 December 2005 are: |            |                                                     
|------------------------------------------------------------------ | ---------- | ----------------------------------------------------
|                                                                   | Proportion | Principal                                           
|                                                                   | held by    | activities                                          
|                                                                   | ICI %      |                                                     
|                                                                   |            |                                                     
|Arkem (PTY)
      Limited                                          | 50         | Sale of speciality
      chemicals                  
|                                                                   |            |                                                     
|Purbond AG                                                         | 50         | Manufacturer
      of polyurethane adhesive products
|                                                                   |            |                                                     
|National
      Starch Turkey                                       | 50         | Local solutions
      provider for emulsion polymers
|                                                                   |            |                                                     

Interest in joint venturesIncluded in the consolidated financial statements are the following items
  that represent the Groups interest in the assets and liabilities, revenues
  and expenses of the joint ventures.

|                              | 2005 |   | 2004 |  
|----------------------------- | ---- | - | ---- | -
|                              | £m   |   | £m   |  
|                              |      |   |      |  
|Non-current
      assets      | 3    |   | 3    |  
|                              |      |   |      |  
|Current assets                | 3    |   | 1    |  
|                              |      |   |      |  
|Total
      assets            | 6    |   | 4    |  
|                              |      |   |      |  
|Current liabilities           | (2   | ) |     |  
|                              |      |   |      |  
|Non-current
      liabilities |     |   |     |  
|                              |      |   |      |  
|Total
      liabilities       | (2   | ) |     |  
|                              |      |   |      |  
|Net assets                    | 4    |   | 4    |  
|                              |      |   |      |  
|                              |      |   |      |  
|                              |      |   |      |  
|Revenue                       | 8    |   | 8    |  
|                              |      |   |      |  
|Expense                       | (7   | ) | (8   | )
|                              |      |   |      |  
|Profit
      before tax       | 1    |   |     |  
|                              |      |   |      |  



|Accounts | ICI
      Annual Report and Accounts 2005 113
|-------- | ---------------------------------------------

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Notes
  relating to the Group accounts

35 Comparative
data restated in accordance with the transition to IFRS

From 1 January 2005, the
  Group has been reporting its results in accordance with International Financial
  Reporting Standards (IFRS). The transition date for ICI for the adoption of
  IFRS is 1 January 2004. All comparative data in this report has been restated,
  except the Group has taken the exemption under IFRS 1 not to restate comparatives
  for IAS 32 and IAS 39. ICI has applied the exemption by the US Securities and
  Exchange Commission to exclude a second year of comparatives.

To comply with the requirements
  of reporting the first set of annual results following transition to IFRS, a
  reconciliation of profit (loss) under UK GAAP for the year to 31 December 2004
  to the income (expense) under IFRS for the year to 31 December 2004 is set out
  below. A detailed analysis of these adjustments and a summary of the differences
  between UK GAAP and IFRS that led to the adjustments are set out on pages 116
  to 118.



|Group
      income statement for the year ended 31 December 2004                                    |                       |   |              |   |            |   |        |  
|--------------------------------------------------------------------------------------------------- | --------------------- | - | ------------ | - | ---------- | - | ------ | -
|                                                                                                    | UK GAAP               |  
|                                                                                                    |                       |  
|                                                                                                    | Continuing operations |   | Discontinued |   | Total      |  
|                                                                                                    |                       |   |              |   | operations |   |        |  
|                                                                                                    | Before                |   | Exceptional  |   |            |   |        |  
|                                                                                                    | exceptional           |   | items        |   |            |   |        |  
|                                                                                                    | items                 |   |              |   |            |   |        |  
|                                                                                                    | £m                    |   | £m           |   | £m         |   | £m     |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Revenue                                                                                             | 5,601                 |   |              |   |           |   | 5,601  |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Operating
      costs                                                                               | (5,192                | ) | (5           | ) |           |   | (5,197 | )
|                                                                                                    |                       |   |              |   |            |   |        |  
|(including
      restructuring costs)                                                               |                       |   |              |   |            |   |        |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Other operating
      income                                                                        | 35                    |   |             |   |           |   | 35     |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Profits less
      losses on disposal of fixed assets                                               |                       |   |              |   |            |   |        |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Operating
      profit (loss)                                                                       | 444                   |   | (5           | ) |           |   | 439    |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Profits less
      losses on sale of operations                                                     |                       |   | 23           |   | (20        | ) | 3      |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Profits less
      losses on disposal of fixed assets                                               |                       |   | (1           | ) |           |   | (1     | )
|                                                                                                    |                       |   |              |   |            |   |        |  
|Share of
      profits less losses of associates                                                    | 4                     |   |             |   |           |   | 4      |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Interest
      expense                                                                              | (158                  | ) |             |   |           |   | (158   | )
|                                                                                                    |                       |   |              |   |            |   |        |  
|Interest
      income                                                                               | 72                    |   |             |   |           |   | 72     |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Post-retirement
      benefit finance:                                                              |                       |   |              |   |            |   |        |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Interest
      costs                                                                                |                       |   |              |   |            |   |        |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Expected
      return on assets                                                                     |                       |   |              |   |            |   |        |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Foreign
        exchange gains on debt previously 
        hedging goodwill written off to reserves |                       |   |              |   |            |   |        |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|                                                                                                    | (86                   | ) |             |   |           |   | (86    | )
|                                                                                                    |                       |   |              |   |            |   |        |  
|Profit
      (loss) before taxation                                                                 | 362                   |   | 17           |   | (20        | ) | 359    |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Income tax
      expense                                                                            | (111                  | ) | (11          | ) | 6          |   | (116   | )
|                                                                                                    |                       |   |              |   |            |   |        |  
|Net profit
      (loss)                                                                             | 251                   |   | 6            |   | (14        | ) | 243    |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Attributable
      to equity holders of the parent                                                  | 224                   |   |             |   | (14        | ) | 210    |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Attributable
      to minority interests                                                            | 27                    |   | 6            |   |           |   | 33     |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Dividends                                                                                           |                       |   |              |   |            |   | (86    | )
|                                                                                                    |                       |   |              |   |            |   |        |  
|Profit
      retained for year                                                                      |                       |   |              |   |            |   | 124    |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Earnings
      (loss) per £1 Ordinary share
         basic and diluted)                             |                       |   |              |   |            |   |        |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Continuing
      operations                                                                         |                       |   |              |   |            |   | 18.9p  |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|Discontinued
      operations                                                                       |                       |   |              |   |            |   | (1.1)p |  
|                                                                                                    |                       |   |              |   |            |   |        |  
|                                                                                                    |                       |   |              |   |            |   | 17.8p  |  
|                                                                                                    |                       |   |              |   |            |   |        |  

Shaded areas represent the disclosure
  of certain line items that are not applicable under the relevant GAAP.



|114
      ICI Annual Report and Accounts 2005 | Accounts
|--------------------------------------------- | --------

---



Back to Contents

Notes
  relating to the Group accounts

35 Comparative
            data restated in accordance with the transition to FRS (continued)

IFRS also requires a reconciliation
    of equity under UK GAAP at 1 January 2004 to equity under IFRS at 1 January
    2004 and a reconciliation of equity under UK GAAP at 31 December 2004 to equity
    under IFRS at 31 December 2004. These reconciliations are set out on page 119.

A reconciliation is also required
  under IFRS of material adjustments to the cash flow under UK GAAP for the year
  ended 31 December 2004 to the cash flow for the year to 31 December 2004 under
  IFRS. This reconciliation is set out on page 120.

|Group
    income statement for the year ended 31 December 2004                                    |  |                         |  
|------------------------------------------------------------------------------------------------- |  | ----------------------- | -
|                                                                                                  |  | Total IFRS              |  
|                                                                                                  |  | adjustments             |  
|                                                                                                  |  | (see pages 116 and 117) |  
|                                                                                                  |  |                         |  
|Revenue                                                                                           |  | 8                       |  
|                                                                                                  |  |                         |  
|Operating
        costs                                                                           |  | 86                      |  
|                                                                                                  |  |                         |  
|(including
          restructuring costs)                                                         |  |                         |  
|                                                                                                  |  |                         |  
|Other operating
        income                                                                    |  |                        |  
|                                                                                                  |  |                         |  
|Profits
        less losses on disposal of fixed assets                                           |  | (1                      | )
|                                                                                                  |  |                         |  
|Operating
          profit (loss)                                                                 |  | 93                      |  
|                                                                                                  |  |                         |  
|Profits
        less losses on sale of operations                                                 |  | 172                     |  
|                                                                                                  |  |                         |  
|Profits
        less losses on disposal of fixed assets                                           |  | 1                       |  
|                                                                                                  |  |                         |  
|Share of
        profits less losses of associates                                                |  | (2                      | )
|                                                                                                  |  |                         |  
|Interest
        expense                                                                          |  | (12                     | )
|                                                                                                  |  |                         |  
|Interest
        income                                                                           |  | 13                      |  
|                                                                                                  |  |                         |  
|Post-retirement
        benefit finance:                                                          |  |                         |  
|                                                                                                  |  |                         |  
|Interest
        costs                                                                            |  | (447                    | )
|                                                                                                  |  |                         |  
|Expected
        return on assets                                                                 |  | 414                     |  
|                                                                                                  |  |                         |  
|Foreign
          exchange gains on debt previously 
    hedging goodwill written off to reserves |  | 15                      |  
|                                                                                                  |  |                         |  
|                                                                                                  |  | (17                     | )
|                                                                                                  |  |                         |  
|Profit
          (loss) before taxation                                                           |  | 247                     |  
|                                                                                                  |  |                         |  
|Income tax
        expense                                                                        |  | 18                      |  
|                                                                                                  |  |                         |  
|Net profit
          (loss)                                                                       |  | 265                     |  
|                                                                                                  |  |                         |  
|Attributable
        to equity holders of the parent                                              |  | 264                     |  
|                                                                                                  |  |                         |  
|Attributable
        to minority interests                                                        |  | 1                       |  
|                                                                                                  |  |                         |  
|Dividends                                                                                         |  | 86                      |  
|                                                                                                  |  |                         |  
|Profit
          retained for year                                                                |  |                         |  
|                                                                                                  |  |                         |  
|Earnings
          (loss) per £1 Ordinary share
   basic and diluted)                             |  |                         |  
|                                                                                                  |  |                         |  
|Continuing
        operations                                                                     |  | 22.3p                   |  
|                                                                                                  |  |                         |  
|Discontinued
        operations                                                                   |  |                        |  
|                                                                                                  |  |                         |  
|                                                                                                  |  | 22.3p                   |  
|                                                                                                  |  |                         |  



|Accounts | ICI
         Annual Report and Accounts 2005 115a
|-------- | -------------------------------------------------

---





Back
      to Contents

Notes
relating to the Group accounts

35 Comparative
            data restated in accordance with the transition to FRS (continued)



|Group
    income statement for the year ended 31 December 2004                                    |                               |   |         |   |              |   |        |  
|------------------------------------------------------------------------------------------------- | ----------------------------- | - | ------- | - | ------------ | - | ------ | -
|                                                                                                  |                               |   |         |   |              |   |        |  
|                                                                                                  | IFRS                          |  
|                                                                                                  |                               |  
|                                                                                                  | Continuing
        operations |   |         |   | Discontinued |   | Total  |  
|                                                                                                  |                               |   |         |   | operations   |   |        |  
|                                                                                                  | Before                        |   | Special |   |              |   |        |  
|                                                                                                  | special                       |   | items   |   |              |   |        |  
|                                                                                                  | items                         |   |         |   |              |   |        |  
|                                                                                                  | £m                            |   | £m      |   | £m           |   | £m     |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Revenue                                                                                           | 5,609                         |   |        |   |             |   | 5,609  |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Operating
        costs                                                                           | (5,106                        | ) | (5      | ) |             |   | (5,111 | )
|                                                                                                  |                               |   |         |   |              |   |        |  
|(including
          restructuring costs)                                                         |                               |   | (5      | ) |             |   | (5     | )
|                                                                                                  |                               |   |         |   |              |   |        |  
|Other operating
        income                                                                    | 35                            |   |        |   |             |   | 35     |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Profits
        less losses on disposal of fixed assets                                           |                               |   | (1      | ) |             |   | (1     | )
|                                                                                                  |                               |   |         |   |              |   |        |  
|Operating
          profit (loss)                                                                 | 538                           |   | (6      | ) |             |   | 532    |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Profits
        less losses on sale of operations                                                 |                               |   | 195     |   | (20          | ) | 175    |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Profits
        less losses on disposal of fixed assets                                           |                               |   |         |   |              |   |        |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Share of
        profits less losses of associates                                                | 2                             |   |        |   |             |   | 2      |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Interest
        expense                                                                          | (170                          | ) |        |   |             |   | (170   | )
|                                                                                                  |                               |   |         |   |              |   |        |  
|Interest
        income                                                                           | 85                            |   |        |   |             |   | 85     |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Post-retirement
        benefit finance:                                                          |                               |   |         |   |              |   |        |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Interest
        costs                                                                            | (447                          | ) |        |   |             |   | (447   | )
|                                                                                                  |                               |   |         |   |              |   |        |  
|Expected
        return on assets                                                                 | 414                           |   |        |   |             |   | 414    |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Foreign
          exchange gains on debt previously 
    hedging goodwill written off to reserves |                               |   | 15      |   |             |   | 15     |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|                                                                                                  | (118                          | ) | 15      |   |             |   | (103   | )
|                                                                                                  |                               |   |         |   |              |   |        |  
|Profit
          (loss) before taxation                                                           | 422                           |   | 204     |   | (20          | ) | 606    |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Income tax
        expense                                                                        | (88                           | ) | (16     | ) | 6            |   | (98    | )
|                                                                                                  |                               |   |         |   |              |   |        |  
|Net profit
          (loss)                                                                       | 334                           |   | 188     |   | (14          | ) | 508    |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Attributable
        to equity holders of the parent                                              | 306                           |   | 182     |   | (14          | ) | 474    |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Attributable
        to minority interests                                                        | 28                            |   | 6       |   |             |   | 34     |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Dividends                                                                                         |                               |   |         |   |              |   |        |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Profit
          retained for year                                                                |                               |   |         |   |              |   |        |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Earnings
          (loss) per £1 Ordinary share
   basic and diluted)                             |                               |   |         |   |              |   |        |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Continuing
        operations                                                                     |                               |   |         |   |              |   | 41.2p  |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|Discontinued
        operations                                                                   |                               |   |         |   |              |   | (1.1)p |  
|                                                                                                  |                               |   |         |   |              |   |        |  
|                                                                                                  |                               |   |         |   |              |   | 40.1p  |  
|                                                                                                  |                               |   |         |   |              |   |        |  



|Accounts | ICI
        Annual Report and Accounts 2005 115b
|-------- | ------------------------------------------------

---



Back
  to Contents

Notes
  relating to the Group accounts

35 Comparative data restated
  in accordance with the transition to IFRS (continued)

|Analysis
      of IFRS adjustments to the Group income statement for the year ended 31
      December 2004
|----------------------------------------------------------------------------------------------------------
|                                                                                                          

|                                                                                                                    | Employee |   | Share-based |   | Foreign  |    | Goodwill |   | Dividends |  
|------------------------------------------------------------------------------------------------------------------- | -------- | - | ----------- | - | -------- | -- | -------- | - | --------- | -
|                                                                                                                    | benefits |   | payments    |   | exchange |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|                                                                                                                    | (a       | ) | (b          | ) | (c(i     | )) | (d       | ) | (e        | )
|                                                                                                                    | £m       |   | £m          |   | £m       |    | £m       |   | £m        |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Revenue                                                                                                             |          |   |             |   |          |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Operating costs                                                                                                     | 65       |   | (6          | ) |          |    | 35       |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Other operating
      income                                                                                        |          |   |             |   |          |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Profit less
      losses on disposal of fixed assets                                                                |          |   |             |   |          |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Operating
      profit (loss)                                                                                       | 65       |   | (6          | ) |          |    | 35       |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Profits less
      losses on sale of operations                                                                     |          |   |             |   |          |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Profit less
      losses on disposal of fixed assets                                                                |          |   |             |   |          |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Share of profits
      less losses of associates                                                                    |          |   |             |   |          |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Interest
      expense                                                                                              |          |   |             |   | (12      | )  |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Interest
      income                                                                                               |          |   |             |   | 13       |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Post-retirement
      benefit finance:                                                                              |          |   |             |   |          |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Interest costs                                                                                                      | (447     | ) |             |   |          |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Expected return on assets                                                                                           | 414      |   |             |   |          |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Foreign
      exchange gains on debt previously                                                                     |          |   |             |   |          |    |          |   |           |  
|hedging
      goodwill written off to reserves                                                                      |          |   |             |   |          |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|                                                                                                                    | (33      | ) |             |   | 1        |    |          |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Profit
      before taxation                                                                                        | 32       |   | (6          | ) | 1        |    | 35       |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Income tax
      expense                                                                                            | 23       |   | 2           |   |         |    |         |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Net profit                                                                                                          | 55       |   | (4          | ) | 1        |    | 35       |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Attributable
      to equity holders of the parent                                                                  | 54       |   | (4          | ) | 1        |    | 35       |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Attributable
      to minority interests                                                                            | 1        |   |            |   |         |    |         |   |           |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Dividends                                                                                                           |          |   |             |   |          |    |          |   | 86        |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|Profit
      retained for year                                                                                      | 54       |   | (4          | ) | 1        |    | 35       |   | 86        |  
|                                                                                                                    |          |   |             |   |          |    |          |   |           |  
|A
        summary of the principal differences between UK GAAP and IFRS as applicable
        to ICI is as follows:

a) Employee benefits

Under UK GAAP, the Group measured
  pension commitments and other related benefits in accordance with SSAP 24 Accounting
  for Pension Costs.Additional disclosures were given in accordance with
  FRS 17 Retirement Benefits.Under IFRS, the Group measures pension commitments
  and other related benefits in accordance with IAS 19 Employee Benefits.IAS
  19 is similar to FRS 17 in that it adopts a balance sheet approach, bringing
  the deficit/surplus of the pension/other post-retirement benefit schemes onto
  the balance sheet.

However, FRS 17 requires all
  actuarial gains and losses to be recognised directly in reserves, whereas IAS
  19 also includes an alternative option allowing actuarial gains and losses to
  be held on the balance sheet and released to the income statement over a period
  of time. ICI has elected not to adopt this alternative option and therefore
  is accounting for post-retirement benefits in a manner consistent with FRS 17.

Rather than showing solely
  an operating charge in the income statement, as was the case under SSAP 24,
  under IAS 19 a net financing expense is also recognised. The net finance expense
  relates to the unwinding of the discount applied to the liabilities of the post-retirement
  benefit schemes offset by the expected return on the assets of the schemes.

Under UK GAAP, the liability/asset
  on the balance sheet represented the timing differences between the SSAP 24
  charge and the payments made to the pension and post-retirement healthcare schemes.
  Under IFRS, the liability/asset on the balance sheet represents the deficit/surplus
  on pension and post-retirement healthcare schemes. This balance encompasses
  all assets/liabilities arising from defined benefit schemes.

b) Share-based payments

The Group operates a range of
  share-based incentive schemes (both awards of options and awards of shares)
  that are impacted by IFRS 2 Share-based payments.Previously under UK
  GAAP an expense was only recognised for the awards of shares and this expense
  was calculated based on the intrinsic value (the difference between the exercise
  price and the market value at date of the award). For all other schemes, the
  intrinsic value was nil. Under IFRS, an expense is recognised in the income
  statement for all share-based payments (both awards of options and awards of
  shares). This expense has been calculated based on the fair value at the date
  of the award using the Black-Scholes option pricing model.

Under UK GAAP, a liability
  has been recognised for schemes where shares are awarded based on the intrinsic
  value of the awards. Under IFRS, the balance sheet entry is based on the fair
  value of all awards (awards of shares and options) and results in either a credit
  to liabilities for cash settled awards or a credit to equity for equity settled
  awards. Substantially all ICI schemes are equity settled.

|116
      ICI Annual Report and Accounts 2005 | Accounts
|--------------------------------------------- | --------

---



Back to Contents

Notes
        relating to the Group accounts

35 Comparative data restated
      in accordance with the transition to IFRS (continued)

|Analysis
            of IFRS adjustments to the Group income statement for the year ended
            31 December 2004
|----------------------------------------------------------------------------------------------------------------------
|                                                                                                                      

|                                                                                                                  | Joint    |   | Business     |    | Reclassifications |    | Adjustments before      |  
|----------------------------------------------------------------------------------------------------------------- | -------- | - | ------------ | -- | ----------------- | -- | ----------------------- | -
|                                                                                                                  | ventures |   | combinations |    |                   |    | special items
      and |  
|                                                                                                                  |          |   |              |    |                   |    | discontinued            |  
|                                                                                                                  | (f       | ) | (g(i         | )) | (h(i              | )) | operations              |  
|                                                                                                                  | £m       |   | £m           |    | £m                |    | £m                      |  
|                                                                                                                 
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Revenue                                                                                                           | 8        |   |              |    |                  |    | 8                       |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Operating
        costs                                                                                           | (8       | ) |              |    |                  |    | 86                      |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Other operating
        income                                                                                    |          |   |              |    |                   |    |                        |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Profit less
        losses on disposal of fixed assets                                                            |          |   |              |    |                   |    |                         |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Operating
          profit (loss)                                                                                 |         |   |              |    |                  |    | 94                      |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Profits less
        losses on sale of operations                                                                 |          |   |              |    |                  |    |                         |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Profit less
        losses on disposal of fixed assets                                                            |          |   |              |    |                  |    |                         |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Share of profits
        less losses of associates                                                                |          |   |              |    | (2                | )  | (2                      | )
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Interest
        expense                                                                                          |          |   |              |    |                  |    | (12                     | )
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Interest
        income                                                                                           |          |   |              |    |                  |    | 13                      |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Post-retirement
        benefit finance:                                                                          |          |   |              |    |                   |    |                         |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Interest
        costs                                                                                            |          |   |              |    |                  |    | (447                    | )
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Expected
    return on assets                                                                                     |          |   |              |    |                  |    | 414                     |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Foreign
        exchange gains on debt previously                                                                 |          |   |              |    |                   |    |                         |  
|hedging
        goodwill written off to reserves                                                                  |          |   |              |    |                  |    |                         |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|                                                                                                                  |          |   |              |    |                  |    | (32                     | )
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Profit
          before taxation                                                                                  |         |   |             |    | (2                | )  | 60                      |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Income tax
        expense                                                                                        |         |   | (4           | )  | 2                 |    | 23                      |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Net profit                                                                                                        |         |   | (4           | )  |                  |    | 83                      |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Attributable
        to equity holders of the parent                                                              |         |   | (4           | )  |                  |    | 82                      |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Attributable
        to minority interests                                                                        |         |   |             |    |                  |    | 1                       |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Dividends                                                                                                         |          |   |              |    |                   |    | 86                      |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|Profit
          retained for year                                                                                |         |   | (4           | )  |                  |    | 168                     |  
|                                                                                                                  |          |   |              |    |                   |    |                         |  
|A summary
          of the principal differences between UK GAAP and IFRS as applicable to
    ICI is as follows: |          |   |             



|Accounts | ICI
         Annual Report and Accounts 2005 117a
|-------- | -------------------------------------------------

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Back to Contents Notes
          relating to the Group accounts 35 Comparative data
        restated in accordance with the transition to IFRS (continued) Analysis
              of IFRS adjustments to the Group income statement for the year
              ended 31 December 2004 Foreign
      
      Business
      
      Reclassifications
      
      Totalexchange
      
      combinations
      
      
      
      adjustments(c(ii
      ))
      (g(ii
      ))
      (h(ii
      ))£m
      
      £m
      
      £m
      
      £mRevenue
      
      
      
      
      
      
      8Operating
          costs
      
      
      
      
      
      
      86Other operating
          income
      
      
      
      
      
      
      Profit less
          losses on disposal of fixed assets
      
      
      
      
      (1
      )
      (1
      )Operating
            profit (loss)
      
      
      
      
      (1
      )
      93Profits
          less losses on sale of operations
      
      
      172
      
      
      
      172Profit less
          losses on disposal of fixed assets
      
      
      
      
      1
      
      1Share of
          profits less losses of associates
      
      
      
      
      
      
      (2
      )Interest
          expense
      
      
      
      
      
      
      (12
      )Interest
          income
      
      
      
      
      
      
      13Post-retirement
          benefit finance:Interest
          costs
      
      
      
      
      
      
      (447
      )Expected
          return on assets
      
      
      
      
      
      
      414Foreign
          exchange gains on debt previouslyhedging
          goodwill written off to reserves
      15
      
      
      
      
      
      1515
      
      
      
      
      
      (17
      )Profit
            before taxation
      15
      
      172
      
      
      
      247Income tax
          expense
      (5
      )
      
      
      
      
      18Net
            profit
      10
      
      172
      
      
      
      265Attributable
          to equity holders of the parent
      10
      
      172
      
      
      
      264Attributable
          to minority interests
      
      
      
      
      
      
      1Dividends
      
      
      
      
      
      
      86Profit
            retained for year
      10
      
      172
      
      
      
      350A summary
          of the principal differences between UK GAAP and IFRS as applicable
      to ICI is as follows: c) Foreign exchange i) Intercompany funding
          arrangementsThe Group has a range of intercompany funding arrangements in place in
    order to optimise the sourcing of finance for the Group and optimise the
    funding of its subsidiaries. Under both UK GAAP and IFRS, foreign exchange
    gains (losses) on intergroup loans are recognised in the income statement,
    unless the loans can be designated as part of the Groups investment
    in its foreign operations, when the exchange gains (losses) can then be recognised
    in reserves. However, IFRS is more specific in determining which loans can
    be designated as part of the Groups investment in its foreign operations,
    in particular excluding intergroup loans that are not denominated in the
    functional currency of either the lender or the borrower. ii) Net investment
          hedgeIn addition to the above, the Group partially hedges its net investment
    in foreign subsidiaries by denominating external debt in a mix of foreign
    currencies. Under UK GAAP, the goodwill (approaching £4bn) which was
    offset against reserves was included as an asset in this hedge calculation.
    Under IFRS, goodwill in reserves is not designated as an asset and therefore
    cannot be used in the hedging calculation. There is no effect on the balance
    sheet as a result of changes to the treatment of foreign exchange under IFRS. d) Goodwill UK GAAP required goodwill
      to be amortised over its expected useful economic life. Under IFRS, goodwill
      is no longer amortised but frozen at the UK GAAP carrying value on transition
      and tested annually for impairment. Negative goodwill cannot be recognised
      as an asset on the balance sheet and should be recognised in the income
      statement as it arises. Any negative goodwill held on the balance sheet
      at the transition date was released to reserves.  Accounts
      ICI
          Annual Report and Accounts 2005 117b


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  to Contents

Notes
  relating to the Group accounts

35 Comparative data restated
  in accordance with the transition to IFRS (continued)

e) Dividends

Under UK GAAP, the practice
  was to recognise dividends in the profit and loss account in the period to which
  they relate, whereas under IFRS the dividend is recognised directly in equity
  in the period in which it is declared. As a consequence of this, the dividend
  creditor is also not recognised until the dividend is declared.

f) Joint ventures

Under UK GAAP the equity
  method of consolidation was used, whereby ICIs share of the joint ventures
  operating results was included in one line in the profit and loss account, with
  the related tax being included in the Group taxation on profit on ordinary activities.
  Under IFRS, joint ventures can be recognised using either the proportionate
  consolidation method or the equity method of accounting. ICI has adopted the
  proportionate consolidation method under IFRS, whereby ICIs share of the
  joint ventures net assets and results is recognised on a line-by-line
  basis. This has resulted in adjustments to key lines in the income statement,
  although net profit (loss) is unchanged.

g) Business combinations

i) Profit (loss)
  on disposalUnder UK GAAP, goodwill that was previously held in reserves was recycled
  and included within the profit (loss) on disposal calculation. Under IFRS, any
  goodwill held in reserves is not recycled on disposal.

Also, on disposal of an operation
  under IFRS, ICI will transfer the cumulative amount of exchange differences
  recognised in equity since the transition date to the income statement as part
  of the profit and loss on disposal. Under UK GAAP these cumulative exchange
  differences remained in reserves.

ii) Post-retirement
  benefits Under IFRS, a post-retirement benefit liability was recognised
  in relation to Quest Food Ingredients on transition. This liability was included
  in the disposal of Quest Food Ingredients during the year.

iii) Taxation
  IFRS applies different criteria for the recognition of deferred tax in relation
  to internal restructuring.

h) Reclassifications

i) Share of profits
  less disposals of associates 
  Under IFRS, the share of net profits less losses of associates is shown as a
  single line item post-tax below operating profit. Therefore, ICIs share
  of taxation on the profits less losses of associates has been reclassified from
  taxation on profit on ordinary activities to share of profits less losses of
  associates.

ii) Share
  of profits less losses on disposal of fixed assetsUnder UK GAAP, ICI has shown profits less losses on disposal
  of fixed assets separately below operating profit. Under IFRS this item has
  been reclassified as a component of operating profit.

iii) Balance sheet reclassifications
  IFRS replaces the term cash with cash and cash equivalents,
  where cash equivalents are defined as short-term highly liquid investments that
  are readily convertible to known amounts of cash and which are subject to insignificant
  changes in value. They usually have a maturity date less than three months from
  acquisition. These were included in current asset investments under UK GAAP.

IFRS states that provisions
  expected to be settled within one year of the balance sheet date should be classified
  as current liabilities. This has resulted in a reclassification from non-current
  liabilities to current liabilities.

IFRS requires computer software
  that is not an integral part of the hardware to be treated as an intangible
  asset. Under UK GAAP, Group policy was
  to categorise all capitalised software as tangible assets. This has also resulted
  in a balance sheet reclassification.

Under UK GAAP, the net deferred
  tax liability is shown within provisions and the current tax liability is shown
  within trade creditors and other payables. Under IFRS, the deferred tax asset
  and deferred tax liability and the current tax liability are all shown separately
  on the face of the balance sheet.

|118
      ICI Annual Report and Accounts 2005 | Accounts
|--------------------------------------------- | --------

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Reconciliation of equity by component

as at 1 January 2004

|                            | Share   |  | Share   |  | Translation |  | Retained  |   | Equity  |   | Minority |   | Total  |  
|--------------------------- | ------- |  | ------- |  | ----------- |  | --------- | - | ------- | - | -------- | - | ------ | -
|                            | capital |  | premium |  | reserves    |  | earnings  |   | holders |   | interest |   | equity |  
|                            |         |  | account |  |             |  | and other |   | of the  |   |          |   |        |  
|                            |         |  |         |  |             |  | reserves  |   | parent  |   |          |   |        |  
|                            | £m      |  | £m      |  | £m          |  | £m        |   | £m      |   | £m       |   | £m     |  
|                            |         |  |         |  |             |  |           |   |         |   |          |   |        |  
|UK GAAP                     | 1,191   |  | 933     |  |             |  | (1,674    | ) | 450     |   | 69       |   | 519    |  
|                            |         |  |         |  |             |  |           |   |         |   |          |   |        |  
|                            |         |  |         |  |             |  |           |   |         |   |          |   |        |  
|IFRS adjustments:           |         |  |         |  |             |  |           |   |         |   |          |   |        |  
|                            |         |  |         |  |             |  |           |   |         |   |          |   |        |  
|Employee
      benefits     |         |  |         |  |             |  | (1,161    | ) | (1,161  | ) | (1       | ) | (1,162 | )
|                            |         |  |         |  |             |  |           |   |         |   |          |   |        |  
|Dividends                   |         |  |         |  |             |  | 42        |   | 42      |   |         |   | 42     |  
|                            |         |  |         |  |             |  |           |   |         |   |          |   |        |  
|Share-based
      payments  |         |  |         |  |             |  | 5         |   | 5       |   |         |   | 5      |  
|                            |         |  |         |  |             |  |           |   |         |   |          |   |        |  
|Goodwill
      movement     |         |  |         |  |             |  | 1         |   | 1       |   |         |   | 1      |  
|                            |         |  |         |  |             |  |           |   |         |   |          |   |        |  
|Business
      combinations |         |  |         |  |             |  | 23        |   | 23      |   |         |   | 23     |  
|                            |         |  |         |  |             |  |           |   |         |   |          |   |        |  
|IFRS                        | 1,191   |  | 933     |  |             |  | (2,764    | ) | (640    | ) | 68       |   | (572   | )
|                            |         |  |         |  |             |  |           |   |         |   |          |   |        |  

as at 31 December 2004

|                                 | Share   |  | Share   |  | Translation |   | Retained  |   | Equity  |   | Minority |   | Total  |  
|-------------------------------- | ------- |  | ------- |  | ----------- | - | --------- | - | ------- | - | -------- | - | ------ | -
|                                 | capital |  | premium |  | reserves    |   | earnings  |   | holders |   | interest |   | equity |  
|                                 |         |  | account |  |             |   | and other |   | of the  |   |          |   |        |  
|                                 |         |  |         |  |             |   | reserves  |   | parent  |   |          |   |        |  
|                                 | £m      |  | £m      |  | £m          |   | £m        |   | £m      |   | £m       |   | £m     |  
|                                 |         |  |         |  |             |   |           |   |         |   |          |   |        |  
|UK GAAP                          | 1,191   |  | 933     |  |             |   | (1,403    | ) | 721     |   | 87       |   | 808    |  
|                                 |         |  |         |  |             |   |           |   |         |   |          |   |        |  
|                                 |         |  |         |  |             |   |           |   |         |   |          |   |        |  
|IFRS adjustments:                |         |  |         |  |             |   |           |   |         |   |          |   |        |  
|                                 |         |  |         |  |             |   |           |   |         |   |          |   |        |  
|Opening
      equity adjustments |         |  |         |  |             |   | (1,090    | ) | (1,090  | ) | (1       | ) | (1,091 | )
|                                 |         |  |         |  |             |   |           |   |         |   |          |   |        |  
|                                 |         |  |         |  |             |   |           |   |         |   |          |   |        |  
|Total
      recognised income    |         |  |         |  |             |   |           |   |         |   |          |   |        |  
|and expense                      |         |  |         |  | (31         | ) | 296       |   | 265     |   | (1       | ) | 264    |  
|                                 |         |  |         |  |             |   |           |   |         |   |          |   |        |  
|Dividends                        |         |  |         |  |             |   | (82       | ) | (82     | ) |         |   | (82    | )
|                                 |         |  |         |  |             |   |           |   |         |   |          |   |        |  
|Goodwill
      movement          |         |  |         |  |             |   | (154      | ) | (154    | ) |         |   | (154   | )
|                                 |         |  |         |  |             |   |           |   |         |   |          |   |        |  
|Share-based
      payments       |         |  |         |  |             |   | 8         |   | 8       |   |         |   | 8      |  
|                                 |         |  |         |  |             |   |           |   |         |   |          |   |        |  
|IFRS                             | 1,191   |  | 933     |  | (31         | ) | (2,425    | ) | (332    | ) | 85       |   | (247   | )
|                                 |         |  |         |  |             |   |           |   |         |   |          |   |        |  

Under IFRS, the shareholders
  funds of the Group were a net deficit of £247m at 31 December 2004. This
  is primarily a result of the deficits on the pension and post-retirement healthcare
  schemes being recognised on the balance sheet.



|Accounts | ICI
      Annual Report and Accounts 2005119
|-------- | --------------------------------------------

---



Back to Contents

Notes
  relating to the Group accounts



35 Comparative data restated
  in accordance with the transition to IFRS (continued)

Group cash flow statement
  for the year ended 31 December 2004

|                                                              | UK GAAP |   | IFRS        |   | IFRS |  
|------------------------------------------------------------- | ------- | - | ----------- | - | ---- | -
|                                                              |         |   | adjustments |   |      |  
|                                                              | £m      |   | £m          |   | £m   |  
|                                                              |         |   |             |   |      |  
|Cash flows
      from operating activities                    |         |   |             |   |      |  
|                                                              |         |   |             |   |      |  
|Profit before
      tax                                       | 359     |   | 247         |   | 606  |  
|                                                              |         |   |             |   |      |  
|Adjusted
      for:                                           |         |   |             |   |      |  
|                                                              |         |   |             |   |      |  
|Net
      finance expense                                     | 86      |   | 32          |   | 118  |  
|                                                              |         |   |             |   |      |  
|Depreciation
      and amortisation                           | 204     |   | (35         | ) | 169  |  
|                                                              |         |   |             |   |      |  
|Post-retirement
      benefit charges                         |         |   | 63          |   | 63   |  
|                                                              |         |   |             |   |      |  
|Special
      items                                           | 3       |   | (187        | ) | (184 | )
|                                                              |         |   |             |   |      |  
|Taxation
      on associates                                  |        |   | 2           |   | 2    |  
|                                                              |         |   |             |   |      |  
|Movement
      in working capital                             |        |   | 13          |   | 13   |  
|                                                              |         |   |             |   |      |  
|ICI UK Pension
      Fund prepayment movement                 | (10     | ) | 10          |   |      |  
|                                                              |         |   |             |   |      |  
|Outflows
      relating to special items in operating profit | (81     | ) |            |   | (81  | )
|                                                              |         |   |             |   |      |  
|Post-retirement
      benefit payments                        |         |   | (151        | ) | (151 | )
|                                                              |         |   |             |   |      |  
|Interest
      paid                                           | (153    | ) |            |   | (153 | )
|                                                              |         |   |             |   |      |  
|Interest
      received                                       | 87      |   |            |   | 87   |  
|                                                              |         |   |             |   |      |  
|Tax paid
      excluding tax on disposal of businesses        | (43     | ) |            |   | (43  | )
|                                                              |         |   |             |   |      |  
|Dividends
      paid to equity holders of the parent          | (82     | ) |            |   | (82  | )
|                                                              |         |   |             |   |      |  
|Dividends
      paid to minority interests                    | (13     | ) |            |   | (13  | )
|                                                              |         |   |             |   |      |  
|Other items                                                   | (30     | ) | 6           |   | (24  | )
|                                                              |         |   |             |   |      |  
|Net cash
      inflow from operating activities               | 327     |   |            |   | 327  |  
|                                                              |         |   |             |   |      |  
|                                                              |         |   |             |   |      |  
|                                                              |         |   |             |   |      |  
|Cash flows
      from investing activities                    |         |   |             |   |      |  
|                                                              |         |   |             |   |      |  
|Purchase
      of property, plant and equipment               | (158    | ) |            |   | (158 | )
|                                                              |         |   |             |   |      |  
|Proceeds
      from sale of property, plant and equipment     | 8       |   |            |   | 8    |  
|                                                              |         |   |             |   |      |  
|Purchase
      of businesses, net of cash acquired            | (4      | ) |            |   | (4   | )
|                                                              |         |   |             |   |      |  
|Net proceeds
      from disposal of businesses                | 279     |   |            |   | 279  |  
|                                                              |         |   |             |   |      |  
|Payment in
      respect of disposals prior to 2004ø          | (95     | ) |            |   | (95  | )
|                                                              |         |   |             |   |      |  
|Tax on disposal
      of businesses                           | (1      | ) |            |   | (1   | )
|                                                              |         |   |             |   |      |  
|Net cash
      inflow from investing activities               | 29      |   |            |   | 29   |  
|                                                              |         |   |             |   |      |  
|                                                              |         |   |             |   |      |  
|                                                              |         |   |             |   |      |  
|Cash flows
      from financing activities                    |         |   |             |   |      |  
|                                                              |         |   |             |   |      |  
|Decrease
      (increase) in current asset investments        | 225     |   | (263        | ) | (38  | )
|                                                              |         |   |             |   |      |  
|Increase
      in long-term loans                             | 12      |   |            |   | 12   |  
|                                                              |         |   |             |   |      |  
|Repayment
      of long-term loans                            | (521    | ) |            |   | (521 | )
|                                                              |         |   |             |   |      |  
|Net increase
      in short-term borrowings                   | 84      |   |            |   | 84   |  
|                                                              |         |   |             |   |      |  
|Other financing
      cash flows                              | (1      | ) |            |   | (1   | )
|                                                              |         |   |             |   |      |  
|Net cash
      (outflow) from financing activities            | (201    | ) | (263        | ) | (464 | )
|                                                              |         |   |             |   |      |  
|                                                              |         |   |             |   |      |  
|                                                              |         |   |             |   |      |  
|Cash and
      cash equivalents at beginning of period        | 243     |   | 345         |   | 588  |  
|                                                              |         |   |             |   |      |  
|Net cash
      inflow (outflow) from all activities           | 155     |   | (263        | ) | (108 | )
|                                                              |         |   |             |   |      |  
|Movement
      arising on foreign currency translation        | (12     | ) | 1           |   | (11  | )
|                                                              |         |   |             |   |      |  
|Cash and
      cash equivalents at end of period              | 386     |   | 83          |   | 469  |  
|                                                              |         |   |             |   |      |  
|Includes payments against restructuring provisions.          |         |   |             |   |      |  
|øIncludes investments in Ineos Chlor.                         |         |   |             |   |      |  
|                                                              |         |   |             |   |      |  

The move from UK GAAP to IFRS
  does not change the net cash flow of the Group. The IFRS cash flow format is
  similar to UK GAAP but presents various cash flows in different categories and
  in a different order from the UK GAAP cash flow statement.

IFRS replaces the term cash
  with cash and cash equivalents, where cash equivalents are defined
  as short-term highly liquid investments that are readily convertible to known
  amounts of cash and which are subject to insignificant changes in value. They
  usually have a maturity date less than three months from acquisition. In the
  cash flow under IFRS, overdrafts are also shown within cash and cash equivalents
  whereas they are included within short-term borrowings under UK GAAP. In the
  balance sheet, overdrafts are shown in current liabilities under both UK GAAP
  and IFRS.



|120
      ICI Annual Report and Accounts 2005 | Accounts
|--------------------------------------------- | --------

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36
        Differences between IFRS and US accounting principlesThe accompanying
        Group financial statements included in this report are prepared in accordance
        with adopted IFRS. As explained in the basis of preparation, ICI has taken
        the exemption allowed by the US Securities and Exchange Commission (US
        SEC) from the provision of a second year of comparative information for
        companies adopting IFRS for the first time in 2005. The significant differences
        between IFRS and US Generally Accepted Accounting Principles (US GAAP)
        for the years ended 31 December 2005 and 2004 that affect the Groups
        net income and shareholders equity are set out below:(a)
        Accounting for pension costsThere
        are a number of significant differences between IFRS under IAS 19 and
        US GAAP in accounting for pension costs that have a particular impact
        on ICI:(i)
      Under IAS 19, the
        Group has taken the option to recognise actuarial gains and losses in
        full through the statement of Group recognised income and expense in the
        period in which they are incurred. Under SFAS No. 87 Employers
        Accounting for Pensionsthe Group recognises actuarial gains and losses
        over the remaining average service life of employees.(ii)
      IAS 19 requires past
        service costs to be recognised immediately if they are already fully vested,
        or on a straight-line basis over the period until the extra benefits are
        vested if they do not vest immediately. SFAS No. 87 requires prior service
        costs to be recognised over the expected remaining service lives of the
        participants or in certain circumstances their remaining lives, even if
        the benefits are already fully vested. This also applies to negative past
        service costs.(iii)
      SFAS No. 87 stipulates
        a minimum level of recognition of pension scheme liabilities calculated
        by reference to the accumulated benefit obligation, which has no equivalent
        in IAS 19. If the accumulated benefit obligation is greater than the value
        of the pension scheme assets, a minimum liability is reflected in the
        balance sheet reflecting the unfunded accumulated pension liability. An
        equal amount is recognised as an intangible asset up to the amount of
        the unrecognised prior service cost and thereafter directly in other comprehensive
        income. Additional post-retirement
    benefit disclosures are provided under US GAAP in accordance with SFAS No.
    132(R). (b) Purchase accounting
    adjustments, including the amortisation and impairment of goodwill and intangiblesThe accounting policy for goodwill is similar between IFRS
    and US GAAP, with goodwill arising on acquisitions capitalised and reviewed
    for impairment annually and whenever indicators of impairment arise. The methodology
    for testing impairment differs between IFRS and US GAAP. However, due to the
    historic differences in accounting between UK GAAP and US GAAP for goodwill
    and other intangibles, relating mainly to amounts capitalised and amounts
    amortised, the Group has recognised significantly more goodwill on the balance
    sheet under US GAAP compared to IFRS. As a result, disposals of goodwill,
    any impairments and exchange on retranslation of goodwill may vary between
    IFRS and US GAAP. (c) Capitalisation
    of interestCapitalisation of borrowing costs is not required under IAS
    23 Borrowing Costsand the Group expenses all borrowing costs as incurred.
    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 activitiesThere are three significant differences between IFRS and US
    GAAP in accounting for derivative instruments and hedging activities that
    have a particular impact on ICI. (i)
      Upon adopting IAS
        39, ICI applied hedge accounting for interest rate swaps and related debt,
        therefore both the derivative and the debt were brought onto the opening
        balance sheet at fair value. The Group therefore has an opening balance
        sheet adjustment in the US GAAP balance sheet to reverse the impact of
        bringing the debt onto the IFRS balance sheet at fair value. This adjustment
        will reverse as the debt in existence on transition matures. As hedge
        accounting has been applied under SFAS 133 from 1 January 2005, fair value
        movements on the debt can be recorded in the income statement, as under
        IFRS.(ii)
      Under IFRS, goodwill
        in reserves is not designated as an asset, and hence cannot be used in
        the calculation of the net investment hedge. Therefore exchange is taken
        to the income statement on retranslation of the part of the debt that
        does not act as a hedge. However, under US GAAP, this goodwill is on balance
        sheet and therefore can be used in the calculation of the investment hedge.
        In the US GAAP reconciliation, the Group reverses the amount taken to
        the Income Statement and recognises this in reserves (to the extent that
        a hedging relationship exists).(iii)
      Under US GAAP, the
        forward contracts in place to purchase shares in order to service share
        option grants are marked to current market value where the market value
        is below the contracted purchase price. Under IFRS, the total liability
        is recognised on the balance sheet. (e) Restructuring
    costsThe Group has historically incurred various restructuring costs
    that have primarily comprised costs such as employee termination benefits,
    contract termination costs and costs to consolidate or close facilities or
    relocate employees. Under IFRS, 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s
    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 Employers Accounting for
        Settlements and Curtailments of Defined Benefit Pension Plans and for
        Termination Benefitsor 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.




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      Annual Report and Accounts 2005121
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Notes
  relating to the Group accounts



36  Differences
  between IFRS and US accounting principles (continued)

(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.(iv)
      Under IFRS, assets to
        be abandoned are written down to the higher of net realisable value and
        value in use. Under USGAAP assets to be abandoned are classified as held
        for use. A preliminary review of tangible fixed assets is carried out
        using undiscounted future cash flows. If the undiscounted future cash
        flows are less than the assets (or asset groups) 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. (f) Foreign exchangeUnder US GAAP, on the sale of a foreign enterprise
    cumulative foreign exchange differences within reserves are taken to net income
    in arriving at a gain or loss on disposal. Although IFRS also requires inclusion
    of the cumulative translation differences held in reserves as part of the
    calculation of gains or loss on disposal, they were reset to zero at transition
    to IFRS on 1 January 2004. (g) Discontinued operationsUnder IFRS, a discontinued operation is a component of an entity that
    has either been disposed of, or is held for sale; where a component of an
    entity comprises operations and cash flows that can be clearly distinguished
    from the rest of the entity, both operationally and for financial reporting
    purposes. IFRS further states that such a component of the entity must either
    represent a separate major line of business or geographical area of operation
    or is part of a single co-ordinated plan to dispose of either a separate major
    line of business or geographical area of operation, or is a subsidiary acquired
    exclusively with a view to resale. A list of businesses which have been treated
    as discontinued operations under IFRS is included in note 1. Under SFAS No. 144 Accounting
    for the Impairment or Disposal of Long-Lived Assetsa discontinued operation
    is also defined as a component of an entity that has been disposed of or held
    for sale, where the component must have operations and cash flows that can
    be clearly distinguished, operationally and for financial reporting purposes,
    from the rest of the entity. However, US GAAP does not require the component
    to represent a separate major line of business or geographical area of operations
    or be part of a single co-ordinated plan to dispose of either a separate major
    line of business or geographical area of operations. SFAS No.144 also requires
    that the results of operations and cash flows of the component have been (or
    will be) eliminated from the ongoing operations of the entity following the
    disposal and the entity will not have any significant ongoing involvement
    in the operations of the component after the disposal. Under US GAAP, the Quest
    Food Ingredients disposal during 2004 met the SFAS No. 144 conditions and
    therefore, was classified as a discontinued operation. The disposal of the
    National Starch Vinamul Polymers business that completed on 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 results of the Quest Food Ingredients operations and the gain on the disposal
    are classified within discontinued operations. In 2004, Quest Food Ingredients
    sales were £50m and the pre-tax profit £7m. Under IFRS, the profit
    on sale in 2004 amounted to £145m. Under US GAAP, goodwill in respect
    of this business was 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 was £163m. Quest Food Ingredients
    also had additional post-retirement benefit liabilities under IFRS of £19m
    arising due to measurement differences, which were included in the calculation
    of profit on sale. Quest Food Ingredients also had an intangible asset of
    £7m under US GAAP that was not recognised under IFRS. US GAAP also requires
    the cumulative translation differences of £3m held in reserves to be
    recycled in the profit/loss on disposal calculation. Consequently, the loss
    reported under US GAAP amounted to £39m and the adjustments totalling
    £184m have been included in the US GAAP reconciliation under the headings
    to which they relate. The disposal of the Vinamul
    Polymers business completed in the first quarter of 2005. Sales for the business
    in 2005 and 2004 were £15m and £163m respectively. Under IFRS the
    pre-tax profit for 2005 was £nil (2004 £12m). A loss of £57m
    was recognised under US GAAP in 2004 on initial write-down of the business
    to fair value, under the heading Disposal of business. Under IFRS, neither the
    disposal of Quest Food Ingredients or National Starch Vinamul Polymers business
    represented a separate major line of business or geographical area of operations
    or were part of a single co-ordinated plan to dispose of either a separate
    major line of business or geographical area of operations. As a result, they
    were both classified as continuing under IFRS. (h) Disposal adjustmentsIn 2000, the Group recorded the disposal of its Chlor-Chemicals business
    as a discontinued operation. 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 the Ineos Group of £55m. As a result, ICI wrote-off all
    existing indebtedness from Ineos Chlor and transferred its 15% equity interest
    to Ineos. A charge of £5m was incurred in the IFRS results for this transaction.
    Under US GAAP, the results of the operation of Ineos Chlor up to the date
    of disposal, and the loss on disposal of £5m are included within continuing
    operations in 2004. (i) TaxationThe adjustment in respect of taxation relates to the deferred tax effect
    of US GAAP adjustments and to the application of different recognition criteria
    for the benefit of an uncertain tax exposure. In respect of the latter, under
    US GAAP, a benefit of £38m, recorded in 2005 under IFRS, has been deferred
    until 2006 as final confirmation was only received after the balance sheet
    date.




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36 Differences between
  IFRS and US accounting principles (continued)

(j) Guarantors
    Accounting and Disclosure Requirements for GuaranteesFIN No. 45 Offsetting of Amounts Related to Certain
    Repurchase and Reverse Repurchase Agreementsaddresses 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 no guarantees have been entered into or modified
    after 31 December 2002 that would require recognition of a liability under
    FIN No. 45. Note 32 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 32,
    with terms ranging between 1 to 13 years, amounted to £486m at 31 December
    2005 (2004 £636m). 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 £162m (2004 £150m).


(k) Discounted provisionsUnder SOP 96-1, a provision can only be discounted if the aggregate amount
    of the liability and the timing of the future cash flow are fixed or determinably
    reliable. Under IFRS, the Group holds discounted provisions relating to environmental
    and legacy items associated with businesses disposed of the liability and
    timing of the future cash flows of some of these provisions is not fixed or
    determinably reliable. The liability and timing of the future cash flows of
    some of these provisions is not fixed or determinably reliable. As these discounts
    are unwound under IFRS, a financing cost is charged to interest in the Income
    Statement. (l) New US Accounting
    Standards not yet implementedSFAS No. 154 Accounting Changes and Error Corrections(a replacement of APB Opinion No. 20 and FASB Statement No 3). The Statement
    applies to all voluntary changes in accounting principle, and changes the
    requirements for accounting for and reporting of a change in accounting principle.
    It also applies to changes required by an accounting pronouncement in the
    unusual instance that the pronouncement does not include specific transition
    provisions. The four main areas of accounting that this standard applies to
    are as follows: (a) changes in accounting principles; (b) changes in accounting
    estimates; (c) changes in reporting entities; and (d) corrections of errors
    in previously issued financial statements. This is designed to converge with
    IFRS. The Statement is effective for accounting changes and corrections of
    errors made in fiscal years beginning after 15 December 2005.




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      Annual Report and Accounts 2005123
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Notes
  relating to the Group accounts



36  Differences
  between IFRS 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 IFRS:

|                                                                                                      |       |  | 2005  |   | 2004  |  
|----------------------------------------------------------------------------------------------------- | ----- |  | ----- | - | ----- | -
|                                                                                                      | notes |  | £m    |   | £m    |  
|                                                                                                      |       |  |       |   |       |  
|Net income
      (loss) after special items attributable to equity holders of the parent
       IFRS |       |  | 390   |   | 474   |  
|                                                                                                      |       |  |       |   |       |  
|Continuing
      operations                                                                           |       |  | 390   |   | 488   |  
|                                                                                                      |       |  |       |   |       |  
|Discontinued
      operations                                                                         |       |  |      |   | (14   | )
|                                                                                                      |       |  |       |   |       |  
|Adjustments
      to conform with US GAAP                                                             |       |  |       |   |       |  
|                                                                                                      |       |  |       |   |       |  
|Post-retirement
      expense                                                                         |       |  | (176  | ) | (75   | )
|                                                                                                      |       |  |       |   |       |  
|Purchase
      accounting adjustments                                                                 |       |  |       |   |       |  
|                                                                                                      |       |  |       |   |       |  
|Goodwill                                                                                              | (iv)  |  | (2    | ) | (162  | )
|                                                                                                      |       |  |       |   |       |  
|Other
      intangibles                                                                               | (i)   |  | (29   | ) | (36   | )
|                                                                                                      |       |  |       |   |       |  
|Disposals
      and other adjustments                                                                 |       |  |       |   |       |  
|                                                                                                      |       |  |       |   |       |  
|Disposal
      of businesses                                                                          |       |  | (12   | ) | (53   | )
|                                                                                                      |       |  |       |   |       |  
|Discounted
      provisions                                                                           | (ii)  |  | 16    |   | (14   | )
|                                                                                                      |       |  |       |   |       |  
|Capitalisation
      of interest                                                                      | (iii) |  | (2    | ) | (4    | )
|                                                                                                      |       |  |       |   |       |  
|Derivative
      instruments and hedging activities                                                   |       |  |       |   |       |  
|                                                                                                      |       |  |       |   |       |  
|Mark
      to market of derivatives                                                                   | (v)   |  | 25    |   | (12   | )
|                                                                                                      |       |  |       |   |       |  
|Net
      investment hedge                                                                            | (v)   |  | (2    | ) | (15   | )
|                                                                                                      |       |  |       |   |       |  
|Restructuring
      costs                                                                             | (vi)  |  | 3     |   | (47   | )
|                                                                                                      |       |  |       |   |       |  
|Others                                                                                                |       |  | (6    | ) |      |  
|                                                                                                      |       |  |       |   |       |  
|Tax
      effect of US GAAP adjustments                                                               |       |  | 3     |   | 49    |  
|                                                                                                      |       |  |       |   |       |  
|Total US
      GAAP adjustments                                                                       |       |  | (182  | ) | (369  | )
|                                                                                                      |       |  |       |   |       |  
|Net income
      (loss) attributable to equity holders of the parent  US GAAP                        |       |  | 208   |   | 105   |  
|                                                                                                      |       |  |       |   |       |  
|Continuing
      operations                                                                           |       |  | 206   |   | 129   |  
|                                                                                                      |       |  |       |   |       |  
|Discontinued
      operations                                                                         |       |  | 2     |   | (24   | )
|                                                                                                      |       |  |       |   |       |  
|                                                                                                      |       |  | pence |   | pence |  
|                                                                                                      |       |  |       |   |       |  
|Basic earnings
      (loss) per Ordinary Share in accordance with US GAAP                             |       |  | 17.6  |   | 8.9   |  
|                                                                                                      |       |  |       |   |       |  
|Continuing
      operations                                                                           |       |  | 17.4  |   | 10.9  |  
|                                                                                                      |       |  |       |   |       |  
|Discontinued
      operations                                                                         |       |  | 0.2   |   | (2.0  | )
|                                                                                                      |       |  |       |   |       |  
|                                                                                                      |       |  |       |   |       |  
|                                                                                                      |       |  |       |   |       |  
|Diluted earnings
      (loss) per Ordinary Share in accordance with US GAAP                           |       |  | 17.5  |   | 8.9   |  
|                                                                                                      |       |  |       |   |       |  
|Continuing
      operations                                                                           |       |  | 17.3  |   | 10.9  |  
|                                                                                                      |       |  |       |   |       |  
|Discontinued
      operations                                                                         |       |  | 0.2   |   | (2.0  | )
|                                                                                                      |       |  |       |   |       |  

For US GAAP purposes, the segmentation
  follows that of IFRS. 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 IFRS, reference should be made to
  page 66 where there is a description of each class of business.

Under US GAAP, sales and cost
  of sales/administrative expenses as reported under IFRS are reduced by £26m
  (2004 £32m); on application of EITF 01-09, which requires that certain
  advertising co-operative allowances paid to customers are deducted from sales.



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36Differences
  between IFRS and US accounting principles (continued)

|                                                                       |           |  | 2005  |   | 2004  |  
|---------------------------------------------------------------------- | --------- |  | ----- | - | ----- | -
|                                                                       | notes     |  | £m    |   | £m    |  
|                                                                       |           |  |       |   |       |  
|Shareholders
      equity, as shown in the Group balance sheet  IFRS |           |  | (613  | ) | (332  | )
|                                                                       |           |  |       |   |       |  
|Adjustments
      to conform with US GAAP                              |           |  |       |   |       |  
|                                                                       |           |  |       |   |       |  
|Intangible
      assets                                                |           |  |       |   |       |  
|                                                                       |           |  |       |   |       |  
|Post-retirement benefit costs                                          | (vii)     |  | 7     |   | 17    |  
|                                                                       |           |  |       |   |       |  
|Purchase accounting adjustments                                        | (i), (iv) |  | 2,456 |   | 2,435 |  
|                                                                       |           |  |       |   |       |  
|Disposal accounting adjustments                                        |           |  |      |   | (58   | )
|                                                                       |           |  |       |   |       |  
|Tangible
      assets                                                  |           |  |       |   |       |  
|                                                                       |           |  |       |   |       |  
|Capitalisation of interest                                             | (iii)     |  | 25    |   | 27    |  
|                                                                       |           |  |       |   |       |  
|Other assets                                                           |           |  | (3    | ) | (4    | )
|                                                                       |           |  |       |   |       |  
|Deferred
      tax asset and tax effect of US GAAP adjustments         |           |  | (49   | ) | (54   | )
|                                                                       |           |  |       |   |       |  
|Financial
      liabilities                                            | (v)       |  | 98    |   | 24    |  
|                                                                       |           |  |       |   |       |  
|Provisions                                                             |           |  |       |   |       |  
|                                                                       |           |  |       |   |       |  
|Restructuring                                                          | (vi)      |  | 3     |   |      |  
|                                                                       |           |  |       |   |       |  
|Discounted provisions                                                  | (ii)      |  | (22   | ) | (38   | )
|                                                                       |           |  |       |   |       |  
|Post-retirement
      benefit liability                                | (vii)     |  | 173   |   | 303   |  
|                                                                       |           |  |       |   |       |  
|Other
      liabilities                                                |           |  | (7    | ) | (4    | )
|                                                                       |           |  |       |   |       |  
|Deferred
      tax liability and tax effect of US GAAP adjustments     |           |  | (58   | ) | (37   | )
|                                                                       |           |  |       |   |       |  
|Total US
      GAAP adjustments                                        |           |  | 2,623 |   | 2,611 |  
|                                                                       |           |  |       |   |       |  
|Shareholders
      equity  US GAAP                                   |           |  | 2,010 |   | 2,279 |  
|                                                                       |           |  |       |   |       |  

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. 130 Reporting Comprehensive Incomehave been made in the
  Groups financial statements in the statement of Group recognised income
  and expense, in note 26 and in the disclosure relating to pensions and other
  post-retirement benefits (US GAAP) on pages 126 to 129.

Statement of Group cash flow: Basis
  of preparationThe Statement of Group cash flow is prepared in accordance with IAS 7 Cash
  Flow Statements,the objective and presentation 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 cash equivalents
  with overdrafts being included under IFRS and excluded under US GAAP.

Calculated in accordance with SFAS
  No. 95, cash and cash equivalents at 31 December 2004 and 2005 and the movements
  during the years ending on those dates were as follows:

|                                                         | 2005 |   | 2004 |  
|-------------------------------------------------------- | ---- | - | ---- | -
|                                                         | £m   |   | £m   |  
|                                                         |      |   |      |  
|Cash and
      cash equivalents  IFRS                   | 516  |   | 469  |  
|                                                         |      |   |      |  
|Overdrafts                                               | 6    |   | 8    |  
|                                                         |      |   |      |  
|Cash and
      cash equivalents  US GAAP                | 522  |   | 477  |  
|                                                         |      |   |      |  
|                                                         |      |   |      |  
|                                                         |      |   |      |  
|Change in
      the balance of cash and cash equivalents |      |   |      |  
|                                                         |      |   |      |  
|At beginning
      of year                               | 477  |   | 592  |  
|                                                         |      |   |      |  
|Exchange
      adjustments                               | 19   |   | (8   | )
|                                                         |      |   |      |  
|Cash inflow
      (outflow) during year                  | 29   |   | (103 | )
|                                                         |      |   |      |  
|Acquisitions
      and disposals                         | (3   | ) | (4   | )
|                                                         |      |   |      |  
|At end of
      year                                     | 522  |   | 477  |  
|                                                         |      |   |      |  

Notes relating to the differences
  between IFRS and US accounting principles:

(i) Other intangible assetsAt 31 December 2005, the Group had intangible assets other than goodwill
  with a gross carrying amount of £270m less accumulated amortisation of
  £230m under US GAAP. The charge of £29m (2004 £36m) relating
  to other intangible assets is due to an amortisation charge of £27m (2004
  £29m) and loss on disposal of a business of £2m (2004 £7m). The
  amortisation expense for the five succeeding years is estimated as follows:
  2006 £27m, 2007 £13m, 2008 £nil, 2009 £nil and 2010 £nil.

( ii) Discounted provisionThe credit of £16m (2004 £13m charge) arising on discounted provisions
  is due to the reversal of the discount unwind (discount rate used = 4.6%) of
  £4m (2004 £3m) and a release of £12m (2004 £16m increase).
  The undiscounted provision recognised under US GAAP at 31 December 2005 of £82m
  is £22m higher than the discounted provision held under IFRS (2004 £38m
  higher). The expected payments for the five succeeding years are estimated as
  follows: 2006 £5m, 2007 £5m, 2008 £4m, 2009 £5m and 2010
  £6m.



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      Annual Report and Accounts 2005 125
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Notes
  relating to the Group accounts



36Differences
  between IFRS and US accounting principles (continued)

Notes relating to the differences
  between IFRS and US accounting principles (continued)

(iii) Capitalisation of
  interest 
  At 31 December 2005, the Group had capitalised interest with a gross carrying
  amount of £100m less accumulated amortisation of £75m. The charge
  relating to capitalised interest of £2m (2004 £4m) is the net of additions
  in the period of £3m (2004 £1m) offset by an amortisation charge of
  £5m (2004 £5m).

(iv) Goodwill
  balance under US GAAP

|                           | National |   | Quest |   | Paints |   | Regional   |   | Total |  
|-------------------------- | -------- | - | ----- | - | ------ | - | ---------- | - | ----- | -
|                           | Starch   |   |       |   |        |   | and        |   |       |  
|                           |          |   |       |   |        |   | Industrial |   |       |  
|                           | £m       |   | £m    |   | £m     |   | £m         |   | £m    |  
|                           |          |   |       |   |        |   |            |   |       |  
|At beginning
      of 2005 | 1,778    |   | 547   |   | 486    |   | 16         |   | 2,827 |  
|                           |          |   |       |   |        |   |            |   |       |  
|Additions                  | 8        |   |      |   | 5      |   |           |   | 13    |  
|                           |          |   |       |   |        |   |            |   |       |  
|Disposals                  | (2       | ) |      |   |       |   |           |   | (2    | )
|                           |          |   |       |   |        |   |            |   |       |  
|Exchange
      adjustments | 92       |   | 22    |   | 18     |   | 2          |   | 134   |  
|                           |          |   |       |   |        |   |            |   |       |  
|At end
      of 2005       | 1,876    |   | 569   |   | 509    |   | 18         |   | 2,972 |  
|                           |          |   |       |   |        |   |            |   |       |  
|At beginning
      of 2004 | 1,915    |   | 736   |   | 504    |   | 18         |   | 3,173 |  
|                           |          |   |       |   |        |   |            |   |       |  
|Additions                  |         |   |      |   | 1      |   |           |   | 1     |  
|                           |          |   |       |   |        |   |            |   |       |  
|Disposals                  | (57      | ) | (163  | ) |       |   |           |   | (220  | )
|                           |          |   |       |   |        |   |            |   |       |  
|Exchange
      adjustments | (80      | ) | (26   | ) | (19    | ) | (2         | ) | (127  | )
|                           |          |   |       |   |        |   |            |   |       |  
|At end of
      2004       | 1,778    |   | 547   |   | 486    |   | 16         |   | 2,827 |  
|                           |          |   |       |   |        |   |            |   |       |  

(v) Derivative instruments and
  hedging activitiesThe charge of £2m (2004 £15m charge) is the reversal of the exchange
  gain recognised under IFRS on the part of the debt that cannot be hedged. This
  is recognised directly in reserves under US GAAP, but in the income statement
  under IFRS. The credit of £25m (2004 £12m charge) relating to the
  mark-to-market of derivatives is the adjustment reflecting the movement in the
  employee share ownership plan (ESOP) forward contracts to purchase own shares
  that are out of the money. Derivative instruments of £98m (2004
  £24m) under IFRS are not recognised on the balance sheet under US GAAP.

(vi) Restructuring costsThe credit of £3m (2004 £47m charge) relating to restructuring
  arises from the difference in recognition of asset impairments. This has resulted
  in a lower restructuring provision under US GAAP of £3m.

(vii) Pensions and other post-retirement
  benefits  US GAAPFor the purposes of the disclosure in accordance with US GAAP, the financial
  information relating to pensions and other post-retirement benefits has been
  presented in accordance with the requirements of SFAS No. 87 Accounting for
  Pensions,SFAS No. 88 Employers Accounting for Settlements and
  Curtailments of Defined Benefit Pension Plans and for Termination Benefits,SFAS No. 112 Employers Accounting for Post-employment Benefits,SFAS No. 106 Employers Accounting for Post-retirement Benefits
  other than Pensionsand SFAS No. 132(R) Employers Disclosures about
  Pensions and Other Post-retirement Benefits.Prior to 2005, this information
  was based on the Groups major defined benefit schemes. As a result of
  the transition from UK GAAP to IFRS, and to provide a more complete presentation,
  the Group collected information on all the Groups defined benefit schemes
  worldwide from 1 January 2004 under IFRS. This extended data population has
  been included under US GAAP from 1 January 2005.



|126
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36Differences between IFRS and US accounting principles (continued)

Notes relating to the difference
  between IFRS and US accounting principles (continued)

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

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 pension plans for SFAS No. 87 purposes are shown
  in the table below, together with the assumptions relating to other post-retirement
  benefit plans for SFAS No. 106.

|                                                                       | Pension |  | Other           | 
|---------------------------------------------------------------------- | ------- |  | --------------- | 
|                                                                       | plans   |  | post-retirement | 
|                                                                       |         |  |                 | 
|                                                                       |         |  |                 | 
|                                                                       | 2005    |  | 2004            | 
|                                                                       | %       |  | %               | 
|                                                                       |         |  |                 | 
|Weighted
      average assumptions used to determine  benefit          |         |  |                 | 
|obligations at 31 December                                             |         |  |                 | 
|                                                                       |         |  |                 | 
|Discount
      rate                                                    | 4.8     |  | 5.3             | 
|                                                                       |         |  |                 | 
|Long-term
      rate of increase in remuneration                       | 4.2     |  | 3.9             | 
|                                                                       |         |  |                 | 
|Weighted
      average assumptions used to determine net cost for year |         |  |                 | 
|                                                                       |         |  |                 | 
|Discount
      rate                                                    | 5.2     |  | 5.4             | 
|                                                                       |         |  |                 | 
|Expected
      long-term rate of return on assets                      | 5.8     |  | 5.9             | 
|                                                                       |         |  |                 | 
|Long-term
      rate increase in remuneration                          | 4.2     |  | 3.9             | 
|                                                                       |         |  |                 | 
|Assumed healthcare
      cost trend rates at 31 December               |         |  |                 | 
|                                                                       |         |  |                 | 
|Healthcare
      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       |         |  |                 | 
|                                                                       |         |  |                 | 

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

|                                                                | Pension |   | Other           |  
|--------------------------------------------------------------- | ------- | - | --------------- | -
|                                                                | plans   |   | post-retirement |  
|                                                                |         |   |                 |  
|                                                                |         |   |                 |  
|                                                                | 2005    |   | 2004            |  
|                                                                | £m      |   | £m              |  
|                                                                |         |   |                 |  
|Components
      of net periodic benefit cost                   |         |   |                 |  
|                                                                |         |   |                 |  
|Service cost                                                    | 62      |   | 73              |  
|                                                                |         |   |                 |  
|Interest
      cost                                             | 440     |   | 432             |  
|                                                                |         |   |                 |  
|Expected
      return on plan assets for period                 | (413    | ) | (421            | )
|                                                                |         |   |                 |  
|Amortisation
      of prior service cost                        | (1      | ) | 7               |  
|                                                                |         |   |                 |  
|Amortisation
      of unrecognised transition obligation        |        |   | 1               |  
|                                                                |         |   |                 |  
|Amortisation
      of net actuarial loss (gain)                 | 68      |   | 39              |  
|                                                                |         |   |                 |  
|Recognised
      on termination/curtailment/settlement benefits | (2      | ) | (6              | )
|                                                                |         |   |                 |  
|Net periodic
      benefit cost                                 | 154     |   | 125             |  
|                                                                |         |   |                 |  

There are no charges in 2004 or 2005
  for contractual terminations included in net periodic benefit costs, which are
  included within the relevant IFRS statutory headings.

The healthcare cost trend has a significant
  effect on the amounts reported. For the Group, increasing the assumed healthcare
  cost rates by 1% in every year would increase the accumulated post-retirement
  benefit obligation as of 31 December 2005 by £7m (2004 £12m) and the
  aggregate of the service and interest cost components of net periodic post-retirement
  benefit cost for the year ended 31 December 2005 by £1m (2004 £1m).

Other comprehensive income

|                                                                                                                                        | 2005 |   | 2004 |  
|--------------------------------------------------------------------------------------------------------------------------------------- | ---- | - | ---- | -
|                                                                                                                                        | £m   |   | £m   |  
|                                                                                                                                        |      |   |      |  
|Amounts
        included in other comprehensive income (arising from change in additional
        minimum pension liability recognised) | 488  |   | 9    |  
|                                                                                                                                        |      |   |      |  
|Taxation                                                                                                                                | (26  | ) | (6   | )
|                                                                                                                                        |      |   |      |  
|                                                                                                                                        | 462  |   | 3    |  
|                                                                                                                                        |      |   |      |  



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      Annual Report and Accounts 2005 127
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Notes
  relating to the Group accounts

36  Differences
  between IFRS and US accounting principles (continued)

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

Obligations and funded statusThe funded status of the Groups 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 plans  |   | Other                       |  
|-------------------------------------------------------------------------------- | -------------- | - | --------------------------- | -
|                                                                                 | at 31 December |   | post-retirement
      plans |  
|                                                                                 |                |   |                             |  
|                                                                                 |                |   |                             |  
|                                                                                 | 2005           |   | 2004                        |  
|                                                                                 | £m             |   | £m                          |  
|                                                                                 |                |   |                             |  
|Change in benefit
      obligations                                              |                |   |                             |  
|                                                                                 |                |   |                             |  
|Benefit obligation
      at beginning of year  major plans                      | 8,363          |   | 8,186                       |  
|                                                                                 |                |   |                             |  
|Increase in
      reported population  minor plans recognised at 1 January 2005 | 206            |   |                             |  
|                                                                                 |                |   |                             |  
|                                                                                 | 8,569          |   | 8,186                       |  
|                                                                                 |                |   |                             |  
|Service
      cost                                                               | 62             |   | 73                          |  
|                                                                                 |                |   |                             |  
|Interest
      cost                                                              | 440            |   | 432                         |  
|                                                                                 |                |   |                             |  
|Participants
      contributions                                                | 4              |   | 4                           |  
|                                                                                 |                |   |                             |  
|Plan
      amendments                                                            | (23            | ) | (1                          | )
|                                                                                 |                |   |                             |  
|Actuarial
      loss (gain)                                                      | 1,130          |   | 274                         |  
|                                                                                 |                |   |                             |  
|Divestitures                                                                     | (13            | ) | (19                         | )
|                                                                                 |                |   |                             |  
|Curtailments                                                                     |               |   |                            |  
|                                                                                 |                |   |                             |  
|Settlements                                                                      | (23            | ) | (21                         | )
|                                                                                 |                |   |                             |  
|Business
      combinations                                                      |               |   | 2                           |  
|                                                                                 |                |   |                             |  
|Benefit
      payments                                                           | (541           | ) | (521                        | )
|                                                                                 |                |   |                             |  
|Population
      change                                                          |               |   |                            |  
|                                                                                 |                |   |                             |  
|Exchange                                                                         | 75             |   | (46                         | )
|                                                                                 |                |   |                             |  
|Benefit
      obligation at end of year                                          | 9,680          |   | 8,363                       |  
|                                                                                 |                |   |                             |  
|Change in plan
      assets                                                      |                |   |                             |  
|                                                                                 |                |   |                             |  
|Fair value
      of plan assets at beginning of year  major plans               | 7,564          |   | 7,343                       |  
|                                                                                 |                |   |                             |  
|Increase in
      reported population  minor plans recognised at 1 January 2005 | 82             |   |                             |  
|                                                                                 |                |   |                             |  
|                                                                                 | 7,646          |   | 7,343                       |  
|                                                                                 |                |   |                             |  
|Actual
      return on plan assets                                               | 908            |   | 639                         |  
|                                                                                 |                |   |                             |  
|Business
      combinations                                                      |               |   | 2                           |  
|                                                                                 |                |   |                             |  
|Divestitures                                                                     | (8             | ) | (11                         | )
|                                                                                 |                |   |                             |  
|Settlements                                                                      | (15            | ) | (14                         | )
|                                                                                 |                |   |                             |  
|Employers
      contributions                                                   | 152            |   | 153                         |  
|                                                                                 |                |   |                             |  
|Participants
      contributions                                                | 4              |   | 4                           |  
|                                                                                 |                |   |                             |  
|Benefit
      payments                                                           | (541           | ) | (521                        | )
|                                                                                 |                |   |                             |  
|Population
      change                                                          |               |   |                            |  
|                                                                                 |                |   |                             |  
|Exchange                                                                         | 58             |   | (31                         | )
|                                                                                 |                |   |                             |  
|Fair value
      of plan assets at end of year                                   | 8,204          |   | 7,564                       |  
|                                                                                 |                |   |                             |  
|Funded status                                                                    |                |   |                             |  
|                                                                                 |                |   |                             |  
|Funded status
      at end of year                                               | (1,476         | ) | (799                        | )
|                                                                                 |                |   |                             |  
|Unrecognised
      net actuarial loss (gain)                                     | 1,343          |   | 845                         |  
|                                                                                 |                |   |                             |  
|Unrecognised
      transition amount                                             |               |   | 8                           |  
|                                                                                 |                |   |                             |  
|Unrecognised
      prior service cost                                            | (20            | ) | 7                           |  
|                                                                                 |                |   |                             |  
|Net amount
      recognised                                                      | (153           | ) | 61                          |  
|                                                                                 |                |   |                             |  
|Prepaid benefit
      cost                                                       | 7              |   | 18                          |  
|                                                                                 |                |   |                             |  
|Accrued benefit
      cost                                                       | (1,320         | ) | (639                        | )
|                                                                                 |                |   |                             |  
|Intangible
      assets                                                          | 7              |   | 17                          |  
|                                                                                 |                |   |                             |  
|Accumulated
      other comprehensive income                                     | 1,153          |   | 665                         |  
|                                                                                 |                |   |                             |  
|Net amount
      recognised                                                      | (153           | ) | 61                          |  
|                                                                                 |                |   |                             |  



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36  Differences
  between IFRS and US accounting principles (continued)

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

|                                                                                    | Pension
      benefits | 
|----------------------------------------------------------------------------------- | ---------------------- | 
|                                                                                    | At
      31 December   | 
|                                                                                    |                        | 
|                                                                                    | 2005                   | 
|                                                                                    | £m                     | 
|                                                                                    |                        | 
|Supplementary
      analysis of pension plans                                       |                        | 
|                                                                                    |                        | 
|All plans                                                                           |                        | 
|                                                                                    |                        | 
|Accumulated
      benefit obligation                                                | 9,513                  | 
|                                                                                    |                        | 
|Pension plans
      with an accumulated benefit obligation in excess of plan assets |                        | 
|                                                                                    |                        | 
|Projected
      benefit obligation                                                  | 9,666                  | 
|                                                                                    |                        | 
|Accumulated
      benefit obligation                                                | 9,476                  | 
|                                                                                    |                        | 
|Fair
      value of plan assets                                                     | 8,159                  | 
|                                                                                    |                        | 

|                        |                            | 
|----------------------- | -------------------------- | 
|Asset
      allocations |                            | 
|                        | Percentage
      of fair   | 
|                        | value
      of plan assets | 
|                        | at
      31 December       | 
|                        |                            | 
|                        | 2005                       | 
|                        |                            | 
|                        | %                          | 
|                        |                            | 
|Equity securities       | 18                         | 
|                        |                            | 
|Debt securities         | 78                         | 
|                        |                            | 
|Other assets            | 4                          | 
|                        |                            | 
|                        | 100                        | 
|                        |                            | 



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      Annual Report and Accounts 2005 129
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Notes
  relating to the Group accounts

37  Critical accounting
  policies, judgements and estimates

The Groups main accounting
    policies affecting its results of operations and financial condition are set
    out on pages 56 to 59. 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.
    Key sources of estimation uncertainty and critical accounting judgements are
    as follows: Disposal provisionsAs at 31 December 2005, the Group had divestment provisions of £295m.
    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. Post-retirement benefitsThe Group operates a number of defined benefit retirement plans. The Groups
    total obligation in respect of defined benefit plans is calculated by independent,
    qualified actuaries and updated at least annually and totals £9.9bn.
    The Group also has plan assets totalling £8.2bn giving a net deficit
    position of £1.7bn for the Group. The size of the obligation is sensitive
    to actuarial assumptions. These include demographic assumptions covering mortality
    and longevity, and economic assumptions covering price and medical costs inflation,
    benefit and salary increases together with the discount rate used. A 0.1%
    decrease in the discount rate would increase the obligation by approximately
    £135m with all other assumptions unchanged. The size of the plan assets
    is sensitive to asset return levels and the level of contributions from the
    Company. 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 because either a transfer of economic benefits is not probable
    or the amount cannot be measured with sufficient reliability. In particular,
    no provision has been made for the allegations regarding ICIs former
    Acrylics business, as at this time there is uncertainty as to whether an obligation
    exists and if it did, how such an obligation could be reliably estimated.
    Details of the Groups contingent liabilities are set out in note 32
    to the consolidated financial statements. 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
    current tax liabilities.


The material tax provisions
    are discussed below: Over the past nine 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 worth in excess of £12bn. As a result
    of this reshaping and of disposals, a number of potential tax exposures have
    arisen. The Group has a provision of £74m 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 is £60m. Additionally, the Group considers
    its goodwill policy to be critical under US GAAP. GoodwillThe Group has capitalised goodwill under US GAAP of £3bn at 31 December
    2005. Goodwill is required to be tested for impairment at least annually 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 implied 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 impairment resulted from
    the annual impairment test in 2005. The headroom in the annual impairment
    test under US GAAP for the Quest reporting unit was £85m (total US GAAP
    goodwill of £569m at 31 December 2005); a 1% increase in the discount
    rate applied would have resulted in an impairment.




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|38 | Reformatted condensed IFRS income statement
|-- | -------------------------------------------

The following income
          statement has been prepared in accordance with Article 12 of Regulation
          S-X using the Groups
        IFRS income statement numbers.


|                                                                      | 2005   |   | 2004   |  
|--------------------------------------------------------------------- | ------ | - | ------ | -
|                                                                      | £m     |   | £m     |  
|                                                                      |        |   |        |  
|Net revenue                                                           | 5,812  |   | 5,609  |  
|Operating expenses                                                    |        |   |        |  
|Cost
          of sales                                               | (3,672 | ) | (3,533 | )
|Research and development                                              | (147   | ) | (146   | )
|Sales,
          general and administrative expenses                  | (1,456 | ) | (1,432 | )
|Other general income                                                  | 40     |   | 35     |  
|Profit
          on sale of businesses and fixed assets               | 20     |   | 194    |  
|                                                                      |        |   |        |  
|Operating income                                                      | 597    |   | 727    |  
|Net interest                                                          | (107   | ) | (103   | )
|Associate
          income                                            | 3      |   | 2      |  
|                                                                      |        |   |        |  
|Income from
          continuing operations before income tax expense | 493    |   | 626    |  
|Income tax expense                                                    | (73    | ) | (104   | )
|Minority
          interest                                           | (30    | ) | (34    | )
|                                                                      |        |   |        |  
|Income from
          continuing operations                           | 390    |   | 488    |  
|Discontinued
            operations                                   | –      |   | (14    | )
|                                                                      |        |   |        |  
|Net income
          in accordance with IFRS                          | 390    |   | 474    |  
|                                                                      |        |   |        |  
|                                                                      |        |   |        |  



|                                             |       |  |       |  
|-------------------------------------------- | ----- |  | ----- | -
|Earnings per share                           | pence |  | pence |  
|                                             |       |  |       |  
|Basic                                        |       |  |       |  
|Continuing
          operations              | 32.9  |  | 41.2  |  
|Discontinued
          operations            | –     |  | (1.1  | )
|                                             |       |  |       |  
|Net
          income in accordance with IFRS | 32.9  |  | 40.1  |  
|                                             |       |  |       |  
|Diluted                                      |       |  |       |  
|Continuing
          operations              | 32.8  |  | 41.2  |  
|Discontinued
          operations            | –     |  | (1.1  | )
|                                             |       |  |       |  
|Net
          income in accordance with IFRS | 32.8  |  | 40.1  |  
|                                             |       |  |       |  

The Groups IFRS income statement for the
        each of the two years ended December 31, 2005 and December 31, 2004,
        appears on page 60 under Item 18 Financial Statements of
        this Annual Report on Form 20-F.


130A ICI ANNUAL REPORT AND ACCOUNTS 2005

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|39 | New US Accounting Standard
              SFAS No. 123(R) implemented in the period
|-- | ----------------------------------------------------------------------------------

The Group has adopted SFAS No. 123(R) in
        2005 and recognised a charge of £7m for the year ended December 31, 2005.
        The impact of adopting this standard was insignificant, being less than £1m
        in the income statement, and consequently this did not have an impact
        on earnings per share.


The amount recognised in the year ended
        December 31, 2004 under APB Opinion No. 25 was a charge of £7m. If stock-based
        compensation had been calculated under the fair value based method in
        2004, an amount of £8m would have been recognised.


130B ICI ANNUAL REPORT AND ACCOUNTS 2005

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|40 | Valuation and qualifying accounts
|-- | ---------------------------------
|   |                                  

|                                |            |  | Additions charged
            to: |  |          |  |            |  
|------------------------------- | ---------- |  | --------------------------------- |  | -------- |  | ---------- | -
|                                | Balance at |  |                                   |  | Other    |  |            |  
|                                | January 1, |  | Expenses                          |  | accounts |  | Deductions |  
|                                | £m         |  | £m                                |  | £m       |  | £m         |  
|                                |            |  |                                   |  |          |  |            |  
|2004                            |            |  |                                   |  |          |  |            |  
|Allowance for stocks            | 45         |  | 11                                |  |          |  | (20        | )
|Allowance for doubtful accounts | 47         |  | 8                                 |  |          |  | (16        | )
|Allowance for other investments | 101        |  | –                                 |  | 30       |  | (129       | )
|                                |            |  |                                   |  |          |  |            |  
|                                | 193        |  | 19                                |  | 30       |  | (165       | )
|                                |            |  |                                   |  |          |  |            |  
|2005                            |            |  |                                   |  |          |  |            |  
|Allowance for stocks            | 36         |  | 23                                |  |          |  | (23        | )
|Allowance for doubtful accounts | 39         |  | 11                                |  |          |  | (13        | )
|Allowance for other investments | 2          |  | –                                 |  | –        |  | –          |  
|                                |            |  |                                   |  |          |  |            |  
|                                | 77         |  | 34                                |  | –        |  | (36        | )
|                                |            |  |                                   |  |          |  |            |  

130C ICI ANNUAL REPORT AND ACCOUNTS 2005

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

Remuneration of the Auditor for each of the
        two years ending December 31, 2005 and 2004, set out in accordance with
        SEC Regulations, was as follows:


|                       | notes |    | 2005 |  | 2004 | 
|---------------------- | ----- | -- | ---- |  | ---- | 
|                       | £m    | £m
|                       |       |    |      |  |      | 
|Audit                  | (a)   |    | 3.6  |  | 3.3  | 
|Audit-related services | (b)   |    | 1.4  |  | 1.0  | 
|Tax services           | (c)   |    | 0.5  |  | 0.7  | 

Notes

| | (a) | Expenditure on audit for 2005
          and 2004 related principally to the remuneration of the Auditor for
          the audit of the accounts of the parent company and of the Group and
          the review of interim financial statements of the Group for 2005 and
          2004.                                                                                                                                                                                                                                                                       
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (b) | Expenditure on audit-related
          services in 2005 related principally to assistance in preparation for
          compliance with the requirements of Section 404 of the Sarbanes-Oxley
          Act 2002 and in respect of the audit of the accounts of certain of
          the Groups post- retirement employee benefit plans. Expenditure
          in 2004 related principally to the transition to IFRS reporting and
          in respect of the audit of the accounts of certain of the Groups
          post-retirement employee benefit plans.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (c) | Expenditure on tax
            services for 2005 comprised compliance services of £0.2m and advisory services
          of £0.3m. Expenditure on tax services for 2004 comprised compliance
          services of £0.3m and advisory services of £0.4m.                                                                                                                                                                                                                                                                                                         



|130D | ICI ANNUAL REPORT AND ACCOUNTS 2005
|---- | -----------------------------------

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Principal
        subsidiary undertakingsat 31 December 2005



|                                           | Class
            of |  | Held
            by ICI |   | Principal
            activities in 2005                                                                                                                                                                                                                                          
|------------------------------------------ | -------------------- |  | ----------------------- | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                           | capital              |  | %                       |   |                                                                                                                                                                                                                                                                                   
|UNITED
          KINGDOM                   |                      |  |                         |   |                                                                                                                                                                                                                                                                                   
|ICI Finance
          PLC                  | Ordinary             |  | 100                     |  | Financial
        services                                                                                                                                                                                                                                                        
|England                                    |                      |  |                         |   |                                                                                                                                                                                                                                                                                   
|                                           |                      |  |                         |   |                                                                                                                                                                                                                                                                                   
|Quest
          International Flavours and | Ordinary             |  | 100                     |  | Manufacture
        of flavours and fragrances                                                                                                                                                                                                                                    
|Fragrances
          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
          IncUSA                   | Common               |  | 100                     |  | Manufacture
        of adhesives, industrial starches, electronic 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 and adhesives                                                                                                                                                                                                                          
|India                                      |                      |  |                         |   |                                                                                                                                                                                                                                                                                   
|(Accounting
        date 31 March;         |                      |  |                         |   |                                                                                                                                                                                                                                                                                   
|reporting
        date 31 December)        |                      |  |                         |   |                                                                                                                                                                                                                                                                                   
|                                           |                      |  |                         |   |                                                                                                                                                                                                                                                                                   
|ICI Pakistan
          LtdPakistan         | Ordinary*            |  | 76                      |  | Manufacture
        of polyester staple fibre, soda ash, paints, specialty chemicals, sodium
        bicarbonateand 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 LtdJapan              | Common               |  | 100                     |  | Manufacture
        of adhesives and specialty synthetic 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 the 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 net 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.



|Accounts | ICI
        Annual Report and Accounts 2005131
|-------- | ----------------------------------------------

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ITEM 19  EXHIBITS

|1.1  | Memorandum and Articles
            of Association of Imperial Chemical Industries PLC as amended on
            May 25, 2005.                                                                                                                                                                                    
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                   
|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 | Performance Growth
            Plan (Rules applying to awards made on or after January 1, 2003)
            dated April 28, 2000, as amended September 24, 2003, incorporated
            herein by reference to Exhibit 4.11 to Form 20-F filed by Imperial
            Chemical Industries PLC on April 4, 2005.
|     |                                                                                                                                                                                                                                                                                                                   
|4.11 | 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.                    
|     |                                                                                                                                                                                                                                                                                                                   
|4.12 | 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.                                  
|     |                                                                                                                                                                                                                                                                                                                   
|4.13 | 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.                              
|     |                                                                                                                                                                                                                                                                                                                   

|4.14 | Letter of Appointment between
            Imperial Chemical Industries PLC and Baroness Noakes dated February
            6, 2004, incorporated herein by reference to Exhibit 4.16 to Form
            20-F filed by Imperial Chemical Industries PLC on April 4, 2005.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|4.15 | 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.                                                                                                                                                                                           
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.16 | Rules of the ICI Executive Share
            Option Plan 2004, dated May 26, 2004, incorporated herein by reference
            to Exhibit 4.18 to Form 20-F filed by Imperial Chemical Industries
            PLC on April 4, 2005.                                                                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.17 | Letter of Appointment between
            Imperial Chemical Industries PLC and Charles F Knott dated September
            2, 2004, incorporated herein by reference to Exhibit 4.19 to Form
            20-F filed by Imperial Chemical Industries PLC on April 4, 2005.                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.18 | Employment Agreement between
            Quest International Services BV and Charles Knott dated September
            2, 2004, incorporated herein by reference to Exhibit 4.20 to Form
            20-F filed by Imperial Chemical Industries PLC on April 4, 2005.                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.19 | Employment Agreement between
            Quest International (Fragrances, Flavours and Food Ingredients) UK
            Limited dated September 2, 2004, incorporated herein by reference
            to Exhibitto Form 20-F
            filed by Imperial Chemical Industries PLC on April 4, 2005.                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.20 | 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, incorporated herein by reference to Exhibit 4.22
            to Form 20-F filed by Imperial Chemical Industries PLC on April 4,
            2005.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.21 | Sale and Purchase Agreement between
            Ergon Investments UK Limited and Celanese Americas Corporation dated
            November 23, 2004, incorporated herein by reference to Exhibitto
            Form 20-F filed by Imperial Chemical Industries PLC on April 4, 2005.                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.22 | Employment Agreement between
            Imperial Chemical Industries PLC and Alan Brown dated November 2,
            2005.                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|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 Alan Brown.                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|13.1 | Rule 13a-14(b) Certification
            of John D G McAdam and Alan Brown.                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|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 14, 2006, which contains its Annual
            Report and Accounts 2005, is attached as an Exhibit hereto.                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|14.2 | Consent of KPMG Audit Plc.                                                                                                                                                                                                                                                                                                                                                                                                                                             

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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 authorised the undersigned to sign this Annual
        Report on its behalf.


| |                                                |                  
| | ---------------------------------------------- | -----------------
| | IMPERIAL CHEMICAL
              INDUSTRIES PLC
| | By:                                            | /s/ Andy Ransom  
| |                                                | Andy Ransom      
| |                                                | Company Secretary

London, England

March 30, 2006

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|EXHIBIT
              INDEX
|---------------------------
|                           
|1.1                        
|                           
|4.1                        
|                           
|4.2                        
|                           
|4.3                        
|                           
|4.4                        
|                           
|4.5                        
|                           
|4.6                        
|                           
|4.7                        
|                           
|4.8                        
|                           
|4.9                        
|                           
|4.10                       
|                           
|4.11                       
|                           
|4.12                       
|                           
|4.13                       
|                           
|4.14                       
|                           

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|4.15 | 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.                                                                                                                                                                               
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|4.16 | Rules of the ICI Executive
            Share Option Plan 2004, dated May 26, 2004, incorporated herein by
            reference to Exhibit 4.18 to Form 20-F filed by Imperial Chemical
            Industries PLC on April 4, 2005.                                                                                                                                                                                                                                   
|    
|4.17 | Letter of Appointment
            between Imperial Chemical Industries PLC and Charles F Knott dated
            September 2, 2004, incorporated herein by reference to Exhibit 4.19
            to Form 20-F filed by Imperial Chemical Industries PLC on April 4,
            2005.                                                                                                                                                                                  
|    
|4.18 | Employment Agreement
            between Quest International Services BV and Charles Knott dated September
            2, 2004, incorporated herein by reference to Exhibit 4.20 to Form
            20-F filed by Imperial Chemical Industries PLC on April 4, 2005.                                                                                                                                                                                                  
|    
|4.19 | Employment Agreement
            between Quest International (Fragrances, Flavours and Food Ingredients)
            UK Limited dated September 2, 2004, incorporated herein by reference
            to Exhibit 4.21 to Form
            20-F filed by Imperial Chemical Industries PLC on April 4, 2005.                                                                                                                                                             
|    
|4.20 | 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, incorporated herein by reference to
            Exhibit 4.22 to Form 20-F filed by Imperial Chemical Industries PLC
            on April 4, 2005.
|    
|4.21 | Sale and Purchase
            Agreement between Ergon Investments UK Limited and Celanese Americas
            Corporation dated November 23, 2004, incorporated herein by reference
            to Exhibit 4.23 to Form 20-F filed
            by Imperial Chemical Industries PLC on April 4, 2005.                                                                                                                                                                  
|    
|4.22 | Employment Agreement
            between Imperial Chemical Industries PLC and Alan Brown dated November
            2, 2005.                                                                                                                                                                                                                                                                                                                                           
|    
|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 Alan Brown.                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|13.1 | Rule
              13a-14(b) Certification of John D G McAdam and Alan Brown.                                                                                                                                                                                                                                                                                                                                                                                          
|    
|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 14, 2006, which contains its Annual Report
          and Accounts 2005, is attached as an Exhibit hereto.                                                                                                                        
|    
|14.2 | Consent
              of KPMG Audit Plc.                                                                                                                                                                                                                                                                                                                                                                                                                               
|    

---