As filed with the Securities and Exchange Commission on          , 2005

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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934FOR THE FINANCIAL PERIOD ENDED DECEMBER 31, 2004

Commission file number 333-11268AVECIA GROUP plc(Exact name of Registrant as specified in its charter)

England(Jurisdiction of incorporation or organization)P.O. Box 42Hexagon HouseBlackley, ManchesterM9 8ZS(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:None

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:

|Title of each class11% Senior Notes due 200916% Pay-in-Kind Preference Shares due 2010 | Name of each exchangeon which registeredLuxembourg Stock ExchangeNone
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Indicate the number of outstanding shares of each of the issuer's classes of capital or commonstock as of the close of the period covered by the annual report.

Ordinary shares of £1.00 each 329,100,001 (as at December 31, 2004)Preference shares of $1.00 each 3,022,496 (as at December 31, 2004)

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

Yes    No

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

Item 17    Item
18

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Registered number: 3768265



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Avecia Group plc20-FYear ended December 31, 2004

Contents

|Introduction               | 2
|-------------------------- | -
|Forward looking statements | 2

Part I

|Item 1.  | Identity of directors, senior management
    and advisors      | 3 
|-------- | -------------------------------------------------------------- | --
|Item 2.  | Offer statistics and expected timetable                        | 3 
|Item 3.  | Key information                                                | 3 
|Item 4.  | Information on the company                                     | 11
|Item 5.  | Operating and financial review and
    prospects               | 24
|Item 6.  | Directors, senior management and
    employees                 | 35
|Item 7.  | Major shareholders and related party
    transactions          | 38
|Item 8.  | Financial information                                          | 38
|Item 9.  | The offer and listing                                          | 40
|Item 10. | Additional information                                         | 41
|Item 11. | Quantitative and qualitative disclosures
    about market risk | 51
|Item 12. | Description of securities other
    than equity securities     | 53

Part II

|Item 13.  | Defaults, dividend arrearages and
    delinquencies                              | 54
|--------- | -------------------------------------------------------------------------------- | --
|Item 14.  | Material modifications to the rights
    of security holders and use of proceeds | 54
|Item 15.  | Controls and procedures                                                          | 54
|Item 16.  | [Reserved]                                                                       | 54
|Item 16A. | Audit Committee Financial Expert                                                 | 54
|Item 16B. | Code of Ethics                                                                   | 54
|Item 16C. | Accountant's Fees and Services                                                   | 55
|Item 16D. | Exemptions from the listing standards
    for audit committees                   | 56
|Item 16E. | Purchases of equity securities by
    the issuer and affiliated purchasers       | 56

Part III

|Item 17.                                                | Financial statements | 57
|------------------------------------------------------- | -------------------- | --
|Item 18.                                                | Financial statements | 57
|Index to Consolidated and Combined financial statements | 57                  
|Item 19.                                                | Exhibits             | 57
|Signatures                                              | 58                  



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Avecia Group plc20-FYear ended December 31, 2004

Introduction

Avecia Group plc, formerly known as Zeneca Specialties, is the successor company to the specialty chemicals business of AstraZeneca plc.  See Item 4 ‘Information on the company’ for a description of the acquisition transaction.

In this report references to the ‘company’, ‘we’, ‘us’, ‘Avecia’, ‘Avecia Group’ or the ‘group’ are to Avecia Group plc, either alone or together with its consolidated subsidiaries, as the context requires. Avecia Group plc is a wholly owned subsidiary of Avecia Holdings plc.

Cautionary statement regarding forward-looking statements

In order to utilize the ‘Safe Harbor’ provisions of the United States Private Securities Litigation Reform Act of 1995, Avecia is providing the following cautionary statement.  This 2004 Form 20-F contains certain forward-looking statements with respect to the financial condition, results of operations and business of Avecia and certain of the plans and objectives of Avecia with respect to these items.  In particular, certain statements contained in the 2004 Form 20-F, including the statements in ‘Item 4 Information on the company’ with regard to strategic vision, management objectives, estimated filing and launch dates for products in development, patent protection, trends in market shares, trends in competitive position
and product volumes and environmental obligations, the statements in ‘Item 5 Operating and financial review and prospects’ with regard to trends in results of operations, margins, overall market trends, debt levels, risk management, market risk and exchange rates, the statements in ‘Item 8 Financial information’ with regard to the likely outcome and financial impact on Avecia of litigation and other proceedings and the statements in ‘Item 11 Quantitative and qualitative disclosures about market risk’ with regard to risk management, market risk and exchange rates are forward-looking in nature.  By their nature, forward-looking statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in
the future.  There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements.  These factors are highlighted below:

| | Avecia’s high degree of leverage and significant debt service obligations as well as future cash flow and earnings;
|- | -------------------------------------------------------------------------------------------------------------------

| | Avecia’s sales growth across its principal businesses, its strategy for improving margins, and increasing manufacturing capacity and capability;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------

| | Avecia’s ability to manufacture products to
agreed specifications and in a timely manner;
|- | -----------------------------------------------------------------------------------------

| | the failure of market conditions in the major industry sectors and regions in which Avecia operates;
|- | ----------------------------------------------------------------------------------------------------

| | the failure of products to perform as anticipated, including the successful development of the market for DNA Medicines and the continued development of an outsourcing market in pharmaceutical intermediates;
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| | the highly competitive nature of diverse specialty chemical markets and competition from generic manufacturers;
|- | ---------------------------------------------------------------------------------------------------------------

| | Avecia’s technological and manufacturing assets and the ability to utilize them to further increase sales and the profitability of the businesses;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | Avecia’s ability to retain existing and obtain
new customers;
|- | -------------------------------------------------------------

| | risks related to environmental costs, liabilities
    or claims;                              
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| | Avecia’s strategy to gain market share in the pharmaceutical intermediates outsourcing market;

| | exchange rate fluctuations;
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| | the risk that research and development will not yield new products that achieve commercial success;
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| | price controls and price reductions;
|- | ------------------------------------

| | risk of loss or expiration of patents or trademarks;
|- | ----------------------------------------------------

| | difficulties of obtaining and maintaining regulatory approvals for products and operations; and
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| | risk of substantial product liability or other claims;
|- | ------------------------------------------------------

| | Avecia may be required to make significant additional contributions to reduce pension fund deficits
|- | ---------------------------------------------------------------------------------------------------

Avecia and its management undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



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Avecia Group plc20-FYear ended December 31, 2004

Part I

Item 1 Identity of directors, senior management and advisors

Not applicable.

Item 2 Offer statistics and expected timetable

Not applicable.

Item 3 Key information

Selected financial data

The selected historical consolidated
    financial information presented below as at and for the financial years ended
    December 31, 2004, 2003, 2002, 2001 and 2000 has been derived from the audited
    historical consolidated financial statements of Avecia Group plc.

Avecia Group plc prepares financial
    statements in accordance with UK GAAP, which differs in certain significant
    respects from US GAAP. A description of the significant differences between
    UK and US GAAP applicable to Avecia and a reconciliation of profit after
    taxation (or net income) and shareholders’ funds (or net assets) are
    included within note 33 to the financial statements. Additional disclosures
    required by US GAAP are set out in the financial statements.



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Avecia Group plc20-FYear ended December 31, 2004

|                                                   |  | Avecia Group plc Consolidated |  
|-------------------------------------------------- |  | ----------------------------- | -
|                                                   |  |                               |  
|                                                   |  | YearEndedDecember 31,         |  
|                                                   |  | 2004                          |  
|                                                   |  |                               |  
|                                                   |  | £ million                     |  
|                                                   |  |                               |  
|Profit and loss account information                |  |                               |  
|                                                   |  |                               |  
|Amounts in accordance with UK GAAP                 |  |                               |  
|Turnover from continuing operations                |  | 200.1                         |  
|Turnover from discontinued operations (a)          |  | 207.1                         |  
|Total group turnover                               |  | 407.2                         |  
|Operating loss from continuing operations          |  | (83.7                         | )
|Operating profit from discontinued operations (a)  |  | 33.3                          |  
|Total group operating (loss)/profit                |  | (50.4                         | )
|Profit/(loss) after taxation                       |  | 18.9                          |  
|Profit/(loss) after taxation and minority interest |  | 12.3                          |  
|                                                   |  |                               |  
|Amounts in accordance with US GAAP                 |  |                               |  
|Turnover from continuing operations                |  | 193.0                         |  
|Operating profit/(loss) from continuing operations |  | 42.4                          |  
|Profit/(loss) from discontinued operations (a)     |  | (55.5                         | )
|Net loss                                           |  | (22.2                         | )
|SFAS No.142 adoption                               |  |                              |  
|Net loss had SFAS No. 142 been adopted             |  | (22.2                         | )

|                                   |                                                                                 | Avecia Group
    plc Consolidated |      
|---------------------------------- | ------------------------------------------------------------------------------- | --------------------------------- | -----
|                                   |                                                                                 |                                   |      
|                                   |                                                                                 | YearEndedDecember 31,2004         |      
|                                   |                                                                                 |                                   |      
|                                   |                                                                                 | £ million                         |      
|                                   |                                                                                 |                                   |      
|Other financial information        |                                                                                 |                                   |      
|                                   |                                                                                 |                                   |      
|Amounts in accordance with UK GAAP |                                                                                 |                                   |      
|                                  | Depreciation amortization and impairment                                        |                                   | 81.1 
|                                  | Expenditure on tangible and intangible fixed assets and fixed asset investments |                                   | 15.3 
|                                   |                                                                                 |                                   |      
|Amounts in accordance with US GAAP |                                                                                 |                                   |      
|                                  | Depreciation, amortization and impairment                                       |                                   | 105.4
|                                  | Expenditure on tangible and intangible fixed assets and fixed asset investments |                                   | 15.3 



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Avecia Group plc20-FYear ended December 31, 2004

|                                                    |  | Avecia Group plc Consolidated |  
|--------------------------------------------------- |  | ----------------------------- | -
|                                                    |  |                               |  
|                                                    |  | YearEndedDecember 31,         |  
|                                                    |  | 2004                          |  
|                                                    |  |                               |  
|                                                    |  | £ million                     |  
|Balance sheet information (at end of year)          |  |                               |  
|                                                    |  |                               |  
|Amounts in accordance with UK GAAP                  |  |                               |  
|Net current assets                                  |  | 2.0                           |  
|Total assets                                        |  | 572.2                         |  
|Net assets                                          |  | 15.5                          |  
|Ordinary Share Capital                              |  | 330.7                         |  
|Number of Ordinary Shares outstanding (million)     |  | 70.9                          |  
|Amounts in accordance with US GAAP                  |  |                               |  
|Net current (liabilities)/assets                    |  | (25.7                         | )
|Total assets                                        |  | 666.7                         |  
|Net assets *                                        |  | 90.4                          |  
|Ordinary Share Capital                              |  | 330.7                         |  
|Number of Ordinary Shares outstanding (million)     |  | 70.9                          |  
|                                                    |  |                               |  
|Cash flow data                                      |  |                               |  
|                                                    |  |                               |  
|Amounts in accordance with UK GAAP                  |  |                               |  
|Net cash inflow from operating activities           |  | 11.2                          |  
|Net cash inflow/(outflow) from investing activities |  | 173.6                         |  
|Net cash outflow from financing                     |  | (133.8                        | )
|                                                    |  |                               |  
|Amounts in accordance with US GAAP                  |  |                               |  
|Net cash (used in)/provided by operating activities |  | (24.9                         | )
|Net cash provided by/(used in) investing activities |  | 173.6                         |  
|Net cash (used in) financing activities             |  | (133.8                        | )



Notes

|a. | Discontinued activities, under UK GAAP, comprise the Specialty Products businesses of Additives (sold January 31, 2004) and Biocides (sold April 2, 2004) and the NeoResins business sold after the year end on February 2, 2005. These disposals are discussed further in ‘Item 5: Operating and financial review and prospects’. The comparative years’ split between continuing and discontinuing were restated accordingly. Under US GAAP the Displays and OSC businesses sold after the year end on February 28 2005 is also considered to be discontinued.
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|b. | UITF 38 ‘Accounting for ESOP Trusts ‘ has been adopted for the year ended 31 December 2004. The financial information for 2003, 2002,2001 and 2000 has been adjusted retrospectively.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Avecia Group plc20-FYear ended December 31, 2004

Exchange rate data

The financial statements of Avecia included in this annual report are presented in pounds sterling.  In this document, references to ‘US $’, ‘US dollars’ or ‘$’ are United States dollars, and references to ‘pounds sterling’, ‘£’, ‘pence’ or ‘p’ are UK currency.

The following table sets forth, for the periods and dates indicated, certain information concerning the Noon Buying Rate in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York expressed in US dollars per £1.00.

The average rate means the average of the exchange rates on the last day of each month during a year.

|                       |  | Exchange rates   | 
|---------------------- |  | ---------------- | 
|                       |  |                  | 
|Financial period ended |  | Rate at year end | 
|2000                   |  | 1.50             | 
|2001                   |  | 1.45             | 
|2002                   |  | 1.61             | 
|2003                   |  | 1.78             | 
|2004                   |  | 1.92             | 
|                       |  |                  | 
|Month ended            |  |                  | 
|October 2004           |  |                  | 
|November 2004          |  |                  | 
|December 2004          |  |                  | 
|January 2005           |  |                  | 
|February 2005          |  |                  | 
|March 2005             |  |                  | 
|April 2005             |  |                  | 

On April 29, 2005 the Noon Buying Rate was $1.91 per pound.

Risk factors

Financing    Failure to abide by the terms governing our sources of finance could lead to additional financing costs or early repayment of finance.

Under the terms of our senior secured
    credit facility and the senior notes indenture we are required to ensure
    that our financial performance stays in compliance with specified pre-agreed
    financial ratio limits, and we are prohibited from carrying out certain types
    of finance transactions. Failure to meet the terms of the facility or indenture,
    and subsequent failure to rectify such a breach could lead to additional
    financing charges in the form of penalties or interest, or at worst withdrawal
    of all the facilities, and a demand for immediate repayment of amounts outstanding.
    In this event we would be unable to assure the ongoing operation of our business
    and meet our other financial commitments.

Customer concentration  Our profitability will be hindered if we are unable to continue to generate repeat business.

Many of our products are sold to a small number of large industrial and pharmaceutical enterprises. Some of these customers, particularly in Electronic Materials and Biotechnology, are not bound by long-term contracts. As a result, we cannot assure you that we will continue to generate repeat business for such products. In Electronic Materials in particular, over 80% of our sales are made to the four leading printer manufacturers. Any significant adverse variation in our relationship and/or sales to any one of these customers would have a material adverse effect on our results of operations and on our stated strategy of growing the business and increasing our profitability. In Biotechnology, our current growth has been supported by a small number
of contracts. Future growth will depend on our ability to maintain these contracts with existing customers and to obtain new contracts with existing and new clients, and the success or otherwise of our customer products for which we supply materials or intermediates.



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Avecia Group plc20-FYear ended December 31, 2004

Quality   We may lose business or be exposed to customers’ claims if we do not make product to specification or adhere to agreed processes.

Many of our Biotechnology and Chemicals
    products are made to the customers’ technical specifications. Failure
    to make to these specifications could lead to customers terminating their
    manufacturing and supply agreements with us, and potentially making claims
    against us for damages caused. In addition some of these products are made
    following rigorous pre-defined processes, which may be subject to audit by
    customers or registration authorities. Failure to meet the prescribed quality
    standards could lead to termination of our manufacture of these products
    with consequent loss of revenues.

Performance  We may be unable to produce products in a timely fashion. This could result in the loss of important contracts, damage our relationship with our clients, and adversely impact our sales, profitability, cash flow and margins.

Our Biotechnology and Chemicals businesses depend on our ability to develop manufacturing processes and products which meet customers’ specifications and to deliver them in a timely fashion. These products involve complex chemical processes and may require us to expand or modify our manufacturing capabilities. It is not always possible to meet clients’ demands. If we fail to meet their demands, we may be liable for liquidated damages and other penalties, unless customers choose to waive these contractual provisions. We cannot assure you that we will not become subject to such penalties.

Business strategy  The areas we have selected for growth may not prove successful in which case our financial performance and results of operations would be adversely impacted.

We have made investments in research and development as well as in strategic alliances and acquisitions based on current trends in the industries in which we operate. If some of these trends were to change or if some of our strategic alliances prove unsuccessful, there could be a material adverse effect on our business, results of operations, financial condition or prospects. For example, we anticipate continued development of, and demand for, DNA and microbial medicines, growth in new Electronic Materials markets including inkjet printing and electrophotography. Consequently, we have made significant investments in research, development and technology processes, and manufacturing capability. See Item 4 - Information on the
company.

Liability  We may be liable for damages based on product liability or other claims.

Because many of our products provide critical performance attributes to our customers’ products, the sale of these products involves the risk of product liability claims. A successful product liability claim or series of claims against us in excess of our insurance coverage for payments for which we are not otherwise indemnified could have a material adverse effect on our financial condition and results of operations.

In addition, we are involved from time to time in various other claims and law suits incidental to the ordinary course of the business, such as contract disputes, personal injury claims and workers’ compensation claims.  Although we believe our insurance coverage is adequate, we could, however, be required to pay a material amount if a claim is made against us that is not covered by insurance or for which we are not otherwise indemnified.  Any such claim could have a material adverse effect on our financial condition or results of operations.

Technological innovation  Our profitability and cash flow could be hampered if we fail to keep up with the technological innovation in the speciality chemicals business. This could adversely impact our sales, profitability, cash flow and margins.

All of our businesses experience
    periodic technological change and ongoing product improvements and obsolescence
    of existing products. Manufacturers periodically introduce new generations
    of products or require new technological capacity to develop customized products.
    Our future growth will depend on our continued ability to gauge the direction
    of the commercial and technological progress in all key markets and upon
    our ability to successfully develop, manufacture and market products in such
    changing markets. We will have to continue to identify, develop and market
    innovative products on a timely basis to replace existing products
    in order to maintain our profit margins and our competitive position.



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Avecia Group plc20-FYear ended December 31, 2004

In Electronic Materials, for example, our future growth will depend in large part on our ability to successfully produce and commercialize the next generation of ink jet printing materials. Also, our growth in this business will depend on our successful development of Electrophotography products.

Our future growth will depend on our ability to meet the technological and production requirements involved in producing large quantities of high-purity chemicals and complex chemical intermediates. We intend to devote significant resources to the development of new technologically advanced products and manufacturing processes and intend to continue to devote a substantial amount of spending to the research, development and technology process functions of our businesses. However, we cannot assure you that we will be successful in developing new products and/or technology or that such products will be accepted by our customers. If we fail to keep pace with the evolving technological innovations in our markets, then our sales, profitability and
cash flow will suffer.

Environmental regulation  We are exposed to the risk that our business could be adversely and materially affected by environmental compliance expenditures.

The specialty chemicals business is highly regulated in many countries. A number of increasingly stringent regulations govern the manufacturing processes used, and our waste and emissions disposal treatment in all of the jurisdictions in which we do business will continue to require material ongoing costs. Some of our manufacturing sites have an extended history of industrial chemical processes, including historical waste disposal on site. Soil, groundwater, surface water and sedimentary contamination has occurred in the past at some of our sites and might occur or be discovered at other sites in the future.

An Environmental Deed of Covenant entered into by companies in the AstraZeneca group, notably Zeneca Limited (as a principal seller of the business to the group) and AstraZeneca plc (as guarantor), on the group’s acquisition of AstraZeneca’s specialty chemicals business, provides certain indemnities to and by group companies for environmental liabilities and costs arising from events or circumstances existing prior to the acquisition.  These include liabilities relating to or arising out of pre-acquisition contamination at sites which were transferred to group companies in 1999 but which have subsequently been disposed of and historic liabilities arising on any sites previously owned by companies acquired by the group in the course of
the acquisition transaction but where the sites in question were not themselves part of the acquisition transaction.  The liability of the AstraZeneca group to indemnify group companies in respect of these matters is, subject to certain exceptions, subject to maximum caps of liability, de minimis levels of liability, time limits for claims to be made and/or contributions by group companies.  Where time limits or caps on liability apply, on the expiry of the relevant time limit or if the environmental liabilities and costs exceed the relevant cap, the environmental liabilities and costs, or excess thereof, would be the responsibility of group companies.

On the disposal of certain businesses out of the group, where purchasers have assumed liabilities which may be subject to indemnity from the AstraZeneca group under the Environmental Deed or which may otherwise be the responsibility of group companies under the deed in relation to the sites or businesses being disposed of, the benefits and obligations under the Environmental Deed have, insofar as they relate to the sold sites or businesses, generally been assigned to the purchasers subject to appropriate limitations on the maximum amounts which the purchasers may claim under the Environmental Deed.  Notably, on the disposal of the Stahl business in January 2002, the ownership of the St Clair du Rhone site, France, was transferred to the purchaser
of that business and on the disposal of the Metal Extraction Products and Intermediates and Stabilizers businesses in July 2003 the ownership of the Mount Pleasant site, Tennessee, was transferred to the purchaser of those businesses.  There is, or is thought to be, extensive contamination at these sites arising from the period prior to their acquisition by the group in June 1999.  £65 million of the total cap of £325 million under the Environmental Deed was assigned to the purchaser of the Stahl business in connection with that disposal and £36.6 million of the cap was assigned to the purchaser of the Metal Extraction Products and Intermediates and Stabilizers businesses in connection with that disposal.

Management believes that the reserves it has established for environmental matters, together with the indemnity provisions of the Environmental Deed, will be adequate to meet our currently known and anticipated potential environmental liabilities and claims against us. However, we may be exposed to liability, and our financial results may be adversely affected, to the extent that:



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Avecia Group plc20-FYear ended December 31, 2004

|a. | AstraZeneca does not fulfill its obligations under the Environmental Deed with respect to environmental liabilities relating to our operations and facilities prior to June 1999;
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                  

|b. | Environmental liabilities relating to our operations and facilities exceed AstraZeneca’s indemnity under the Environmental Deed or arise after the expiry of the relevant time limits for indemnity;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                     

|c. | Our environmental liabilities exceed the amounts that we have reserved with respect to them; and
|-- | ------------------------------------------------------------------------------------------------
|   |                                                                                                 
|d. | Other contingent liabilities related to our
    sites arise.                                    

Currency fluctuations  We are exposed to the risk of currency fluctuations in many countries which may adversely impact our turnover and operating margins.

Our operations are conducted through subsidiaries in five countries. The results of the operations and the financial position of these subsidiaries are reported in the relevant foreign currencies or the appropriate functional currency and then translated into pounds sterling at the applicable exchange rates for inclusion in our combined financial statements. The exchange rates between these currencies and the pound sterling in recent years have in the past and may in the future fluctuate substantially. Because we generate a significant percentage of our revenues and a substantially lower percentage of our operating expenses in currencies other than the pound sterling, fluctuations in the value of the pound sterling against other currencies have
had in the past, and may have in the future, a material effect on our turnover and operating margins.

In addition, because our financial statements are stated in pounds sterling, the translation effect of such fluctuations have had in the past, and may have in the future, a material effect on our results of operations and financial position and may significantly affect the comparability of our results between financial periods.

Proprietary technologies  We may not be able to adequately protect our intellectual proprietary rights.

Proprietary rights are important to our success and our competitive position. We establish and protect the proprietary rights and technologies used in our products and processes by the use of patents, trade secrets, copyrights and trademarks. We also utilize non-disclosure and invention assignment agreements.

The expiration of a patent can result in intense competition, particularly from generic producers, with consequent erosion of profit margins.

Our actions to protect our proprietary rights may be insufficient to prevent others from developing similar products to ours. In addition, the laws of many foreign countries do not protect our intellectual property rights to the same extent as the laws of the European Union and the United States.

Competitive product markets and new generic product competitors  We may face price pressure in the markets we operate in which would reduce our turnover and operating margins.

The markets for some of our products and services are highly competitive. We are exposed to the competitive characteristics of several different geographic markets and industries. In addition, we believe that rapid identification of new product applications and the ability to supply commercial quantities of products that enable such applications are important competitive factors. Some of our competitors have greater financial, technical and marketing resources than we do. As the markets for our products expand, we expect that additional competition will emerge and that existing competitors may commit more resources to the markets in which we participate. In a few cases, as the patent protection for our products has expired, new generic
competitors entered the market and generic competition resulted in lower prices for those products. We cannot assure you that we will be able to compete effectively in these various areas in the future. See Item 4 Information on the company.

Our principal competitors vary from business to business and range from large international companies such as BASF, Bayer, Ciba, Clariant and Lonza to a large number of smaller regional companies of varying sizes.



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Avecia Group plc20-FYear ended December 31, 2004

Litigation  We may be exposed to litigation based on intellectual property infringements which could adversely affect our profitability.

In the past we have received communications asserting that our products or their applications infringe on a third party’s proprietary rights. Currently, there is no pending litigation against us regarding any intellectual property claim but we cannot assure that there will not be future claims. Such claims, with or without merit, could subject us to costly litigation and divert our technical and management personnel from their regular responsibilities. Furthermore, successful claims could suspend the manufacture of products using the contested invention, and have a material adverse effect on our business, financial condition and results of operations.

International operations  As a global business, we are exposed to local business risks in several different countries which could have a material adverse effect on our financial condition or results of operations.

We manufacture and distribute our products in several countries around the world. We are confronted with different legal and regulatory requirements in many jurisdictions. These include:

| | tariffs and trade barriers;
|- | ---------------------------
|  |                            

| | requirements relating to withholding taxes on remittances and other payments by subsidiaries; and
|- | -------------------------------------------------------------------------------------------------
|  |                                                                                                  

| | different regimes controlling the protection of our intellectual property.
|- | --------------------------------------------------------------------------
|  |                                                                           

|Our international operations also expose us to different local business risks and challenges. For example:
|----------------------------------------------------------------------------------------------------------
|                                                                                                          

| | we are faced with potential difficulties in staffing and managing local operations; and
|- | ---------------------------------------------------------------------------------------
|  |                                                                                        

| | we have to design local solutions to manage credit risks of local customers and distributors.
|- | ---------------------------------------------------------------------------------------------

Our overall success as a global business depends, in part, upon our ability to succeed in differing economic, social and political conditions. We cannot assure you that we will continue to succeed in developing and implementing policies and strategies that are effective in each location where we do business.

Several countries in which we operate have sophisticated tax regimes. Our operations and the significant reorganizations of our business that have taken place in recent years have added to the complexity of our tax affairs.  In addition, some of our major subsidiaries have not been subject to a tax audit for a number of years. As a result, changes in tax regulations, policy or enforcement in different countries could adversely affect our overall financial condition.

Pension deficits  we may
      be required to make significant contributions to our pension funds to
      reduce their funding deficits.

We operate defined benefit pension
    schemes for employees in the United Kingdom and United States. At present
    there is a deficit between the value of projected liabilities of these schemes
    and the value of the assets they hold. We are at present making contributions
    towards those deficits in line with applicable regulations or recommendations
    of the Scheme Actuary. However in the event of a sharp decline in the value
    of equity markets, we may be required to increase the level of these cash
    contributions. Also in the United Kingdom, contribution levels are determined
    by the Scheme Actuary, and in the event of adverse performance in our business
    or other events adversely impacting our financial position, The actuary
    could demand increased cash
contributions to the fund.



|Registered number: 3768265 | 10
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Avecia Group plc20-FYear ended December 31, 2004

Item 4 Information on the company

History and development of the company

Avecia Group plc, a wholly owned subsidiary of Avecia Holdings plc, is a group of focused specialty chemicals businesses.  We develop, manufacture and sell high quality, technologically advanced, value-added chemical products to customers in a wide range of industries, and provide process development and manufacturing services to healthcare customers.

Avecia Group plc was incorporated as Iliad on May 6, 1999 and was re-registered as a public limited company, changing its name to ZSC Specialty Chemicals PLC on June 4, 1999 and finally to Avecia Group plc on July 1, 1999.  On June 30, 1999, Avecia Group plc acquired the specialty chemicals business of AstraZeneca plc, formerly known as Zeneca Specialties, and became the successor business to the Zeneca Specialties business.

The company is domiciled in the United Kingdom and its registered office is:

Hexagon HouseBlackleyManchester M9 8ZSUnited KingdomTelephone (00 44) 161 740 1460

From December 31, 1999 to December 31, 2004 the company has continued to operate its business within the same major business segments and end markets except for the disposal of the Stahl segment in 2002 and the disposal of the Specialty Products segment in 2003 and 2004.  NeoResins was sold subsequent to the year end on February 2, 2005 and the Displays and OSC business was also sold subsequent to the year end on February 28, 2005.

We made two significant acquisitions during 2000 and from 2002 we sold a number of our businesses as described in Item 5 - Operating and Financial Review and Prospects.  These are discussed in full in the business overviews below.

Cash flows in respect of capital expenditures and disposals for the last three calendar years are as follows:

|                                                                                   |  | Avecia Group plcConsolidated |  
|---------------------------------------------------------------------------------- |  | ---------------------------- | -
|                                                                                   |  |                              |  
|                                                                                   |  | Year  ended                  |  
|                                                                                   |  | December 31,                 |  
|                                                                                   |  | 2004                         |  
|                                                                                   |  |                              |  
|                                                                                   |  | £ million                    |  
|Purchase of tangible fixed assets                                                  |  | (17.4                        | )
|Purchase of intangible fixed assets                                                |  | (1.1                         | )
|Sales of plant and machinery                                                       |  | (5.2                         | )
|Sale of Stahl business (net)                                                       |  |                             |  
|Sale of Metal Extraction Products
    and Intermediates and Stabilizers businesses |  |                             |  
|Sale of Additives Business                                                         |  | 69.0                         |  
|Sale of Biocides Business                                                          |  | 119.4                        |  
|Sale of SDM business                                                               |  | 6.3                          |  

In January 2004, we completed the
    disposal of our Additives business to the Lubrizol Corporation with group
    proceeds arising on the disposal of £69
    million. In April 2004 we completed the disposal of our Biocides business
    to Arch Chemicals, Inc., with group proceeds arising on the disposal of $200
    million. The combined proceeds of these two disposals resulted in the repayment
of £160.5 million of Term Debt, as required by the bank facilities agreement.
In November 2004 we completed the disposal of our Special Drug Mixtures business
to the Copperhead Chemical Company with proceeds arising on the disposal of some £6
million.



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Avecia Group plc20-FYear ended December 31, 2004

In July 2003 the group completed
    the disposal of the Metal Extraction Products and Intermediates and Stabilizers
    businesses to Cytec Industries Inc. The group proceeds arising on the disposal
were $81.8 million (£58.6 million) which was received on July 31, 2003. This resulted in the repayment of £52.3 million of Term Debt as required by the bank facilities agreement.

In January 2002 we completed the disposal of the Stahl business to Luxembourg 101 SA and its affiliates.  The gross proceeds arising on the transaction were €378.7 million (£234.9 million), of which €346.8 million (£215.1 million) was received as cash in January 2002, with the remainder received in January 2003.  The sale of the Stahl business resulted in the repayment of £187.3 million of term debt in 2002, as required by the bank facilities agreement.

In 2005 we have budgeted that the purchase of tangible fixed assets will decrease by some £3.0 million, mainly due to the completion of the large scale biologics manufacturing facility in the UK. The total expenditure will be funded from the net proceeds of business disposals in 2005.

Business Overview

Avecia is a global group of focused specialty chemicals businesses. We provide a comprehensive range of process development and manufacturing services to a high standard of quality assurance, and we develop, manufacture and sell high quality, technologically advanced, value-added chemical products to customers in a wide range of industries.

Avecia operates through three main business segments and seven strategic business units. Its businesses are linked by core competencies in organic chemistry, polymer and biological science and process technology. These businesses are supported by a network of six manufacturing facilities located in three countries.

The group continues to re-evaluate its segments and has re-stated its disclosure to conform to these new segments.

The following table sets forth Avecia’s revised principal businesses and end markets:

|Business | Strategic Business Units | Principal applications and
    end markets
|-------- | ------------------------ | ------------------------------------------
|         |                          |                                           
|1        | Chemicals                |                                         
|        
|         |                          |                                           
|2        | Biotechnology            |                                          
|         |                          |                                           
|3        | Electronic Materials     |                                        
|        
|        
|         |                          |                                           
|4        | Discontinued             |                                       
|        
|        
|        



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Avecia Group plc20-FYear ended December 31, 2004

Discontinued operations includes two former Specialty Products businesses: Additives, sold on January 31, 2004 and the Biocides (Pool and Spa and Protection and Hygiene) business, sold on April 2, 2004.  NeoResins was sold subsequent to the year end on February 2, 2005. The Displays and Organic semiconductor business units, which comprised part of our Electronic Materials business, were sold subsequent to the year end on February 28, 2005.

The tables below set out turnover information for each of the business segments and for each of the geographic regions by origin.

|                             |  | Avecia Group plc Consolidated | 
|---------------------------- |  | ----------------------------- | 
|                             |  |                               | 
|                             |  | Year ended                    | 
|                             |  | December 31,                  | 
|                             |  | 2004                          | 
|                             |  |                               | 
|                             |  | £ million                     | 
|Total sales to third parties |  |                               | 
|Business Segment             |  |                               | 
|Chemicals                    |  | 77.8                          | 
|Biotechnology                |  | 55.7                          | 
|Electronic Materials         |  | 61.5                          | 
|Central                      |  | 5.1                           | 
|                             |  |                               | 
|Continuing Operations        |  | 200.1                         | 
|                             |  |                               | 
|Discontinued                 |  | 207.1                         | 
|                             |  |                               | 
|                             |  | 407.2                         | 
|                             |  |                               | 

|                                              |  |              | 
|--------------------------------------------- |  | ------------ | 
|                                              |  | Year ended   | 
|                                              |  | December 31, | 
|                                              |  | 2004         | 
|                                              |  |              | 
|                                              |  | £ million    | 
|Total sales to third partiesGeographic Region |  |              | 
|UK                                            |  | 49.5         | 
|Continental Europe                            |  | 156.0        | 
|The Americas                                  |  | 141.4        | 
|Asia, Africa and Australasia                  |  | 60.3         | 
|                                              |  |              | 
|                                              |  | 407.2        | 
|                                              |  |              | 
|(1) Chemicals                                 |  |              | 

Through its Pharmaceutical business units Chemicals provides a comprehensive range of process development and manufacturing services to a high standard of quality assurance (defined by the US FDA and other international Health Authorities for the manufacture of intermediates and active ingredients, and commonly known as cGMP), making a core contribution to the clinical development programmes, speed to market, and commercialization of its customers new medicines.

The Agrochemicals Intermediates business unit provides contract manufacturing of chemical intermediates and active ingredients used to manufacture a range of chemicals including crop treatment products, biocides, additives, and other specialty chemicals.



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Avecia Group plc20-FYear ended December 31, 2004

An intermediate is a chemical entity
    which, when combined with other chemicals, produces a different chemical
    entity or form. Although Chemicals does not invent these new molecules, it
    providesproprietaryexpertise in process development and manufacturing
    for pharmaceutical and agrochemical companies.

Acquisitions

On December 11, 2002 Avecia completed the acquisition of the fine chemicals business of Synthon Chiragenics Corporation for consideration of $2.5m. This acquisition gives Avecia access to nearly 150 intermediates and complex chiral compounds, adding to Avecia Pharmaceuticals existing chiral technologies.

Disposals

The Intermediates and Stabilisers business unit was sold to Cytec Industries Inc on July 31, 2003. The Special Drug Mixtures business was sold to the Copperhead Chemical Company Inc. in November 2004.

Products and markets

The following table sets forth Chemicals’ principal products and applications:

|Business Sector              | Products                                                         | Application                                        
|---------------------------- | ---------------------------------------------------------------- | ---------------------------------------------------
|                             |                                                                  |                                                    
|Pharmaceutical Intermediates | Complex custom chemical intermediates and active ingredients.    | Used in the manufacture of pharmaceutical products.
|                             |                                                                  |                                                    
|Fine Chemicals               | Standard and custom chemical intermediates and toll manufacture. | Agrochemical compounds.                            

Pharmaceutical Intermediates

Avecia’s Pharmaceutical Intermediates
    business is focused on the custom synthesis of complex intermediates and
    active ingredients, as part of a customer’s new drug development and
    commercialisation process. The business has both a broad organic chemistry
    capability and specific technology strengths, notably in the manufacture
    of ‘chiral’ compounds, hydride reductions, organometallic reagents
    and processes involving hazardous raw materials. Through its Canadian subsidiary
    Torcan and other small scale units in the UK, and its large scale asset base,
    the business provides services to its customers across the full drug development
    pipeline from early phase process invention to manufacture of launched medicines.
    These activities are carried out strictly in accordance to the requirement
    of Current Good Manufacturing Practice (cGMP).

The market for supply of pharmaceutical intermediates and active ingredients to the global pharmaceutical and biotechnology industries is estimated today at $7-8 billion. This market has shown substantial growth due to these companies focusing spend on drug development and marketing and outsourcing manufacturing.  Since 2003 there has been a contraction in the market place due to fewer New Chemical entities (NCEs) being launched and the impact of generic competition which has resulted in spare capacity becoming available at the large Pharmaceutical companies and in the contract market.

Avecia’s business is characterized by a pipeline of projects for drugs progressing through clinical trials, and supplies for launched medicines to companies including GSK, Merck and Allergan.  A specific technology-based unit within Avecia’s pharmaceutical intermediates business is involved in the supply of ‘encapsulated’ catalysts and reagents for use in improving processing economics and reducing contamination by heavy metals.



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Avecia Group plc20-FYear ended December 31, 2004

Fine Chemicals

Standard and custom intermediates and toll manufacture

In the Agrochemical area Fine Chemicals manufactures “
building block”
 products, which are supplied to a number of customers, and custom products including manufacture of active ingredients.

The business’s products are used in a number of leading fungicides, herbicides, biocides and various additives. Fine Chemicals currently has manufacturing supply agreements for products used in the manufacture of a range of herbicides, fungicides, biocides and additives.

Customers, sales and distribution

Chemicals markets its products directly to its customers and generally does not use intermediaries or agents. Close customer partnerships are important to Chemicals as the majority of its products are designed to meet individual customer specifications. Chemicals has a number of major manufacturing agreements with key customers including Glaxo Wellcome, BASF, Merck, Essex Pharmaceuticals, Cheminova and Syngenta.

Contracts in both the healthcare and agrochemical businesses vary from those for specific projects, annual order call offs, through to those with a term of three to five years and cover aspects of development, capital and manufacturing costs. Chemicals’ obligation under these contracts is to supply products to specification. Liability is typically contractually set at the value of products supplied, or, in a few cases is capped at a higher, specified level. Chemicals does not assume any liability for the performance of the final product.

The following table summarizes key contractual arrangements for manufacture and provision of services for customers in Pharmaceutical and Fine Chemicals:

|Customer              | End Product/Service    | Contract Duration      | Contract Expiry 
|--------------------- | ---------------------- | ---------------------- | ----------------
|                      |                        |                        |                 
|BASF                  | Agrochemical Fungicide | 1 year                 | December 2005   
|Cheminova             | AgrochemicalFungicide  | 5 years                | December 2006   
|Syngenta              | Contract 1             | Herbicide              | 5 years         
|                      | Contract 2             | Plant growth regulator | Evergreen       
|                      | Contract
    3         | Intermediate           | Evergreen       
|Essex Pharmaceuticals | Animal Health          |                        | 24 months notice
|Merck                 | Opthalmic              | 10 years               | November 2005   
|Lubrizol              | Additives              | 5 years                | February 2009   
|Arch                  | Biocides               | 5 years                | April 2009      

Competition

Chemicals competes in a highly fragmented market. There are approximately 600 fine chemical suppliers world-wide. Most participants in this market are either small to medium-sized independent enterprises or members of large diversified chemical companies. A number of competitors have significantly greater sales and resources than Avecia.

|                           |   
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Avecia Group plc20-FYear ended December 31, 2004

The table below lists some of the key competitors in the various segments:

|Pharmaceutical Intermediates              | Fine Chemicals                                              
|----------------------------------------- | ------------------------------------------------------------
|                                          |                                                             
|DSMLonzaBayerRhodia ChirexDegussaClariant | ClariantBayerKemFineContract ChemicalsAllessaLonzaAlbermarle

(2) Biotechnology

Biotechnology provides a comprehensive range of process development and manufacturing services to a high standard of quality assurance (defined by the US FDA and other international Health Authorities for the manufacture of intermediates and active ingredients, and commonly known as cGMP), making a core contribution to the clinical development programmes, speed to market, and commercialization of its customers new medicines.

An intermediate is a chemical entity which, when combined with other chemicals, produces a different chemical entity or form.  Although Biotechnology does not invent these new molecules, it provides proprietary expertise in process development and manufacturing for biotechnology companies.

Acquisitions

On August 3, 1999, Avecia acquired Boston BioSystems Inc., a United States based DNA-medicines manufacturing business for US $6 million in cash. Based in Bedford, Massachusetts, Boston BioSystems is a manufacturer of oligonucleotides for clinical development and therapeutics. The assets acquired include fully equipped “
clean rooms”
 for the development and manufacture of DNA-medicines.

The acquisition of the business and assets of the specialty products division of Hybridon Inc. was successfully completed on September 21, 2000.  The business assets acquired include a lease on a 36,000 sq. ft. DNA manufacturing facility in Milford Massachusetts, together with intellectual property for large-scale manufacturing, patents covering novel reagents, processes and instrumentation for the cost effective manufacture of synthetic DNA.  On completion of the acquisition, the DNA operations of Boston BioSystems were relocated to Milford.  By early 2001 Milford offered pilot and full scale manufacturing facilities for both DNA medicines and peptide pharmaceuticals.  Purchase consideration and costs of acquisition amounted to £11.1
million.

On June 3, 2002 Avecia purchased additional premises adjacent to the facility in Milford for $5.2 million.

Products and markets

The following table sets forth Biotechnology’s principal products and applications:

|Business Sector | Products                                                                                                      |  | Application                                                                            
|--------------- | ------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------
|                |                                                                                                               |  |                                                                                        
|Biotechnology   | DNA Medicines                                                                                                 |  |                                                                                        
|                | Process development services and manufacture of Oligonucleotides for clinical trials and launched products    |  | Used by pharmaceutical and biotechnology companies in the manufacture of DNA medicines.
|                |                                                                                                               |  |                                                                                        
|                | Biologics                                                                                                     |  |                                                                                        
|                | Process development services and manufacture of biopharmaceuticals for clinical trials and licensed products. |  | Healthcare compounds manufactured using microbial biotechnology and peptide chemistry. 

|                           |   
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Avecia Group plc20-FYear ended December 31, 2004

DNA Medicines

Oligonucleotides are used in a range of therapeutic and diagnostic applications, in particular for drugs which use an anti-sense mechanism. Anti-sense drugs work at the genetic level to interrupt the process by which disease-causing proteins are produced, and have the potential to be more selective and, as a result, more effective and with fewer side effects than traditional drugs.  As such, they are being designed to treat a wide range of diseases including infectious, inflammatory and cardiovascular diseases and cancer. DNA medicines also have application in a range of new approaches to disease treatment such as immunotherapeutics, molecular decoys and RNAi. The business is involved in a range of projects addressing development of such
drugs.

Avecia believes that its existing
    relationships with clients requiring clinical trial materials and its investment
    in assets and technology, make the business well positioned to take advantage
    of opportunities that may emerge in the field of DNA medicines. Avecia has
    a 5 year contract with Genta Inc to supply its lead compound Genasense for
    both clinical and commercial use. Genta have applied for approval for Genasense
    from the FDA. However following negative feedback from the ODAC (Oncology
    Drugs Advisory Committee), approval is not envisaged in the near term. However
    favorable trial results were achieved for another indication in December
    2004 and Genta may apply for FDA approval during 2005.

Biologics

Biologics provide development and manufacturing services using both microbial fermentation and mammalian cell culture.

Biologics represent proteins and similar molecules used as therapeutics, medical devices and diagnostics.  Sales of medicines of this type are estimated to be over $15 billion per annum.  There are currently in the region of 450 biologic compounds in clinical development, largely driven by biotechnology companies in the United States and, increasingly, in Europe. They form a growing proportion of all new drug approvals.

The business focus is on developing scaleable and robust manufacturing processes for biologics and works with clients throughout the drug development life-cycle. The business has a range of pilot-scale assets and a large-scale  (2 x 5000 liter) microbial fermentation facility in the UK providing capability to manufacture biologics for commercial use.

The business has won awards to develop both an anthrax vaccine and a plague vaccine for the US Government which has lead to an extension of activity beyond contract manufacturing of drug substance into management of fill/finish, clinical trials and regulatory submissions.

Customers, sales and distribution

Biotechnology markets its products directly to its customers and generally does not use intermediaries or agents. Close customer partnerships are important to Biotechnology as the majority of its products are designed to meet individual customer specifications. Biotechnology has a number of major manufacturing agreements with key customers including Genta, Pfizer and NIH.

Contracts in the Biotechnology businesses vary from those for specific projects, annual order call offs, through to those with a term of up to five years and cover aspects of development, capital and manufacturing costs. Biotechnology’s obligation under these contracts is to supply products to specification. Liability is typically contractually set at the value of products supplied, or, in a few cases is capped at a higher, specified level. Biotechnology does not assume any liability for the performance of the final product.

The following table summarizes key contractual arrangements for manufacture and provision of services for customers in Biotechnology:

|Customer | End Product/Service | Contract Duration | Contract Expiry
|-------- | ------------------- | ----------------- | ---------------
|Genta    | Anti-cancer         | 5 years           | December 2007  
|Pfizer   | Anti-cancer         | 4 years           | December 2009  
|NIH      | Defence Vaccines    | 3 years           | December 2006  

|                           |   
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Avecia Group plc20-FYear ended December 31, 2004

Competition

Biotechnology has several competitors in the area of Biologics, and there are a small number of other manufacturers of DNA medicines. Most participants in this market are members of large diversified chemical companies. A number of competitors have significantly greater sales and resources than Avecia.

The table below lists some of the key competitors in the Biotechnology segment:

|Biotechnology                                                                
|-----------------------------------------------------------------------------
|                                                                             
|LonzaDSMDiosynthCambrexBoehringer IngleheimRhodia-ChirexIsisDowBiochemieSigma

(3) Electronic Materials

Avecia’s Electronic Materials business currently designs, develops, manufactures and sells products for use in the two principal non-impact printing technologies:

|1 | Ink Jet Printing : High purity dyes and liquid
    inks; and                                              
|- | ----------------------------------------------------------------------------------------------------------
|  |                                                                                                           
|2 | Electrophotographic Printing : Materials
    for use in laser printers, photocopiers, and digital presses.

Avecia believes that Electronic Materials is the world’s leading supplier of dyes and is one of the leading manufacturers of liquid inks for desktop ink jet printers by share of market and sales value. As a pioneer of this market, with research programs dating back to the mid-1980s, Electronic Materials has developed leading proprietary technologies and strong relationships with the world’s principal original equipment manufacturers in the ink jet printer market.

Products and markets

The following table sets forth Electronic Materials’ principal products and applications:

|Business Unit              | Products                                                                | Application                                                                                                               
|-------------------------- | ----------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------
|                           |                                                                         |                                                                                                                           
|Ink Jet Printing Materials | Dyes; dye and pigment based inks                                        | Inks for ink jet printers.                                                                                                
|                           |                                                                         |                                                                                                                           
|Electrophotography         | Chemically produced toners and charge control agentsInfra-red absorbers | Laser photocopiers and printers, both color and monochrome.Security applications and thermal lithographic printing plates.

Ink Jet Printing Materials (IJPM)

The main product categories of the IJPM business are high purity dyes and a range of pigment-based and dye-based inks for use in ink jet printers. The business has developed leading proprietary technologies to synthesize new generations of high performance ink jet dyes and pigmented inks based on novel dispersants, resins and formulations.

The IJPM activities are currently focused primarily on the small office and home applications of ink jet printing technology. Sales of ink jet products in the small office and home segment have grown significantly in recent years due both to the increased penetration of personal computers into the consumer segment and to the creation of new print applications as a result of improvements in technology (for example network printers, digital photography).

|                           |   
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Avecia Group plc20-FYear ended December 31, 2004

Avecia believes that future growth in the market for ink jet products will be driven primarily by the following factors:

| | The increased use of home printing for digital photos, internet, fax and computing outputs (especially using All In One printers), and the migration of ink jet into businesses printing applications and digital photography printing.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Renewed growth in sales of personal computers and corresponding printers, as well as increased demand for printers in developing countries, most particularly in Asia, and
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Adoption of ink jet printing in applications outside of the desktop market (e.g. addressing and mailing etc.).
|- | --------------------------------------------------------------------------------------------------------------

Electrophotography

The electrophotography business unit was established in 1996 to build on the business’s strengths in non-impact printing. The principal current investments in electrophotography are aimed at developing two technologies, chemically produced toners for color laser applications and the development of infra red absorber technology.

The color laser printer and photocopier market is in its early stage but is already showing growth rates of approximately 30% per year. Avecia believes that growth will continue as new, lower cost, high-speed color photocopiers and laser printers become available. Avecia believes that chemically produced toners have advantages over traditional toners, facilitating improvements in print quality and resolution at potentially lower cost than traditional color toners.

Avecia believes that these advantages will favor the adoption of chemically produced toner technology in the next generation of color laser printers and photocopiers.

Infrared absorber technology is used in a variety of applications involving laser imaging and recognition.  Avecia is particularly active in the areas of security marking and computer to plate digital printing.

Image Polymers

Avecia has a 50-50 joint venture with Mitsui Chemicals, called Image Polymers. This joint venture manufactures and markets bi-modal toner resins for use in black and white photocopiers and laser printers for the European and North American markets. The partnership began in 1988 with the establishment of the Image Polymers Company in the United States and construction of a U.S. manufacturing plant in 1991.  In 1997, it was further expanded with the establishment of Image Polymers Europe and construction of an identical manufacturing facility at Grangemouth, Scotland.

Customers, sales and distribution

The market for ink jet printers is highly concentrated with the four largest printer manufacturers, Hewlett Packard, Seiko Epson, Canon and Lexmark accounting for over 90% of all sales of ink jet printers.

Sales and distribution are handled directly with customers for Inkjet and Electrophotography, except in Japan and selectively in North America, where a local distributor manages distribution and delivery.  Sales and distribution of Display products are handled directly with customers.

Competition

The main competitor for the supply of ink jet ink is DuPont, while there are several competitors for ink jet dyes, including Mitsubishi, Ilford, Dainippon, Fuji Film, Sensient and Daiwa. Competitors often specialize in particular segments of the market. For example, DuPont specializes in pigmented inks and Daiwa and Sensient are low cost providers of non-patented dyes. While competition from generic producers is increasing, Avecia’s strategy is generally to avoid competing in the supply of commodity products where possible, but rather to focus efforts on developing and selling custom-designed ink jet printing materials.

|                           |   
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Avecia Group plc20-FYear ended December 31, 2004

The main competition for the new
    electrophotography products under development (chemically produced toners
    and charge transport materials) are traditional suppliers to the industry
    such as Mitsubishi and Tomoegawa & Kao for toners, new suppliers of
    chemically produced toner including Nippon Zeon, and the major original equipment
    manufacturers such as Canon, Ricoh and Xerox which at least partly source
    existing products in-house.

(4) Discontinued Operations

Three former Specialty Products businesses are classified as discontinued: Metal Extraction Products was sold on July 31, 2003, Additives was sold on January 31, 2004 and the Biocides sale (Protection and Hygiene and Pool and Spa) was completed on April 2, 2004. The NeoResins business is also included within this sector as the sale took place on February 2, 2005.

Raw Materials

Overall, Avecia purchases chemicals aggregating approximately £160 million in 2004. The prices of most principal raw materials are not volatile, and in the small proportion of cases where raw materials can vary quickly in line with chemical commodity prices, appropriate risk management is undertaken to dampen the volatility of such changes.

Seasonality

Avecia was subject to seasonal trends in respect of its Pool business (within Specialty Products).  The majority of Pool sales take place between May and September each year. However this business has now been disposed of and Avecia generally is not subject to seasonality in the remaining segments of its business.

Regulation

Avecia is subject to regulations imposed by certain authorities and jurisdictions: Compliance with the requirements of the US Environmental Protection Agency and the Food and Drug Administration is discussed within the Environmental matters and Business overview sections of this item respectively. Compliance with Treasury regulations is discussed in detail within the Taxation section of ‘Item 10 Additional Information’.

|                           |   
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Avecia Group plc20-FYear ended December 31, 2004

Organizational structure

Avecia Group plc is a wholly owned subsidiary of Avecia Finance plc, which is itself a subsidiary of Avecia Holdings plc.  Avecia Holdings plc is owned by Avecia (Jersey) Limited.

The table below provides details of the principal subsidiaries of Avecia Group plc:

|Subsidiary undertakings       |  | Country of incorporation |  | Principal activity   |  | Percentage of equity owned | 
|----------------------------- |  | ------------------------ |  | -------------------- |  | -------------------------- | 
|                              |  |                          |  |                      |  |                            | 
|Avecia Corporation Limited    |  | UK                       |  | Holding company      |  | 100% *                     | 
|Avecia Investments Limited    |  | UK                       |  | Holding company      |  | 100% *                     | 
|Avecia UK Holdings Limited    |  | UK                       |  | Holding company      |  | 100% *                     | 
|Avecia Limited                |  | UK                       |  | Chemical manufacture |  | 100% *                     | 
|Avecia Holdings BVþ           |  | The Netherlands          |  | Holding company      |  | 100% *                     | 
|Avecia Holdings Inc.          |  | USA                      |  | Holding company      |  | 100% *                     | 
|Avecia BVþ                    |  | The Netherlands          |  | Chemical manufacture |  | 100% *                     | 
|Avecia Inc.                   |  | USA                      |  | Chemical manufacture |  | 100% *                     | 
|Torcan Chemical Ltd           |  | Canada                   |  | Chemical manufacture |  | 100% *                     | 
|NeoResins Inc.þ               |  | USA                      |  | Chemical manufacture |  | 100% *                     | 
|Avecia Biotechnology
    Inc. |  | USA                      |  | Chemical manufacture |  | 100% *                     | 
|Avecia Spain SLþ              |  | Spain                    |  | Chemical manufacture |  | 100% *                     | 
|                              |  |                          |  |                      |  |                            | 
|Joint ventures                |  |                          |  |                      |  |                            | 
|Image Polymers Europe         |  | UK                       |  | Chemical manufacture |  | 50% α                      | 
|Image Polymers Company        |  | USA                      |  | Chemical manufacture |  | 50% α                      | 
|                              |  |                          |  |                      |  |                            | 

|* | all ordinary shares
      held                    
|- | --------------------------------------------------
|α | represents percentage share of limited
partnership
|þ | subsidiary disposed of after 31 December 2004     

|                           |   
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Avecia Group plc20-FYear ended December 31, 2004

Property, plant and equipment

Avecia currently has six manufacturing
    facilities in three countries. The sites are principally organic chemistry
    facilities and formulation facilities. The table below lists the main characteristics
    of Avecia’s significant sites, based on net book value of land and
    buildings:

|Site Location      |  |  | Business                                    |  |  | Size (metres2) |  |  | Freehold/Leasehold |  |  | Use                                                               | 
|------------------ |  |  | ------------------------------------------- |  |  | -------------- |  |  | ------------------ |  |  | ----------------------------------------------------------------- | 
|                   |  |  |                                             |  |  |                |  |  |                    |  |  |                                                                   | 
|                   |  |  |                                             |  |  |                |  |  |                    |  |  |                                                                   | 
|Blackley, UK       |  |  | ChemicalsBiotechnologyElectronic Materials  |  |  | 80,938         |  |  | Freehold           |  |  | International headquarters andresearch and development facilities | 
|                   |  |  |                                             |  |  |                |  |  |                    |  |  |                                                                   | 
|Grangemouth, UK    |  |  | Chemicals Electronic MaterialsBiotechnology |  |  | 708,208        |  |  | Freehold           |  |  | Chemical manufacture                                              | 
|                   |  |  |                                             |  |  |                |  |  |                    |  |  |                                                                   | 
|Huddersfield, UK   |  |  | Chemicals Electronic Materials              |  |  | 61,902         |  |  | Leasehold          |  |  | Chemical manufacture                                              | 
|                   |  |  |                                             |  |  |                |  |  |                    |  |  |                                                                   | 
|New Castle, DE, US |  |  | Electronic Materials                        |  |  | 101,018        |  |  | Freehold           |  |  | Chemical manufacture                                              | 
|                   |  |  |                                             |  |  |                |  |  |                    |  |  |                                                                   | 
|Billingham, UK     |  |  | ChemicalsBiotechnology                      |  |  | 131,704        |  |  | Freehold           |  |  | Chemical manufacture                                              | 
|                   |  |  |                                             |  |  |                |  |  |                    |  |  |                                                                   | 
|Aurora, Canada     |  |  | Chemicals                                   |  |  | 42,222         |  |  | Freehold           |  |  | Chemical manufacture                                              | 
|                   |  |  |                                             |  |  |                |  |  |                    |  |  |                                                                   | 
|Milford, MA,US     |  |  | Biotechnology                               |  |  | 100,558        |  |  | Freehold/Leasehold |  |  | Chemicalmanufacture                                               | 

Avecia’s manufacturing capabilities operate at many different levels of scale, depending on the nature of the business and the product. Consequently no meaningful comparatives of production capacity can be derived. All of Avecia’s manufacturing assets are in use, except for certain Chemicals assets relating to Pharmaceutical Intermediates at Grangemouth, UK, and the DNA facility at Grangemouth, UK. Of the assets in use, nearly all have sufficient spare capacity to satisfy expected customer demand in the near term.

The site at Seal Sands, UK, was disposed of as part of the Biocides disposal in April 2004 and the site at Waalwijk Netherlands was disposed as part of the NeoResins disposal in February 2005.

Following divestments of certain of its businesses since 1999, the company presently has six principal operating sites, at Grangemouth, Billingham and Huddersfield in the UK; New Castle, Delaware, USA; Milford, Massachusetts, USA; and Toronto, Canada. In addition the group owns a combined research & development, process technology and headquarters establishment at Blackley, UK. All of these sites are freehold or long leasehold (or local equivalent) and, at Grangemouth, Blackley and New Castle, some parts of the sites not required for the purposes of the company’s continuing business have been leased to purchasers of businesses divested from the group or to site utility providers, or other third party leases or occupation have been
established.  At Grangemouth where the company’s title is freehold (or local equivalent), Syngenta Group businesses also occupy part of the site under long leases from the company and, at Huddersfield where the company’s title is long leasehold, Syngenta retains the freehold interest in the site.  These long leases where Avecia or Syngenta is the tenant provide that the leases will come to an end if the relevant property ceases to be used for the manufacture of chemicals in commercial quantities.  In this event, the tenant is obliged to clear the site by demolishing buildings and to carry out environmental remediation works.  In the case of Grangemouth, Syngenta also has options to re-acquire part of the property if the site ceases to be used for the manufacture of chemicals in
commercial quantities.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 22
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

Following divestments, Avecia no longer holds any interest in sites at Saint Clair du Rhone, France; Mount Pleasant, Tennessee (save in respect of a small part of the site occupied under lease by Image Polymers Corporation in which the company has a 50% interest); Wilmington, Massachusetts, USA; Waalwijk, The Netherlands; or Parets, Spain. Avecia’s lease of the east site at Huddersfield, which related exclusively to the Biocides business, was also transferred to the buyer of that business in April 2004.

Environmental matters

Avecia’s Safety, Health and Environmental Policy and Management System is applicable to all sites and businesses wherever they are located and Avecia’s operations are experienced and effective in containing and handling a range of aggressive chemicals. The business units have procedures covering matters such as waste management, safety systems, soil and groundwater protection, emergency plans and product stewardship. Performance is monitored internally and reviewed to facilitate the achievement of continuous improvement in this area.

Production and marketing of chemical substances are regulated by national and international laws. Although almost every country has its own legal procedures for chemical registration and import, laws and regulations in the European Union, the United States and Japan are most significant to the business, including the European inventory of existing commercial chemical substances, the European list of notified chemical substances, the United States Toxic Substances Control Act and the chemical list of the Japanese Ministry of Trade and Industry.  Chemicals which are on one or more of the above lists can usually be registered and imported without additional testing in any other country, although additional administrative hurdles may
exist.

Avecia will continue to invest in plant and equipment so as to ensure compliance with relevant environment regulations. However there are no current major planned projects relating to environmental control facilities which would result in any material capital expenditure.

Avecia has, since 1999, made a number of divestments of businesses and assets.  Notably, as a result of such disposals, Avecia no longer has ownership of its former sites at St Clair du Rhone, France; Mount Pleasant, Tennessee, USA (except for its interest in Image Polymers Corporation at part of that site); Wilmington, Massachusetts, USA; Frankfort, Indiana, USA; Waalwijk, The Netherlands; Parets, Spain;  and part of its site at Huddersfield, UK.  Its remaining principal operational sites are at Grangemouth, UK; Billingham, UK; Huddersfield, UK (being the remaining part of the site originally acquired by Avecia in 1999); New Castle, Delaware, USA; Milford, Massachusetts, USA; and Toronto, Canada.  In addition, Avecia has ownership of its site at
Blackley, UK, where its corporate offices are located together with certain business headquarters and research & development activities.

As part of the acquisition of Zeneca Specialties, Avecia entered into an Environmental Deed of Covenant with AstraZeneca. Under the Environmental Deed, AstraZeneca agreed, amongst other things, to indemnify Avecia against certain environmental liabilities, or to bear part of remediation costs incurred in soil and groundwater contamination, subject to time limits and maximum caps on claims in certain cases.  Where applicable, at the end of the relevant time limit during which potential claims may be brought against AstraZeneca under the Environmental Deed, AstraZeneca will cease to have further liability to Avecia under the Environmental Deed and Avecia will be responsible for such matters.  The general time limit for potential claims under the
Environmental Deed in respect of sites which Avecia continues to own is June 2009 but there is no time limit applicable in respect of possible environmental matters associated with sites not acquired by Avecia in 1999 but which had previously been part of AstraZeneca’s Specialty Chemicals business.  When it has made a divestment of its businesses, purchasers have generally assumed liability for environmental matters occurring prior to the date of disposal and there has been assigned to the relevant purchaser part of benefit of the Environmental Deed relating to the operations it has acquired and assumed Avecia’s obligations under the Environmental Deed in respect of those operations.

The ultimate requirement for remediation work and its cost are difficult to estimate.  However, where such costs are not within the scope of the indemnities provided by the deed of covenant referred to above, and where such costs are deemed probable and identifiable, provision has been made in the financial statements.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 23
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

Intellectual property

Avecia’s business is dependent to a large extent on intellectual property rights, principally patents, trade marks, domain names and accumulated technical know-how.

Where appropriate, new technology is protected, particularly active ingredients and formulations ingredients, their applications and their manufacturing processes, by seeking patent protection, typically through patent registration in major markets. In addition to patent protection, the business also relies on the know-how and technical expertise in many of the manufacturing processes for developing and maintaining market position.  Trade-marks are a valuable means for associating goods with Avecia as manufacturer, in particular the trade mark ‘Avecia’ provides a uniform trading name for Avecia companies to operate under.

Although Avecia disposed of its Biocides and Additives businesses in 2004, Avecia still has over 2,100 patents and patent applications grouped in over 370 patent families, each representing a distinct invention, 82 percent of which have been filed since 1993. These patent families support, in particular, Electronic Materials (221),Chemicals, and Biotechnology (150).  Avecia has over 200 pending and registered trade-marks in nearly 30 trade-mark families. In addition, Avecia has a number of valuable licenses in  intellectual property owned by AstraZeneca and Syngenta, although these licenses could be terminated upon certain trigger events such as patent validity challenges or insolvency.

Avecia believes that its intellectual property rights, in particular its patent portfolio, is an important factor in protecting its businesses from price erosion.  The loss of such intellectual property rights would be expected to have a material adverse effect on profitability.  However, given the number of patents in Avecia’s portfolio, their diverse nature and their remaining lifetimes, such a loss is not likely on a concerted basis.

Item 5 Operating
      and financial review and prospects

Overview

Avecia is a global group of focused specialty chemicals businesses that develops, manufactures and sells high quality, technologically advanced, value-added chemical products to customers in a wide range of industries.  For the year ended December 31, 2004, Avecia businesses generated turnover of £407.2 million.

The three main business segments of the group as at December 31, 2004 were:

| | Chemicals
|- | ---------

| | Biotechnology
|- | -------------

| | Electronic Materials
|- | --------------------

| | Discontinued operations (including Specialty products and NeoResins)
|- | --------------------------------------------------------------------

In 2004, 34.7% of group sales were in the Americas, 50.5% were in Europe, and 14.8% were in the rest of the world.  In addition, Avecia also has an “other” business segment that consists of the provision of non-manufacturing services to third parties in the UK, and central costs.

Currency fluctuation

Our business operations are geographically diversified, with sales in 2004 to over 70 countries and six manufacturing facilities located in three countries.  In 2004, 72% of sales were made outside the United Kingdom and over 60% of the fixed production and cost base was in the United Kingdom.  Results of operations and financial position are therefore significantly impacted by the fluctuation of the pound sterling against the other major currencies in which the group transacts business, primarily the US Dollar, the Japanese Yen, and Euro.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 24
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

The following table illustrates
    the fluctuations of the pound sterling against the group’s principal
    trading currencies since 2001 and the percentage of our turnover and costs
    in pound sterling and the other major currencies in which the group transacts
    business:

|                |  | Pound appreciation/ (depreciation) |  | % Turnover (a) |   | % Costs (b) |  
|--------------- |  | ---------------------------------- |  | -------------- | - | ----------- | -
|                |  | 2004-2003                          |  | 2003-2002      |   | 2002-2001   |  
|                |  |                                    |  |                |   |             |  
|US Dollar       |  | 12%                                |  | 9%             |   | 4%          |  
|Euro/equivalent |  | 1%                                 |  | (9%            | ) | (1%         | )
|Japanese Yen    |  | 4%                                 |  | 1%             |   | 8%          |  
|Pound Sterling  |  |                                   |  |               |   |            |  

|    |                                                                            
|--- | ---------------------------------------------------------------------------
|(a) | percentage of group turnover in each of the
    currencies.                
|(b) | percentage of group fixed and variable costs
    in each of the currencies.

In order to manage currency exposure
    not absorbed by debt service, the group uses forward foreign exchange contracts
    and other appropriate hedging instruments to further mitigate group currency
    exposure.

Divested operations

In July 2001, the Novacote business, which formed part of the Stahl class of business, was sold. Subsequently the disposal of the remainder of the Stahl business was completed in January 2002. On July 31, 2003 Metal Extraction Products and Intermediates and Stabilizers were sold.  Additives was sold on January 31, 2004 and the Biocides sale was completed on April 2, 2004. Special Drug Mixtures was sold on 22 November 2004. NeoResins was sold on February 2, 2005, and Displays was sold on February 28, 2005.

Financial results

Set forth below is a discussion of the financial condition and results of operations for the company. This discussion should be read in conjunction with our consolidated financial statements and notes included herein, which have been prepared in accordance with UK GAAP.

Year ended December 31, 2004 compared to the year ended December 31, 2003

The following table sets forth turnover for each of 2004 and 2003.

|                                    |  | Year ended
  December 31,
  2004 |  | Year ended
  December 31,
  2003 |  | Actual %
  change |  
|----------------------------------- |  | -------------------------------- |  | -------------------------------- |  | ----------------- | -
|                                    |  |                                  |  |                                  |  |                   |  
|                                    |  | £ million                        |  | £ million                        |  |                   |  
|Businesses                          |  |                                  |  |                                  |  |                   |  
|Continuing operations:              |  |                                  |  |                                  |  |                   |  
|Biotechnology                       |  | 55.7                             |  | 30.5                             |  | 82.6              |  
|Chemicals                           |  | 77.8                             |  | 92.0                             |  | (15.4             | )
|Electronic Materials                |  | 61.5                             |  | 63.0                             |  | (2.4              | )
|Central                             |  | 5.1                              |  | 0.1                              |  | n/a               |  
|                                    |  |                                  |  |                                  |  |                   |  
|Turnover from continuing operations |  | 200.1                            |  | 185.6                            |  | 7.8               |  
|Discontinued operations:            |  | 207.1                            |  | 299.6                            |  | (30.9             | )
|                                    |  |                                  |  |                                  |  |                   |  
|Total historical turnover           |  | 407.2                            |  | 485.2                            |  | (16.1             | )
|                                    |  |                                  |  |                                  |  |                   |  

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 25
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

The following table sets forth operating (loss)/ profit for each of 2004 and 2003:

|                                                   |  | Year ended 
  December 31,
  2004 |   | Year ended
  December 31,
  2003 |   | Change inOperatingProfit |   | Change inDepreciation& Amortization |  
|-------------------------------------------------- |  | --------------------------------- | - | -------------------------------- | - | ------------------------ | - | ----------------------------------- | -
|                                                   |  |                                   |   |                                  |   |                          |   |                                     |  
|                                                   |  | £ million                         |   | £ million                        |   | £ million                |   | £ million                           |  
|Businesses                                         |  |                                   |   |                                  |   |                          |   |                                     |  
|Continuing operations:                             |  |                                   |   |                                  |   |                          |   |                                     |  
|Biotechnology                                      |  | (9.6                              | ) | (17.2                            | ) | 7.6                      |   | (2.6                                | )
|Chemicals                                          |  | (31.3                             | ) | (70.1                            | ) | 38.8                     |   | 41.9                                |  
|Electronic Materials                               |  | 5.8                               |   | 3.8                              |   | 2.0                      |   | 1.7                                 |  
|Other including unallocated cost                   |  | (31.0                             | ) | (46.4                            | ) | 15.4                     |   | 19.4                                |  
|Restructuring and site closure costs               |  | (17.6                             | ) |                                 |   | (17.6                    | ) |                                    |  
|                                                   |  |                                   |   |                                  |   |                          |   |                                     |  
|Operating (loss)/profit from continuing operations |  | (83.7                             | ) | (129.9                           | ) | 46.2                     |   | 60.4                                |  
|Discontinued operations                            |  | 33.3                              |   | 48.8                             |   | (15.5                    | ) | 2.1                                 |  
|                                                   |  |                                   |   |                                  |   |                          |   |                                     |  
|Total operating (loss)/profit                      |  | (50.4                             | ) | (81.1                            | ) | 30.7                     |   | 62.5                                |  
|                                                   |  |                                   |   |                                  |   |                          |   |                                     |  

In Biotechnology sales were significantly improved in 2004 in DNA medicines by manufacture and supply for a customer’s phase III clinical trial and potential launch program, whereas in 2003 an extensive validation program had precluded manufacture and supply to that customer.  Sales also improved as more customer manufacturing programs were completed in 2004 in our small-scale Biologics manufacturing facility than in 2003.

These increased sales helped to significantly reduce the operating losses in the Biotechnology business, despite a significant increase in operating costs in Biologics as resource was increased to operate the new large scale manufacturing plant, which commenced operating in 2004.

In Chemicals, sales in 2004 were reduced by the impact of the disposal of the Intermediates and Stabilizers business in July 2003.  Increased sales of Agrochemical Intermediates due to increased customer demand in 2004 was offset by reduced customer demand in Pharmaceutical Intermediates in 2004, primarily due to cessation of supply to one major customer during 2003.

Operating losses in Chemicals were significantly lower in 2004 due to the reduced impairment changes taken against assets (£22.3 million in 2004 compared with £55.9 million in 2003), and the consequent reduction in annual depreciation charges in 2004. Reduced margins arising from the reductions in sales described above were offset by reductions in fixed costs arising from restructuring initiatives commenced in mid 2004.

Reductions in sales in Electronic Materials in 2004 were primarily attributable to the effect of the significant weakening of the US Dollar against £ Sterling during 2004, offset by increased customer demand for new Electronic Materials products.

At operating profit level, the improvements in margins arising from the increased sales described above and reductions in fixed costs from efficiency improvements and restructuring outweighed the adverse impacts of foreign currency changes.

Sales arising from our discontinued operations were reduced in 2004 due to the impacts of the disposal of the Specialty Products business early in 2004.  These disposals had a similar impact on operating profits.  Within this group of businesses, NeoResins managed to increase its sales by 3% despite adverse currency impacts due to increased demand for its products from coatings and graphic arts customers.  This improvement in sales translated into improved operating profits for the NeoResins business despite adverse price pressure on raw materials.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 26
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

Analysis of other items and net
      losses

|                                   |  | 2004  |   | 2003  |   | £m change |  
|---------------------------------- |  | ----- | - | ----- | - | --------- | -
|                                   |  |       |   |       |   |           |  
|Share of profit from JV            |  | (6.9  | ) | 1.7   |   | (8.6      | )
|Profit on disposal of business     |  | 98.6  |   | 15.4  |   | 83.2      |  
|Net interest and
    finance costs |  | (20.5 | ) | (29.6 | ) | 9.1       |  
|Taxation                           |  | (1.9  | ) | (0.9  | ) | (1.0      | )
|                                   |  |       |   |       |   |           |  
|Net profit/(loss)                  |  | 18.9  |   | (94.5 | ) | 113.4     |  

Share of operating profits from our Joint Venture, Image Polymers, reduced in 2004 due to an impairment change taken against goodwill relating to the Joint Venture.

The profit on disposal represents the profits realized through the sale of Additives and Biocides in 2004.  In 2003  the profit on disposal represents the profits realized through the sale of the Metal Extraction Products and Intermediates & Stabilizers businesses to Cytec.

Analysis of net interest and
      finance costs

|                                   |  | 2004  |   | 2003  |   | £m change |  
|---------------------------------- |  | ----- | - | ----- | - | --------- | -
|                                   |  |       |   |       |   |           |  
|Net interest payable on Bank loans |  | (6.0  | ) | (10.6 | ) | 4.6       |  
|Interest on other loans            |  | (34.2 | ) | (39.5 | ) | 5.3       |  
|Net exchange gains and losses      |  | 32.1  |   | 28.1  |   | 4.0       |  
|Amortization of finance fees       |  | (10.2 | ) | (4.8  | ) | (5.4      | )
|FRS 17                             |  | (2.1  | ) | (2.4  | ) | 0.3       |  
|Other finance costs                |  | (0.3  | ) | (0.4  | ) | 0.1       |  
|                                   |  |       |   |       |   |           |  
|                                   |  | (20.7 | ) | (29.6 | ) | 8.9       |  
|                                   |  |       |   |       |   |           |  

Net interest payable on bank loans decreased in 2004 due to the reduction in bank debt arising from term debt repaid from the disposals in 2003 and 2004.

Interest on other loans represents interest paid in US Dollars on the 11% senior notes, and the reduction in 2004 reflects the weakening of the US Dollar to Sterling exchange rate in 2004.

Under UK GAAP the finance fees associated with raising debt in 1999 were capitalized at that time and are written back against profit over the lifetime of the loans.  With the early repayment of debt, the relevant amount of unamortized fees was written off and this increased the charge to profit in 2004.

Taxation increased in 2004 due to the impact of the improvement in net profits in jurisdictions where there were no tax losses to offset these profits.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 27
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

Year ended December 31, 2003 compared to the year ended December 31, 2002

The following table sets forth turnover for each of 2003 and 2002.

|                                    |  | Year ended
  December 31,
  2003 |  | Year ended
  December 31,
  2002 |  | Actual %
  change |  
|----------------------------------- |  | -------------------------------- |  | -------------------------------- |  | ----------------- | -
|                                    |  |                                  |  |                                  |  |                   |  
|                                    |  | £ million                        |  | £ million                        |  |                   |  
|Businesses                          |  |                                  |  |                                  |  |                   |  
|Continuing operations:              |  |                                  |  |                                  |  |                   |  
|Biotechnology                       |  | 30.5                             |  | 49.4                             |  | (38.3             | )
|Chemicals                           |  | 92.0                             |  | 136.3                            |  | (32.5             | )
|Electronic Materials                |  | 63.0                             |  | 63.8                             |  | (1.3              | )
|Other                               |  | 0.1                              |  | 0.6                              |  | (83.3             | )
|                                    |  |                                  |  |                                  |  |                   |  
|Turnover from continuing operations |  | 185.6                            |  | 250.1                            |  | (25.8             | )
|Discontinued operations             |  | 299.6                            |  | 325.6                            |  | (8.0              | )
|                                    |  |                                  |  |                                  |  |                   |  
|Total historical turnover           |  | 485.2                            |  | 575.7                            |  | (15.7             | )
|                                    |  |                                  |  |                                  |  |                   |  

The following table sets forth operating (loss)/ profit for each of 2003 and 2002:

|                                          |  | Year ended
  December 31,
  2003 |   | Year ended
  December 31,
  2002 |   | Change inOperatingProfit |   | Change in
  Depreciation &
  Amortization |  
|----------------------------------------- |  | -------------------------------- | - | -------------------------------- | - | ------------------------ | - | ----------------------------------------- | -
|                                          |  |                                  |   |                                  |   |                          |   |                                           |  
|                                          |  | £ million                        |   | £ millionRestated                |   | £ million                |   | £ million                                 |  
|Businesses                                |  |                                  |   |                                  |   |                          |   |                                           |  
|Continuing operations:                    |  |                                  |   |                                  |   |                          |   |                                           |  
|Biotechnology                             |  | (17.2                            | ) | (3.5                             | ) | (13.7                    | ) | 1.8                                       |  
|Chemicals                                 |  | (70.1                            | ) | (0.1                             | ) | (70.0                    | ) | (44.9                                     | )
|Electronic Materials                      |  | 3.8                              |   | 2.1                              |   | 1.7                      |   | (0.2                                      | )
|Other including Unallocated cost          |  | (46.4                            | ) | (62.7                            | ) | 16.3                     |   | 9.4                                       |  
|Restructuring and site closure costs      |  |                                 |   | (11.1                            | ) | 11.1                     |   |                                          |  
|                                          |  |                                  |   |                                  |   |                          |   |                                           |  
|Operating loss from continuing operations |  | (129.9                           | ) | (75.3                            | ) | (54.6                    | ) | (33.9                                     | )
|Discontinued operations                   |  | 48.8                             |   | 58.1                             |   | (9.3                     | ) | 0.5                                       |  
|                                          |  |                                  |   |                                  |   |                          |   |                                           |  
|Total operating loss                      |  | (81.1                            | ) | (17.2                            | ) | (63.9                    | ) | (33.4                                     | )
|                                          |  |                                  |   |                                  |   |                          |   |                                           |  

In Biotechnology, sales were significantly reduced in 2003 by lower volumes manufactured for both DNA medicine customers and pharmaceutical companies.  In 2002 significant volumes of DNA medicine were manufactured and supplied for a customers phase III clinical trial program.  In 2003 there was an extensive program to validate this manufacturing process up to the cGMP standard required for registration of the customer product, and this validation process precluded manufacture until completion.   The validation process was completed to the customers’ satisfaction in December 2003, when manufacture of product commenced for the expected launch of the product by the customer in 2004.  This reduction in sales led to a significant reduction in
profits, as operating costs remained high due to the need for manufacturing resource to conduct the process validation, thus reducing the opportunity for cost savings.

In Chemicals, custom manufacture
    of pharmaceutical products was reduced in 2003, because demand for two intermediates
    from one customer was reduced due to delays in the launch of their product
    and the extent of the intermediates already stockpiled. In addition, due
    to a worldwide decline in demand from pharmaceutical companies for custom
    intermediates, it was not possible to secure volumes of new products for
    manufacture in the assets that were consequently under-occupied.

Sales in Chemicals were also reduced by the disposal of the Intermediates and Stabilizers business in July 2003.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 28
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

Operating losses in Chemicals were significantly increased in 2003 by the impact of the lower volumes of pharmaceutical intermediates manufactured in 2003.  Although variable costs of raw material also decreased in line with the lower manufacture, other operating cost remained at or near 2002 levels.  In Pharmaceuticals Intermediates, assets were mothballed and staff surplus to requirements removed under the voluntary severance program announced at the end of 2002.   Although these measures saved some costs, they were only able to partly offset the lost margin from the Intermediates not supplied.

As a consequence of the reduction in utilization for Chemicals assets, and the consequent generation of profit, there was a significant charge of £55.3 million taken against the tangible assets utilized in the Chemicals businesses.

Electronic material sales were more than 1% lower in 2003 than 2002.   However, the reduction was caused mainly by the significant weakening of the US Dollar against Sterling between the two years.

The main component of this growth is increased demand from customers for our Inkjet dyes and inks, which in part represents a recovery from the period of destocking pursued by our customers during 2002.

As a consequence of this increase in sales volumes operating profit in the Electronic Materials segment improved in 2003, despite the adverse effects of currency.

In discontinued operations, NeoResins increased its sales by over 5% over 2002, although over 3% of this increase was caused by the relative strength of the Euro over Sterling.  The business attained this growth through moderate improvement in demand from its coatings customers in Europe, and high increases in volume sales to both coating and graphic arts customers in the Asia-Pacific region, reflecting both increased demand in that region through high levels of economic growth in China, and through the businesses improvement in its share of markets in the region.

NeoResins profit was reduced in 2003 compared to 2002 as the volume gains noted above were offset by the impact of raw material prices caused by the increased price of oil, and supply imbalance for key acrylic raw materials.  In addition many of the volume gains came in product segments with lower than average margins, while temporary increase in freight costs caused by planned production changes across different manufacturing sites also held back profit growth.

Specialty Product sales in 2003 at a headline level fell by nearly 22% from 2002 levels.  Although business divestments and closures contributed to this the main impact on the fall was due to the effect of adverse currency (a weaker US Dollar).

All businesses in the segment managed
    to improve volumes through improved customer demand for their products. In
    the Biocides Protection and Hygiene business, price decreases made in the
    US market, in response to a competitor’s policy of aggressive price
    reductions, negated these volume improvements.

This segment’s operating profits fell between 2002 and 2003 by £6.8 million.  All of the decrease is attributable to the adverse impact of currency, the effect of disposing of the Metal Extraction Products businesses in July 2003, and the adverse selling price movements noted above.

Analysis of other items and net
      losses

|                               |  | 2003  |   | 2002  |   | £m change |  
|------------------------------ |  | ----- | - | ----- | - | --------- | -
|                               |  |       |   |       |   |           |  
|Share of profit from JV        |  | 1.7   |   | 2.2   |   | (0.5      | )
|Profit on disposal of business |  | 15.4  |   | 9.4   |   | 6.0       |  
|Net interest and finance costs |  | (29.6 | ) | (30.9 | ) | 1.3       |  
|Taxation                       |  | (0.9  | ) | (6.5  | ) | 5.6       |  

Share of operating profits from our Joint Venture, Image Polymers, reduced in 2003 due to lower sales in the joint venture, caused by reduced customer demand for its toner products.

The profit on disposal represents
    the profits realized through the sale of the Metal Extraction Products and
    Intermediates & Stabilizers businesses to Cytec in July 2003.  In 2002
the profit represented that realized on the disposal of the Stahl business.

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Avecia Group plc20-FYear ended December 31, 2004

Liquidity and capital resources

The group’s consolidated statements
    of cash flows for the years ended December 31, 2004, 2003 and 2002 are set
    out below.

|                                                        |  | Avecia Group
          plc Consolidated |  
|------------------------------------------------------- |  | --------------------------------------- | -
|                                                        |  | For the
      yearendedDecember 31,2004 |  
|                                                        |  |                                         |  
|                                                        |  | £ million                               |  
|                                                        |  |                                         |  
|Cash inflow from operating activities                   |  | 11.2                                    |  
|Dividends from joint ventures                           |  | 2.5                                     |  
|Returns on investments and servicing
        of finance |  | (38.4                                   | )
|Taxation                                                |  | (0.2                                    | )
|Capital expenditure                                     |  | (13.3                                   | )
|Acquisitions and disposals                              |  | 186.9                                   |  
|                                                        |  |                                         |  
|Cash inflow before financing                            |  | 148.7                                   |  
|                                                        |  |                                         |  
|Financing                                               |  | (133.8                                  | )
|                                                        |  |                                         |  
|Increase/(decrease) in cash
          in the period     |  | 14.9                                    |  
|                                                        |  |                                         |  

Operating activities

Cash generated from operating activities
    declined to £11.2 million in 2004. The decrease was due to lower earnings
    before depreciation, amortization and an outflow from increased working
    capital of £17.0 million, compared with an inflow from reduced working
    capital of £6.1 million in 2003. The significant increase in working
    capital in 2004 arose from increased debtors due to the higher sales in ongoing
    businesses
    and the timing of the sale of the Pool and Spa business when working capital
    was approaching its seasonal peak.

Investing Activities

Capital expenditures in 2004 were £13.3
    million compared with £49.6 million in 2003 and £43.1 million
    in 2002. Capital expenditure is authorized on a project by project basis,
    and during 2004 we authorised projects totalling £17.6 million compared
    with £18.8 million in 2003 and £67.4 million in 2002. There were
    no significant individual projects in 2004. In 2005 we are planning for capital
    expenditure totalling £14.5 million. As at December 31, 2004, commitments
    relating to this capital expenditure totaled £5.3 million. This expenditure
    will be funded from proceeds of business disposals.

In January 2004 Avecia completed
    the disposal of the Additives business to the Lubrizol Corporation for a
    consideration of £69m. In April 2004 Avecia completed the sale of
    the Protection & Hygiene and Pool & Spa businesses to Arch Chemicals
    for cash proceeds of $200m together with consideration in the form of shares
    valued at $15m. In November the Special Drug Mixtures business was sold to
    Copperhead Chemicals Company for £6 million.

In July 2003 the group completed
    the disposal of the Metal Extraction Products and Intermediates and Stabilizers
    businesses to Cytec Industries Inc. The group proceeds arising on the disposal
    were $81.8million (£58.5 million), which was received on July 31, 2003.
    This resulted in the repayment of £52.3 million of Term Debt as required
    by the bank facilities agreement.

In January 2002 the Group completed
    the disposal of the Stahl business to Luxembourg 101 S.A. and its affiliates.
    The gross proceeds arising on the disposal were Euros 378.7 million (£234.9
    million), of which Euros 346.8 million (£215.1 million) was received
    as cash in January 2002, with the remainder received in January 2003. This
    resulted in the repayment of £187.3 million Term Debt as required by
    the bank facilities agreement. The net assets of the Stahl business at 31
    December 2001 were £95.7 million, plus

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Avecia Group plc20-FYear ended December 31, 2004

£124.1 million of associated
    goodwill, and during 2001 the business had delivered cash from operating
    activities of £24.4 million. The sale of the Stahl business in 2002,
    combined with the sale of the Novacote business in 2001, represented the
    disposal of the entire class of business previously reported as Stahl in
    the segmental analysis of the Group’s results.

Financing

|                                 |  | February28,2005 |  | December31,2004 |  | December31,2003 | 
|-------------------------------- |  | --------------- |  | --------------- |  | --------------- | 
|                                 |  |                 |  |                 |  |                 | 
|Bank loans and overdrafts        |  |                |  | 75.0            |  | 211.0           | 
|                                 |  |                 |  |                 |  |                 | 
|High Yield
        Bonds         |  | 64.1            |  | 278.8           |  | 306.2           | 
|                                 |  |                 |  |                 |  |                 | 
|Total debt                       |  | 64.1            |  | 353.8           |  | 517.2           | 
|                                 |  |                 |  |                 |  |                 | 
|Cash at bank
        and in hand |  | 67.6            |  | 22.7            |  | 8.0             | 
|                                 |  |                 |  |                 |  |                 | 

The group finances its operations
    by a mixture of bank borrowings and high yield bonds. The group’s long-term
    loans are raised centrally by group finance companies which fund operating
    subsidiaries, on commercial terms, all of which are included in the consolidated
    financial statements. The group borrows in the major global debt markets
    in a range of currencies at both fixed and floating rates of interest, using
    derivatives where appropriate to generate the desired interest rate profile.
    The derivatives used for this purpose are principally interest rate swaps
    and interest rate caps, although none of these were in place as at 31 December
    2004.

Following the successful disposal
    of its Additives and Biocides businesses in 2004, the group used the proceeds
    of these disposals to prepay all term debt outstanding under the banking
    facilities in April 2004 leaving only outstanding the drawn down amounts
    under the Revolving Credit Facility. This financing structure was considered
    no longer appropriate for the needs of the group in the medium term and the
    group secured amended bank financing to replace the revolving credit drawn
    down. This amended financing provided for term debt of £100 million,
    repayable at 31 December 2005, together with a Revolving Credit Facility
    of £50 million. £75 million of this term debt available was drawn
    down in 2004.

Cash used in financing activities
    in 2004 was £133.8 million, which includes term debt prepaid from the
    proceeds of the business disposals amounting to £160.5 million. This
    compares with scheduled debt prepaid from disposal proceeds of £57.8
    million in 2003.

During 2004 the business increased
      cash balances by £14.9 million and repaid £44.0 million under
      the revolver facility drawn down in 2003. At December 31, 2004 the
      group had outstanding external borrowings of £353.8 million, comprising £75
      million of secured bank debt and $540 million of 11% Senior Notes due 2009.

The group also had available to it
    an undrawn £50 million Senior Secured Revolving Credit Facility until
    2006. During the year ended December 31, 2004 Avecia repaid amounts totaling £19
    million over several separate occasions under this facility, with a maximum
    drawing during the period of £13 million.

Following the successful disposal
    of its NeoResins and Displays businesses after 31 December 2004, the Group
    used the proceeds of these disposals to repay all outstanding term debt (£75
    million) and redeemed $415,912,000 (77%) of the 11% Senior Notes. Following
    these transactions the group had outstanding external borrowings of $124
    million of 11% Senior Notes due 2009 with no secured bank debt.

The Directors annually review the
    Group’s budget for the year and outline projections for the subsequent
    year, including cash flows and forecasts of headroom available against debt
    covenants. Following this review the Directors have formed a judgement that
    working capital is sufficient for the Group’s present requirements.

|                           |   
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Avecia Group plc20-FYear ended December 31, 2004

As part of the group’s ongoing
      strategy the group will continue to effect further divestments at such
      times as the directors believe will generate appropriate value. For
      details on the maturity profile of debt, currency and interest rate structure,
      see note 19 to the consolidated financial statements.

Research, development and process
      technology

Avecia’s research, development
    and process technology base has a long history of achievement in organic
    chemistry and color science and has significant expertise in polymer science,
    colloid science and microbial fermentation. A total of £45.4 million
    in 2004, £57.7 million in 2003 and £58.5 million in 2002 has
    been spent in research, development and process technology.

Over the years, the group’s
    technological abilities and continuous high levels of research, development
    and process technology investment have enabled it to achieve significant
    milestones. For example in the 1980s, Electronic Materials helped pioneer
    non-smudging inks for ink jet printers, and today the business is developing
    novel products for color copiers, laser printers and flat panel display products.
    Other research, development and process technology efforts have allowed Chemicals
    to establish a strong position in the market for pharmaceutical intermediates
    and Biotechnology has established a leading position in the emerging DNA
    medicines market.

The research, development and process
    technology efforts are driven by the specific requirements and market trends
    in each of the businesses. Where appropriate, research, development and process
    technology efforts are managed in cross-functional teams, which include commercial
    and manufacturing personnel. This structure supports clear business and customer
    focus.

Most of the research and development
    activities across all businesses are driven by specific customer programs
    and in many cases are carried out through collaborative arrangements. The
    largest research centre in Avecia is located at Blackley, near Manchester,
    with 94 scientists. In addition, Biotechnology has specialist research, development
    and process technology operations in Billingham and Chemicals has process
    technology departments at Grangemouth and Huddersfield. Blackley now supports
    the research, development and process technology functions of Electronic
    Materials.

The process technology groups, responsible
    for process research and development, are principally located at the main
    manufacturing sites, with substantial groups at Huddersfield, Grangemouth
    and Billingham in the United Kingdom.

A substantial number of technical
    service personnel work in customer service laboratories close to the customers
    and the markets in which the individual businesses operate. For more complex
    problems requiring in-depth investigation, the laboratories refer to the
    research and process technology groups. Electronic Materials, Biotechnology
    and Chemicals’ research, development and process technology is organized
    into customer-focused teams. This organization structure enables scientists
    and technicians to be in close contact with major customers in order to provide
    rapid solutions to customer problems and needs. The business strives to support
    innovation by devoting significant resources and managerial support to project
    management and rigorous stage-gate processes to reduce lead times and facilitate
    market entry for products.

Biotechnology, Chemicals and Electronic
    Materials have been identified as the principal sources of growth in the
    future, and Avecia therefore intends to devote additional amounts to research,
    development and process technology to support these businesses.

The following table sets forth the
    current focus areas in each of the businesses:

|Business             | Targeted applications
|-------------------- | ---------------------
|                     |                      
|Chemicals            |                     
|Biotechnology        |                     
|                     |                     
|Electronic Materials |                     

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Avecia Group plc20-FYear ended December 31, 2004

Critical accounting policies

Critical accounting policies are
    defined as those that are reflective of significant judgments and uncertainties,
    and potentially result in materially different results under different assumptions
    and conditions. We believe that our critical accounting policies are those
    described below:

Revenue recognition  Revenue
    is recognized when services have been rendered and significant risks and
    rewards in respect of ownership of the products are passed to the customer.
    Open market sales form the basis of most of Avecia’s turnover, and
    are recognized when legal title on manufactured product passes to the customer.
    Within Biotechnology and Chemicals, our dealings with customers are often
    governed by detailed contracts, which can have a significant bearing on determining
    when revenue should be recognized. Avecia evaluates the terms contained in
    such contracts in accordance with UK GAAP, using judgment to determine whether
    the risks and rewards of ownership have transferred to the customer, in arriving
    at the amounts to be recognized as revenue in each period. In the twelve
    months to December 31, 2004 the value of sales where contractual terms were
    a factor in determining revenue amounted to approximately £83 million.

Goodwill, impairment and amortisation  Purchased
    goodwill is capitalised and amortized over its estimated useful life, which
    is currently estimated to be 15 years. In addition goodwill is reviewed for
    impairment. The need for an impairment write down is assessed with reference
    to discounted cash flow estimates. As at December 31, 2004, Avecia held £199.6
    million of unamortized goodwill in its balance sheet, having amortized £22.4
    million of goodwill in the twelve months to December 31, 2004. A change in
    the estimated life of goodwill, or a change in circumstances which may lead
    to an impairment of goodwill, would impact both the value of goodwill in
    the balance sheet and the amount of amortisation charged to operating profit
    in the period. We estimate that a reduction of one year in the estimated
    useful life of goodwill would increase the annual amortisation charge by £3.0
    million.

Fixed Assets, depreciation and impairment  The
    book value of each fixed asset is written off evenly over its estimated remaining
    life. Reviews are made periodically of the estimated remaining lives of individual
    productive assets, taking account of commercial and technological obsolescence
    as well as normal wear and tear. A change in the estimated remaining useful
    life of an asset may lead to a material impairment, reducing the asset value
    in the balance sheet and resulting in an increased depreciation charge in
    the profit and loss account. At December 31, 2004, Avecia held £198.6
    million of tangible fixed assets at net book value in the balance sheet.
    During the year ended 2004 Avecia charged £26.7 million of depreciation,
    and charged a further impairment of £22.3 million in respect of under-utilized
    assets in the Chemicals business.

Post Retirement Benefits  Avecia
    operates both Defined Benefit and Defined Contribution schemes, and has adopted
    FRS17 in full for the year ended December 31, 2004. In the case of defined
    benefit schemes, assets are measured using market values. Liabilities are
    measured using a projected unit method and discounted at the current rate
    of return of a high quality corporate bond of equivalent term and currency.
    Costs and liabilities are assessed in accordance with the advice of independent
    qualified actuaries using certain assumptions, for example rate of inflation,
    rate of salary increases, etc (see Note 26 : Pensions). Variations in investment
    returns or assumptions will have a material impact on the value of pension
    assets and liabilities.

Financial instruments  Receipts
    and payments on interest rate instruments are recognized on an accrual basis
    over the lives of the instruments, whilst gains and losses on contracts hedging
    forecast transaction cash flows are recognized in the same hedged periods.
    At December 31, 2004 the group had £16.2 million of outstanding gross
    foreign exchange contracts as a result of the transaction exposure cover
    outlined above. At December 31, 2004 the difference between book value and
    fair value of all financial instruments was an additional £44.0 million
    liability. Financial instruments were discounted at the current market yield
    rates.

US GAAP

The net US GAAP result for the year
    ended December 31, 2004 was a loss of £22.2 million. The corresponding
    figure under UK GAAP was a profit of £18.9 million. The most significant
    differences compared to UK GAAP were the removal of goodwill amortization
    according to SFAS 142 (£23.3 million profit) the additional purchase
    accounting adjustments charged under US GAAP on disposal of businesses (£44.7
    million loss) and the additional goodwill impairment charged under US GAAP
    (£4.6 million loss). A full reconciliation of the differences is included
    in Item 18 Financial Statements, note 33.

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Avecia Group plc20-FYear ended December 31, 2004

New accounting standards

UK GAAP

Urgent Issues Task Force abstract
      38  “Accounting for ESOP trusts” is effective for
      accounting periods ending on or after 22 June 2004. Avecia has fully adopted
      UITF38 for the year ended December 31, 2004. The comparative figures have
      been restated accordingly. The adoption of UITF38 has no effect on the
      profit and loss account but has reduced the total recognised gains
      and losses and the profit and loss reserves by £0.3m (2003: £0.5m).

US GAAP

SFAS No. 151 “Inventory
      Costs” was issued in November 2004 and is effective for accounting
      periods beginning on or after June 15, 2005. SFAS 151 amends the guidance
      in ARB No.43, Chapter 4, “Inventory Pricing” to clarify the
      accounting treatment of abnormal amounts of idle facility expense, freight,
      handling costs, and wasted material (spoilage). The adoption of SFAS 151
      is not expected to have a material impact on the financial statements.

SFAS No. 123(revised 2004) Share-Based
      payment” was issued in December 2004 and is effective for accounting
      periods beginning on or after June 15, 2005. SFAS 123 (revised) eliminates
      the alternative to use. Opinion 25’s intrinsic value method of accounting
      as permitted in Statement 123 as originally issued. SFAS 123 (revised)
      now requires entities, when issuing stock options to employees, to recognize
      the cost of employee services granted in exchange for awards of equity
      instruments based on the grant-date fair value of those awards. The adoption
      of SFAS 123 (revised) is not expected to have a material impact on the
      financial statements.

SFAS No. 153 “Exchanges
      of Nonmonetary Assets” was issued in December 2004 and is effective
      for accounting periods beginning on or after June 15, 2005. SFAS 153 amends
      the guidance in APB Opinion No.29, Accounting for Nonmonetary Transactionsby
      eliminating the exception for nonmonetary exchanges of similar productive
      assets and replaces it with a general exception for exchanges of nonmonetary
      assets that do not have commercial substance. A nonmonetary exchange
      has commercial substance if the future cash flows of the entity are expected
      to change significantly as a result of the exchange. The adoption of SFAS
      153 is not expected to have a material impact on the financial statements.

Recent trends

A major part of our production and
    revenues in Biotechnology and Chemicals arises from the manufacture and supply
    of DNA medicines, complex microbial fermentation of produced active ingredients,
    and pharmaceutical intermediates manufactured according to customers’ specific
    requirements. The lack of demand from Chemicals customers for our manufacturing
    services of pharmaceutical intermediates experienced during 2004 has continued,
    and consequently a large part of our manufacturing capacity for these products
    remains underutilized. Demand for the more advanced healthcare molecules
    has in general remained steady across the industry, with isolated customer
    product withdrawals having a greater impact on demand than the general level
    of development within the industry. General economic growth in 2004 helped
    improve customer demand in industries such as coatings and electronic consumables,
    and these industry trends have continued since 31 December 2004.

Off-balance sheet arrangements

The group has unrecognised gains
    and losses of £ 33.2 and £ 22.8m respectively, in respect of
    financial instruments at 31 December 2004. For further disclosures with regard
    to financial instruments, see note 19 of the consolidated financial statements.

Save as disclosed above there are
    no off-balance sheet arrangements that have or are reasonably likely to have
    a current or future effect on our financial condition, changes in financial
    condition, revenues or expenses, results of operations, liquidity, capital
    expenditures or capital resources that is material to investors.

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Avecia Group plc20-FYear ended December 31, 2004

Aggregate Contractual Arrangements

The following table sets out the
    group’s contractual cash obligations under debt arrangements, leases,
    and other non-cancellable purchase commitments.

|                                   |  | Payments due
          by period | 
|---------------------------------- |  | -------------------------------- | 
|                                   |  | Total                            | 
|                                   |  |                                  | 
|Long term
        debt obligations |  | 353.8                            | 
|Fixed Interest obligations         |  | 73.8                             | 
|Capital lease
        obligations  |  | 4.3                              | 
|Operating lease obligations        |  | 2.7                              | 
|Purchase obligations               |  | 5.3                              | 
|                                   |  |                                  | 
|Total                              |  | 439.9                            | 

Purchase obligations represent
      purchase commitments in respect of capital expenditure. The above liabilities
      exclude pensions, post-retirement and other non-contractual liabilities.
      Liabilities relating to pensions and post-retirement benefits are set out
      in Note 25 to the Financial Statements. In addition the group has £3.5
      million of contingent obligations relating to guarantees and standby letter
      of credit issued in the ordinary course of business to financial institutions
      and suppliers to secure short term support for a variety of commercial
      and operational transactions.

Item 6 Directors,
      senior management and employees

Directors and senior management

The following table sets forth information
    regarding the directors and executive officers of Avecia Group plc.

|Name                   | Position                          | Term of office | Period of service in this
          capacity
|---------------------- | --------------------------------- | -------------- | --------------------------------------------
|                       |                                   |                |                                             
|Mr Jeremy P Scudamore  | Chief Executive Officer, Director | Ongoing        | Appointed June 23, 1999                     
|Mr David C Greensmith  | Chief Operating Officer, Director | Ongoing        | Appointed June 23, 1999                     
|Mr Derrick A Nicholson | Chief Financial Officer, Director | Ongoing        | Appointed June 23, 1999                     

All of the Directors set out above
    are directors of Avecia Holdings plc and Avecia Finance plc.

Jeremy Scudamore is aged 58. He
      joined ICI’s (subsequently Zeneca’s) agrochemical businesses
      in 1970, culminating in appointment as Business Director for Zeneca Agrochemicals
      in 1994. He was appointed Chief Executive Office of Zeneca Specialties
      (the predecessor business to Avecia) in 1997, and Chief Executive Officer
      of Avecia in 1999. He is on the board of the Chemical Industries Association,
      and on the editorial board of European Chemical News, and the advisory
      board of Chemical and Engineering News. He is also a non-executive Director
      of ARM Holdings plc.

David Greensmith is aged 52. He joined
    ICI (subsequently Zeneca) in 1976 and held a variety of commercial roles
    in different chemicals businesses prior to being appointed Business Director
    for Zeneca Specialties in 1997, and subsequently Chief Operating Officer
    for Avecia in 1999.

Derrick Nicholson is aged 55. He
    joined ICI (subsequently Zeneca) in 1975 and held a range of financial positions
    in a number of different international chemical businesses within the group,
    culminating in his appointment as the Zeneca Group Corporate Finance Manager
    in 1997. He was appointed Chief Financial Officer for Avecia in 1999.

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Avecia Group plc20-FYear ended December 31, 2004

Compensation

None of the directors or executive
    officers of Avecia Group plc had interests in options or ordinary shares
    of Avecia Group plc or its subsidiaries at the end of the financial period.

During the year ended December 31,
    2004, the aggregate amount of compensation paid by group companies to all
    directors and officers of Avecia Group plc was £1,178,840.

The executive directors have service
    contracts, on indefinite terms, with an appropriate group company, which
    are capable of termination on 12 months notice by the company. The directors’ service
    contracts provide for specified benefits upon termination of employment:
    where termination is by reason of redundancy or unfair dismissal the benefit
    is 175% of annual base salary, and where by any other reason (other than
    for cause) is 125% of monthly base salary for the unexpired period of notice
    up to 12 months maximum.

The directors are contributing members
    of the Avecia UK Pension Fund. Refer to note 26 to the financial statements
    included herein for further details.

Board practices

The board of the parent company,
    Avecia Holdings plc has established the following standing committees, each
    with defined terms of reference, procedures, responsibilities and powers.
    The minutes of committee meetings are made available to all directors.

Audit committee:The
    audit committee comprises all the non-executive directors of Avecia Holdings
    plc. The names of the committee members are : M Askari, JGG Clarke, RD Lapthorne,
    M Coyne, D Barker, T de Boysson.

The Chief Executive and Chief Financial
    Officer, together with the external auditors, Group Controller, Head of Internal
    Audit and Company Secretary, attend all meetings of the Committee but are
    not members of the Committee. The committee also meets the external auditors
    without management present. The audit committee is charged with monitoring
    the adequacy and effectiveness of the systems of internal control and audit
    function, appointing, reviewing the scope and results of the work of the
    external auditors and reviewing the annual and interim financial statements
    of the group and related policies and assumptions.

Remuneration committee:The
    remuneration committee comprises all the members of the Audit Committee,
    and is chaired by the Chairman of Avecia Holdings plc. The Chief Executive
    attends meetings of the committee (save when his own remuneration is under
    consideration). The functions of the committee are to determine remuneration
    policy (including share option and incentive arrangements) for the executive
    directors and senior managers in the group and determine the amount of remuneration
    to be paid.

During the year ended December 31,
    2004, the aggregate amount set aside or accrued by Avecia Group plc to provide
    pension, retirement or similar benefits for directors and officers of Avecia
    Group plc, who are members of the Avecia Group pension scheme, pursuant to
    any existing plan provided or contributed to by the company was £59,460.

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Avecia Group plc20-FYear ended December 31, 2004

Employees

The following tables set out employee
    figures by business and by geographic region.

|                               |  | Avecia Group
          plc Consolidated                  | 
|------------------------------ |  | -------------------------------------------------------- | 
|Period end number of employees |  | For the 
      year
          endedDecember 31,
    2004 | 
|                               |  |                                                          | 
|United Kingdom                 |  | 1,312                                                    | 
|Continental Europe             |  | 564                                                      | 
|The Americas                   |  | 483                                                      | 
|Asia, Africa and Australasia   |  | 24                                                       | 
|                               |  |                                                          | 
|                               |  | 2,383                                                    | 
|                               |  |                                                          | 

|                               |  | Avecia Group
          plc Consolidated | 
|------------------------------ |  | --------------------------------------- | 
|Period end number of employees |  | For the
      yearendedDecember 31,2004 | 
|                               |  |                                         | 
|Biotechnology                  |  | 554                                     | 
|Chemicals                      |  | 698                                     | 
|Electronic materials           |  | 410                                     | 
|NeoResins                      |  | 636                                     | 
|Specialty products             |  |                                        | 
|Other                          |  | 85                                      | 
|                               |  |                                         | 
|                               |  | 2,383                                   | 
|                               |  |                                         | 

Following the disposal of the NeoResins
    and Displays businesses, the number of employees has reduced to approximately
    1,670. Of the current employees approximately 300 work in research and development
    and technical services, 1,000 are employed in manufacturing and 400 are employed
    in the marketing and selling of products and administration of the businesses.
    Approximately 900 of these employees are members of trade unions.

Responsibility for employees rests
    with the separate businesses and functional departments. The human resources
    function is partly centralized at Manchester for the UK and Wilmington, Delaware
    for the US, from where employee-related matters such as salaries and benefits,
    training and development, health and safety and communications issues are
    coordinated.

Most of the employees are on full-time
    permanent contracts. As most operations are relatively complex and require
    advanced skills and knowledge, the level of employee commitment is highly
    valued. Extensive training programs exist at all locations covering all levels
    of workforce, including senior management.

Historically, the business has enjoyed
    good labor relationships and is committed to maintaining these relationships.
    There has been no significant labor dispute in any of the business’s
    sites since the formation of Avecia. A constructive approach to union relationships
    is taken where there are unionized sites and the business has been able to
    secure the co-operation of both unions and the workforce with regard to significant
    changes and the process of continuous improvement.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 37
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

Share ownership

None of the directors or executive
    officers of Avecia Group plc who served during the period own or have options
    to purchase securities from the registrant or its subsidiaries.

Item 7 Major
      shareholders and related party transactions

Major shareholders

Avecia Group plc is a wholly owned
    subsidiary of Avecia Finance plc, which is itself a wholly owned subsidiary
    of Avecia Holdings plc. Avecia Holdings plc is owned by Avecia (Jersey) Limited.
    Avecia (Jersey) Limited is controlled by the affiliates of Investcorp SA
    and Cinven Limited.

|Investcorp          | Cinven            
|------------------- | ------------------
|Investcorp House    | Warwick Court     
|48 Grosvenor Street | Paternoster Square
|London              | London            
|W1Y 6DH             | EC4M 7AG          

The major shareholders do not have
    different voting rights. The voting rights of preference shareholders are
    described in Item 10. Avecia does not know of any arrangements, the operation
    of which might result in a change in control of the company.

Related party transactions

In June 1999, Cinven and Investcorp
    S.A. jointly directed the formation of Avecia, and its acquisition of the
    Zeneca Specialties business. Cinven and Investcorp S.A. continue to provide
    consulting services to the Group, for which they may receive payments of
    up to £400,000 per annum. In January 2002 Avecia completed the sale
    of its Stahl business to Luxembourg 101 S.A. and its affiliates. The final
    cash payment was received in January 2003. The purchase of Stahl from Avecia
    was managed by Investcorp S.A. on behalf of Luxembourg 101 SA and its affiliates,
    which under the terms of the Bond Indenture means that Luxembourg 101 SA
    is considered a related party. The sale of the Stahl business was therefore
    conducted under the terms of the bond indenture relating to related party
    transactions.

Other than with respect to employment
    agreements and compensation arrangements, there have been no material transactions
    between the company and management during the period covered by this 2004
    20-F (or in any previous year in the last three years), nor are there presently
    proposed to be any material transactions, to which the company or any of
    its subsidiaries was or is a party and in which any director or executive
    officer, or ten per cent shareholder, or any relative or spouse thereof had
    or is to have a direct or indirect material interest.

During such periods there has been
    no, and at present there is no, material outstanding indebtedness to the
    company owed or owing by an director or executive officer of the company
    or any associate thereof.

Item 8 Financial
      information

Consolidated financial statements
      and other financial information

Refer to item 18 for details of
      the financial statements included in this annual report.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 38
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

Legal proceedings

The company is involved from time
    to time in various claims and law suits incidental to the ordinary course
    of the business, such as contract disputes, product liability, personal injury
    claims and workers’ compensation claims. The company maintains insurance
    and in certain circumstances has recourse to AstraZeneca and, to the extent
    that the amounts in dispute may not be covered by such insurance, maintains
    provisions in those situations where management deems it appropriate.Although we believe our insurance
    coverage is adequate, we could, however, be required to pay a material amount
    if a claim is made against us that is not covered by insurance or for which
    we are not otherwise indemnified. Any such claim could have a material adverse
    effect on our financial condition and results of operations.

Export sales

Turnover by geographic destination
    is shown in Note 3 ‘Segmental Information’ for the years ended
    December 31, 2004 and 2003. The percentage and amount of export sales in
    the total amount of sales volume for the year ended December 31, 2004 is
    summarized below:

|Sales destination                    |  |  | Sales value £million   |  |  | Percentage oftotal sales value | 
|------------------------------------ |  |  | ---------------------- |  |  | ------------------------------ | 
|                                     |  |  |                        |  |  |                                | 
|Europe                               |  |  | £205.5
        million |  |  | 50.5%                          | 
|The Americas                         |  |  | £141.4 million         |  |  | 34.7%                          | 
|Asia, Africa
        and Australasia |  |  | £60.3
        million  |  |  | 14.8%                          | 

Dividends

Avecia Group plc is obliged to pay
    dividends to its preference shareholders at a fixed rate per annum of 16%
    of the issue price.

Significant changes

On February 2, 2005, Avecia completed
    the sale of the NeoResins business to DSM for a consideration of €515
    million. The business’ operating subsidiaries together with the principal
    manufacturing sites are included in the sale. Approximately 635 employees
    transferred to DSM on completion.

On February 28, 2005, Avecia completed
    the sale of the Displays and Organic Semiconductors business to Merck KgaA
    for a consideration of €50 million. The principal research and manufacturing
    site of the business at Frankfurt in Germany is included in the sale. Approximately
    74 employees have transferred to Merck KgaA on completion.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 39
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

Item 9 The offer
      and listing

Price history

Avecia Group plc is a wholly owned
      subsidiary of Avecia Holdings plc and accordingly, shares in Avecia Group
      plc are not publicly traded. The table below sets out for the year ended
      December 31, 2004 and for the quarters and months indicated, the reported
      high and low market values for the 11% senior notes due 2009, based on
      financial information provided by Datastream:

|                                               |  |  | Luxembourg
          Stock Exchange per 11% senior note due 2009 | 
|---------------------------------------------- |  |  | ---------------------------------------------------------------- | 
|                                               |  |  |                                                                  | 
|                                               |  |  | High                                                             | 
|Annual high and low market
          prices    |  |  |                                                                  | 
|Year ending December 31, 2002                  |  |  | 104.0                                                            | 
|Year ending December 31, 2003                  |  |  | 93.0                                                             | 
|Year ending December 31, 2004                  |  |  | 102.6                                                            | 
|                                               |  |  |                                                                  | 
|Quarterly high and low market
          prices |  |  |                                                                  | 
|Quarter ending March 31, 2003                  |  |  | 84.1                                                             | 
|Quarter ending June 30, 2003                   |  |  | 89.5                                                             | 
|Quarter ending September 30,
        2003      |  |  | 90.0                                                             | 
|Quarter ending December 31,
        2003       |  |  | 93.0                                                             | 
|Quarter ending March 31, 2004                  |  |  | 94.3                                                             | 
|Quarter ending June 30, 2004                   |  |  | 87.8                                                             | 
|Quarter ending September 30,
        2004      |  |  | 86.9                                                             | 
|Quarter ending December 31,
        2004       |  |  | 102.6                                                            | 
|Quarter ending March 31, 2005                  |  |  | 105.4                                                            | 
|                                               |  |  |                                                                  | 
|Monthly high and low market
          prices   |  |  |                                                                  | 
|October 2004                                   |  |  | 94.5                                                             | 
|November 2004                                  |  |  | 94.4                                                             | 
|December 2004                                  |  |  | 102.6                                                            | 
|January 2005                                   |  |  | 105.4                                                            | 
|February 2005                                  |  |  | 105.4                                                            | 
|March 2005                                     |  |  | 105.1                                                            | 

Markets

The outstanding exchange 11% senior
    notes due 2009 are listed on the Luxembourg Stock Exchange. The 16% redeemable
    pay-in-kind preference shares due 2010 are not registered for trading on
    any exchange.

The ordinary shares, preference shares
    and deferred shares of the company are not listed for trading on any exchange.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 40
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

Item 10 Additional
      information

Memorandum and articles of association

General

Avecia Group plc was incorporated
    under the Companies Acts of England and Wales 1985 to 1989 as a public company
    limited by shares, registered under company number 3768265. The object for
    which the company was established can be found in Section IV of its Memorandum
    of Association, being to carry on business as a general commercial company.

Directors

Directors’ interests

Provided that a director who is interested
    in a contract declares the nature of his interest at a meeting of the directors,
    that director may vote in respect of any contract or proposed contract or
    arrangement in which he is interested, and if he does vote his vote shall
    be counted and he will be counted in the quorum for the meeting.

Directors’ remuneration

The aggregate remuneration (if any)
    of the directors is determined by an ordinary resolution of the company.
    The aggregate remuneration is divided among the directors as they may agree.
    The directors may not vote compensation to themselves or any member of their
    body. The directors, without the approval of any resolution of the company,
    may establish and contribute to an employee’s share scheme, option
    or incentive schemes and pension and life assurance funds.

Directors’ powers

The directors may borrow and raise
    money, including the giving of any guarantee, contract of indemnity or suretyship
    and the grant of any security, mortgage, charge or discharge for any debt
    or obligation of the company in any manner or way in which the company itself
    is empowered so to raise, give or grant.

Directors’ term of office
      and shareholding requirements

The directors are not required to
    retire by rotation and there is no age limit at which a director must retire.
    A director need not hold shares in the company in order to qualify for office
    as a director.

Share rights

Avecia Group plc has issued both
    US dollar denominated preference shares and sterling ordinary shares. The
    preference shares have a nominal value of US$1 each and were issued with
    a premium of US$24 each, giving an issue price of US$25. The ordinary shares
    have a nominal value of £1 each. The ordinary shares rank pari passu among
    themselves. The preference shareholders have certain income, redemption and
    repayment rights in priority to the holders of the ordinary shares.

Dividends

The preference shareholders have
    the right to receive dividends in priority to the ordinary shareholders at
    a fixed rate per annum of 16% of the issue price together with any arrears
    or accruals of dividends. There is provision for the payment of additional
    dividends to the preference shareholders if there is a default in the registration
    rights attaching to the preference shares. After July 1, 2004, to the extent
    that the company is unable to pay the dividends upon the preference shares
    in cash, the liability for the unpaid dividend will accrue interest at 18%
    per annum, until such time as the unpaid dividend and accrued interest are
    paid. Ordinary shareholders are entitled to dividends only as and when declared
    by the company.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 41
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

Capital

The preference shareholders have
    priority of repayment of capital on a winding up or other return of capital.
    Capital must be applied first in repayment of the issue price of the preference
    shares plus any unpaid arrears and accruals of dividends. Any balance is
    returned to the holders of the ordinary shares.

Redemption

The company may redeem all or any
    of the preference shares after January 1, 2005 at a redemption price per
    share equal to 108% of the liquidation preference ($25 per share). After
    January 1, 2006 this redemption premium reduces to 105.333%. All outstanding
    preference shares must be redeemed on July 1, 2010 at 100% of the issue price.

Board representation

The holders of the preference shares
    may appoint one person to be a non-executive director of the company in certain
    circumstances, including the failure by the company to redeem the preference
    shares when it is obliged to do so and if, after July 1, 2004, three or more
    instalments of the fixed dividend on the preference shares are not paid in
    full.

Variation of rights

The rights attaching to each class
    of shares may only be varied with the consent in writing of more than three
    quarters of the issued shares of that class or with the sanction of an extraordinary
    resolution passed at a separate general meeting of the holders of that class.

Voting

The preference shares do not carry
    voting rights in respect of general meetings of the company. However in the
    event that a resolution is proposed affecting the rights of the preference
    shareholders in relation to the repayment of capital, the variation of the
    rights attaching to the preference shares or for the winding up or liquidation
    of the company, then the holders of the preference shares shall be entitled
    to receive notice of, attend and vote at such general meetings. Ordinary
    shares carry full voting rights.

Annual and extraordinary general
      meetings

The annual general meeting of the
    company, and any extraordinary general meeting called for passing a special
    resolution, require twenty-one clear days’ notice. Other extraordinary
    general meetings may be convened by fourteen clear days’ notice. Shorter
    notice periods may be given if in the case of an annual general meeting,
    all members entitled to attend and vote agree and, in the case of an extraordinary
    general meeting, ninety-five percent of members entitled to attend and vote
    agree. Any notice of a general meeting of the company must specify the time
    and place of the meeting and state the general nature of the business to
    be transacted.

The quorum at a general meeting is
    generally set at one member.

Transfers of shares and change
      of control

There are provisions regulating the
    sale and transfer of ordinary shares in the event that such a sale and transfer
    would result in less than 50% of the issued ordinary shares of the company
    being held by Avecia Finance plc. No such transfer of shares will be permitted
    unless all the holders of the preference and ordinary shares are entitled
    to sell their shares to the proposed purchaser on the same terms and conditions
    as the original offer was made.

If a sale and transfer of shares
    is proposed which would result in certain changes in the beneficial ownership
    of the company, an offer must be made by the company to redeem all the preference
    shares.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 42
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

Disclosure requirements

The Companies Act 1985 applies to
    the disclosure of share ownership in the company. The initial threshold for
    disclosure of shareholding is that any person having a material interest
    in 3% or more of the ordinary shares of the company will be required to notify
    the company of his holding. A person having an interest, material or otherwise,
    in 10% or more of the ordinary shares of the company will also be required
    to notify the company of his holding. The requirements of the City Code of
    Takeovers and Mergers will apply to any shareholder seeking to increase his
    holdings in the company above certain thresholds.

Material contracts

The company has not entered into
    any material contracts outside the ordinary course of the business.

Exchange controls

There are no UK foreign exchange
    controls currently in force that restrict the export or import of capital
    or which affect the remittance of interest, dividends or other payments to
    non UK resident holders of the company’s securities (except as otherwise
    detailed in Taxation section below).There
    are no limitations imposed by UK law or the company’s memorandum and
    articles of association which restrict the right of non UK resident or non
    UK citizen owners to hold or
    vote the securities of the company.

Taxation

11% senior notes due 2009

UK tax considerations

The following summary describes the
    principal United Kingdom tax consequences of the ownership of the 11% senior
    notes due 2009 (hereinafter referred to as ‘the notes’). Except
    where stated otherwise, this description deals only with the position of
    persons who are the absolute beneficial owners of their notes.

Avecia does not address all the tax
    consequences that may be relevant to a note holder. Nor do they address any
    of the tax consequences to holders that may be subject to special tax treatment,
    such as dealers in securities. The discussion below is generally based upon
    current United Kingdom tax laws and United Kingdom Inland Revenue practice
    in effect as at the date of this document which may be subject to change
    possibly on a retroactive basis.

Prospective investors are advised
    to consult their own tax advisers concerning United Kingdom tax consequences
    in the light of their particular situations as well as any consequences arising
    under the law of any other relevant tax jurisdiction. Avecia make no representations
    with respect to the tax consequences to any particular holder of notes.

Interest on the global notes and
      definitive notes

The global notes and definitive notes
    constitute “quoted Eurobonds” within the meaning
    of section 349(4) of the Income and Corporation Taxes Act 1988 (“ICTA”)
    as long as they continue to be listed on a “recognized stock
    exchange” within the meaning of section 841 of ICTA. The Luxembourg
    Stock Exchange is currently recognized for these purposes. Payments of interest
    on the global notes may be made without withholding on account of United
    Kingdom income tax.

If a UK collecting agent receives
    interest on the notes on your behalf and pays it on to you, the collecting
    agent may be required to make a return of information to the Inland Revenue
    under section 18 TMA1970.

Interest on the notes may be subject
    to income tax by direct assessment even where paid without withholding as
    it will be United Kingdom source income for United Kingdom tax purposes.
    If you are a holder who is not resident in United Kingdom and UK source interest
    is received without deduction or withholding of UK tax you will not be chargeable
    to UK tax unless you carry on a trade, profession or vocation in the United
    Kingdom through a United Kingdom branch or agency in connection with which
    theinterest is received or to which
    the notes are attributable. There are exemptions for interest received by certain categories of agent (such as some brokers and investment managers).

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 43
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

United Kingdom corporate taxpayers

If you are a corporate note holder
    within the charge to United Kingdom corporation tax you will in general be
    charged to tax on all returns on and fluctuations in value of the notes (whether
    attributable to currency fluctuations or otherwise) broadly in accordance
    with your statutory accounting treatment. You will generally be charged to
    tax in each accounting period by reference to interest accrued in that period
    and any profit or loss which, in accordance with your authorized accounting
    method, is applicable to that period.

Other United Kingdom taxpayers

Taxation of chargeable gains. The
    notes do not constitute “qualifying corporate bonds” within
    the meaning of section 117 of the Taxation of Chargeable Gains Act 1992.
    If you are a note holder resident or ordinarily resident in the United Kingdom
    or carry on a trade, profession or vocation in the United Kingdom to which
    the notes are attributable, you may, depending on your circumstances, realize
    a chargeable gain or an allowable loss for the purposes of the United Kingdom
    taxation of chargeable gains upon a disposal of the notes.

Accrued income scheme. If
    you are a note holder who is resident or ordinarily resident in the United
    Kingdom or carries on a trade in the United Kingdom through a branch or agency
    to which the notes are attributable, who sells redeems or otherwise disposes
    of your notes, any interest which has accrued since the last interest payment
    date (or where no interest payment date has accrued, the issue of the notes)
    may be chargeable to tax as income.

Stamp duty and stamp duty reserve
      tax

You will not be subject to United
    Kingdom stamp duty or stamp duty reserve tax on the issue to you or the transfer
    by delivery of notes.

EU withholding tax directive

In June 1998, the European Commission
    presented to the Council of Ministers of the European Union a proposal for
    a Council Directive to ensure a minimum of effective taxation of savings
    income in the form of interest payments within the Community. The European
    Union has released a draft proposed European Union Savings Directive following
    agreement reached by Member States at the Feira European Council in June
    2000 and the EU’s Council of Finance Ministers in November 2000.

Under Section 199 Finance Act 2003,
    the UK Treasury has made regulations to implement this directive into UK
    law (I 2003/3297). It came into force on 1 January 2005.

Under the directive, prescribed UK
    paying agents will have to report details of the income and the payee to
    the Inland Revenue, who will then pass on the information to the corresponding
    tax authority in the payee’s country of residence. Similar information
    regarding UK resident payees will flow in the other direction. Austria, Belgium
    and Luxembourg are expected to impose, for a transitional period, a withholding
    tax as an alternative to exchanging information.

US Federal income tax considerations

The following discussion describes
    the material US federal income tax consequences of the ownership and disposition
    of the notes by US holders (as defined below). This discussion applies to
    you only if you hold the notes as capital assets within the meaning of section
    1221 of the Internal Revenue Code of 1986, as amended, (the ‘Internal
    Revenue Code’) and purchased the notes for cash pursuant to the original
    offering at their initial issue price. This description is based on the Internal
    Revenue Code, Treasury regulations promulgated thereunder, IRS rulings and
    pronouncements and judicial decisions all as in effect on the date of this
    annual report. All of these authorities are subject to change, possibly with
    retroactive effect. This discussion does not include any description of any
    state, local, estate or foreign tax consequences.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 44
|                           |   

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Avecia Group plc20-FYear ended December 31, 2004

A “
US Holder”
 is a beneficial owner of a note that for US federal income tax purposes is a citizen or individual resident of the United States; a corporation (or any other entity taxable as a corporation for US  federal income tax purposes) created or organized in or under the laws of the United States or any state thereof (including the District of Columbia); an estate the income of which is subject to US federal income taxation regardless of its source; or a trust if a US court can exercise primary supervision over its administration, and one or more US persons have the authority to control all of its substantial decisions.

This discussion does not address all of the tax consequences that may be relevant to you. This discussion also does not address any of your tax consequences if you are subject to special tax treatment because you are a bank or other financial institution, United States expatriate, tax-exempt organization, regulated investment company, insurance company, dealer or trader in securities or currencies, or otherwise, your functional currency is not the US dollar, or you hold the notes as part of a position in a straddle or as part of a hedging, conversion or other integrated transaction, among others. If a partnership holds notes, the tax treatment of a partner generally will depend upon the status of the partners and the activities of the
partnership.  A partner in a partnership that holds the notes is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of the notes.

You are advised to consult your own tax advisors to determine the US federal tax consequences of owning and disposing of the notes in light of your own particular circumstances, as well as to determine the effect of any state, local, estate or foreign tax laws on you.

Interest on the notes

You will be taxed either when you receive interest or as you accrue interest, depending on your method of accounting for tax purposes. If you use the cash method of accounting, you are required to include the interest in your income when it is paid or payable. If you use the accrual method of accounting, you are required to include the interest in your income when it is earned, even though you may not actually receive a payment of interest at that time.

You will have to treat the interest that you include in income as foreign source income. In computing your foreign tax credit, with certain exceptions, you will have to treat the interest you include in income as “
passive”
 or “
financial services”
 income, which you treat separately from your other types of income. Under recently enacted legislation, for taxable years beginning after December 31, 2006, interest income generally will constitute “passive category” income or in the case of certain US Holders, “general category” income.

Disposition of notes

When you sell or otherwise dispose of a note, including when, if ever, the group redeems or retires a note that you hold, you will recognize taxable gain or loss equal to the difference between the amount you realize on your disposition of your note and your adjusted tax basis in your note. For this calculation, you should exclude from the amount you realize the amount that is attributable to your accrued but unpaid interest, which you must treat as taxable ordinary interest income. Your adjusted tax basis in a note generally will be your purchase price for the note.

Pay-in-kind preference shares

UK tax considerations

The following discussion summarizes certain UK tax consequences of the ownership of pay-in-kind preference shares. Except where stated, it deals only with a holder of pay-in-kind preference shares who holds pay-in-kind preference shares as capital assets and does not deal with special situations such as that of dealers in securities or where the dividends on the pay-in-kind preference shares are, for tax purposes, deemed to be the income of any other person.

Taxation of dividends

UK holders of pay-in-kind preference shares

Under current UK taxation legislation, no withholding tax will be deducted from dividends paid by us.



|Registered number: 3768265 | 45
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Avecia Group plc20-FYear ended December 31, 2004

Dividends paid in cash

A UK holder who is a UK resident individual who receives a cash dividend on the pay-in-kind preference shares will be entitled to a tax credit of an amount equal to 10% of the combined amount of the cash dividend and tax credit.

An individual so resident whose income is within the lower or basic rate tax bands will be liable to tax at 10% on the total of the cash dividend and the related tax credit and the tax credit will satisfy his income tax liability on the cash dividend. If the tax credit exceeds the individual’s liability to income tax on the total cash dividend and tax credit, the individual will not be able to claim payment of the excess. Higher rate taxpayers will be liable to tax on the dividend at the rate of 32.5% of the aggregate of the cash dividend received and the tax credit.

Subject to certain exceptions (inter alia particularly applicable to financial traders), a UK holder of pay-in-kind preference shares which is a UK resident company and which receives a dividend paid by the group will not be taxable on the dividend. The dividend and related tax credit will be treated as franked investment income. Such tax credit will be an amount equal to one ninth of the dividend. Pension providers and most UK resident companies are not entitled to the payment of tax credits in respect of dividends paid to them.

US holders of pay-in-kind preference shares

A new US  UK income tax treaty came into force during 2003. US holders are no longer entitled to receive from the Inland Revenue payments equal to the amount of tax credits, as reduced by withholding taxes. Under the terms of the new tax treaty, withholding taxes on dividends are reduced in certain circumstances. However under UK domestic tax law, no withholding taxes are deducted from dividends paid by UK companies.

Dividends paid by the issuance of additional pay-in-kind preference shares

UK holders of pay-in-kind preference shares

The issuance of additional pay-in-kind preference shares paid up out of share premium account by Avecia to a UK holder of pay-in-kind preference shares should not give rise to a liability upon the holder to UK income tax or, in respect of corporate shareholders, corporation tax unless treated as a capital distribution for the purposes of corporation tax on chargeable gains, see “
 Taxation of Capital Gains”
.. As such additional pay-in-kind preference shares will be paid up out of the share premium account, they will be deemed to be issued for new consideration for UK tax purposes and therefore the receipt of such shares by existing pay-in-kind preference shareholders will not give rise to a tax
charge.

UK taxation of capital gains

UK capital gains tax (or, for companies, corporation tax on chargeable gains) applies to a UK holder on the disposal (including on redemption) of preference shares, ordinary pay-in-kind preference shares, if held as a capital asset.

On such disposal the capital gain or allowable loss is calculated by reference to the difference between the acquisition cost for UK tax purposes and the net proceeds realized. The issue price of each unit was allocated between the pay-in-kind preference share and the warrant based on a reasonable estimate of the relative fair market value of the warrants and the pay-in-kind preference shares on the issue date. £13.79 was allocated to each of the pay-in-kind preference shares.  It is assumed that the Inland Revenue will accept such allocation for the purposes of the base cost of the warrants and the pay-in-kind preferred shares.

For disposals by holders of pay-in-kind preference shares other than companies subject to UK corporation tax, the amount of any gain brought into charge to tax will be reduced by reference to tapering relief depending on the period of ownership.



|Registered number: 3768265 | 46
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Avecia Group plc20-FYear ended December 31, 2004

Capital gains realized by UK holders who are individuals are currently taxed at the highest marginal tax rate applicable to the individual’s income (subject to exemptions and relieves including the annual exemption  which is currently £8,200). Chargeable gains of UK holders who are companies are taxed at 30% for the financial year 1999 (subject to lower rates for small companies).

If a holder of pay-in-kind preference shares who is resident or ordinarily resident in the United Kingdom receives additional pay-in-kind preference shares his existing pay-in-kind preference shares and the additional pay-in-kind preference shares will be treated for the purposes of UK taxation of chargeable gains as the same asset acquired at the same time as his existing pay-in-kind preference shares. The exchange of pay-in-kind preference shares for exchange preference shares should not normally give rise to a liability to capital gains tax in respect of UK holders.

If a holder of pay-in-kind preference shares who is so resident disposes (including upon redemption) of the whole or part of his enlarged holding of pay-in-kind preference shares, he may, depending upon his individual circumstances, incur a liability to United Kingdom taxation of the chargeable gain.

A US holder that is not resident or ordinarily resident for tax purposes in the UK will not be liable for UK tax on capital gains on the disposal of the pay-in-kind preference shares unless the US holder carries on a trade, profession or vocation in the UK through a branch or agency and such shares are or have been used by, held by, or acquired for use by or for the purpose of such trade, profession, vocation, branch or agent.

UK stamp duty and stamp duty reserve tax

Stamp duty reserve tax, generally at a rate of 1/2 % on the consideration, is currently payable on any agreement to transfer shares or any interest therein unless: (i) an instrument transferring the shares is executed; and (ii) stamp duty, generally at a rate of 1/2 % is paid. The duty will, however, be refundable if within six years the agreement is completed by an instrument which has been duly stamped, generally at the rate of 1/2 %. Generally, however, neither stamp duty or stamp duty reserve tax should be payable on the transfer of interests in shares under the applicable procedures of a clearing agency.

Stamp duty is currently payable at the rate of 1 1/2 % on the transfer or issue of shares to the custodian of a depository or the nominee of a clearing agency on the value of such shares. Avecia has agreed to pay any tax or duty arising pursuant to the arrangements relating to the deposit of the pay-in-kind preference shares and the additional pay-in-kind shares, in a clearing agency as described in this prospectus.

US Federal income tax considerations

The following discussion is a summary of the material US federal income tax considerations relevant to the ownership and disposition of the pay-in-kind preference shares by holders who purchased the pay-in-kind preference shares for cash at their original “
issue price”
 pursuant to the units offering. For this purpose, the “
issue price”
 is the first price to the public (not including bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers) at which a substantial amount of the pay-in-kind preference shares is sold for money. This summary does not purport to be a complete analysis of all potential tax effects, and pertains
only to a holder or beneficial owner of pay-in-kind preference shares who is a “
US Holder”
 as defined above under “
The Notes  US Federal Income Tax Considerations”
..

The discussion is based upon US and UK tax laws, including the Internal Revenue Code, Treasury regulations promulgated thereunder, IRS rulings and pronouncements and judicial decisions and the US-UK double tax convention relating to income and capital gains which entered into force on March 31, 2003 and the protocols there to (the “New Treaty”) and the prior US-UK double tax convention relating to income and capital gains (the “Prior Treaty”) which no longer is in force, all as in effect on the date of this annual report, all of which are subject to change at any time, possibly with retroactive effect.

The discussion does not address all of the US federal income tax consequences that may be relevant to a US Holder in light of such Holder’s particular circumstances or to US Holders subject to special rules, such as banks and other financial institutions, insurance companies, dealers in securities, tax-exempt entities, regulated investment companies US expatriates and persons holding the pay-in-kind preference shares as part of a “
straddle”
, “
hedge”
 or “
conversion transaction”
.. Moreover, the effect of any applicable state, local or foreign tax laws is not discussed. The discussion deals only with pay-in-kind preference shares held as “
capital
assets”
 within the meaning of section 1221 of the Internal Revenue Code. If a partnership holds pay-in-kind preference shares, the tax treatment of a partner generally will depend upon the status of the partners and the activities of the partnership. A partner in a partnership that holds such shares is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of the pay-in-kind preference shares.



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Avecia Group plc20-FYear ended December 31, 2004

Avecia has not sought and will not seek any ruling from the IRS with respect to its position discussed below.  There can be no assurance that the IRS or a US court will not take a different position concerning the tax consequences of the ownership or disposition of the pay-in-kind preference shares.

Allocation of unit purchase price between pay-in-kind preference shares and warrants

The issue price of each unit was allocated between the pay-in-kind preference share, the preference warrant and the ordinary warrant based on a reasonable estimate of the relative fair market values of each such component of the unit on the issue date. With respect to each unit, Avecia intends to allocate approximately £13.79 to each pay-in-kind preference share and approximately £1.41 to each ordinary warrant and approximately £0.33 to each preference warrant. Each US Holder of pay-in-kind preference shares will be bound by such allocation for US federal income tax purposes unless such US Holder discloses on a statement attached to its tax return for the taxable year that includes the acquisition date of such unit that its
allocation differs from this allocation. No assurance can be given that the IRS will accept this allocation. If this allocation were successfully challenged by the IRS, the issue price, the amount of redemption premium accrual on the pay-in-kind preference shares, and gain or loss on the sale or other disposition of a pay-in-kind preference share or warrant would be different from that resulting under the allocation determined by Avecia.

Distributions

Distributions on the pay-in-kind preference shares, whether paid in cash or in additional pay-in-kind preference shares (and including any deemed distributions resulting either from a redemption premium on the pay-in-kind preference shares or upon a redemption of the pay-in-kind preference shares, all as discussed below), will be taxable as foreign source ordinary dividend income to a US holder to the extent paid (or deemed paid) out of Avecia’s current or accumulated earnings and profits (as determined for US federal income tax purposes). To the extent that the amount of a distribution exceeds current and accumulated earnings and profits, the distribution will be treated as a return of capital, thus reducing the US Holder’s adjusted
tax basis in such pay-in-kind preference shares. The amount of any such excess distribution that is greater than the US Holder’s adjusted basis in the pay-in-kind preference shares will be taxed as capital gain. For purposes of the remainder of this discussion, the term “
dividend”
 refers to a distribution paid out of allocable earnings and profits, unless the context indicates otherwise. Dividends received by corporate US Holders will not be eligible for the dividends-received deduction allowed under section 243 of the Internal Revenue Code.

There currently is no withholding tax on dividends paid by UK companies under UK tax legislation or under the New Treaty.  Accordingly, Avecia is not required to withhold tax at source from dividend payments it makes or from any amount (including any amounts in respect of any accrued dividends) distributed by Avecia.  Before May 1, 2004, if a US Holder would have been entitled to greater benefits under the Prior Treaty, that US Holder could have elected to continue to apply the Prior Treaty to dividend payments on the pay-in-kind preference shares made before that date.  Because payments of dividends by Avecia to US Holders are not subject to UK withholding tax, it is not necessary to apply the New Treaty in order to receive a reduced rate of
withholding.  Since there is no UK withholding tax on payments of dividends to US Holders, US Holders will not be entitled to a foreign tax credit for foreign taxes paid as a result of any dividend payments made with respect to the pay-in-kind preference shares.

If a US Holder is a non-corporate US Holder, any dividends paid to it with respect to the pay-in-kind preference shares prior to January 1, 2009 that constitute “qualified dividend income” generally will be taxable at a maximum rate of 15%, provided that the US Holder satisfies certain holding period and other requirements, and Avecia also meets certain requirements, including that either (i) the pay-in-kind preference shares with respect to which the dividend has been paid are readily tradable on an established securities markets in the United States or (ii) Avecia is eligible for the benefits of the New Treaty.  Avecia currently believes that dividends paid with respect to its pay-in-kind preference shares should constitute
qualified dividend income for US federal income tax purposes, however, this is a factual matter and may be subject to change.  The US Treasury and the US Internal Revenue Service have announced their intention to promulgate rules pursuant to which US Holders of shares, among others, will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends.  Non-corporate US Holders are urged to consult their own tax advisors regarding the availability to them of the reduced dividend rate in light of their own particular situations.  Non-corporate US Holders also should be aware that if the IRS took a different position concerning the tax characterization of the pay-in-kind preference shares, any dividends paid to them by Avecia with respect to
the pay-in-kind preference shares would not be eligible for the reduced tax rate.



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Avecia Group plc20-FYear ended December 31, 2004

Distributions of additional pay-in-kind preference shares

Pursuant to section 305(b) of the Internal Revenue Code, a distribution in the form of additional pay-in-kind preference shares will be treated as a taxable distribution, and therefore will be a dividend to the extent paid out of Avecia’s current or accumulated earnings and profits. See “
 Distributions”
.. The amount of the distribution will be equal to the fair market value of the distributed pay-in-kind preference shares on the date of distribution (which generally will equal the related amount of the cash distribution that would have been payable by Avecia had the distribution not been paid in kind).  A US Holder’s initial tax basis in any additional pay-in-kind preference shares distributed by Avecia
will be equal to the amount that the US Holder is required to include in income in respect of such shares, which generally will be equal to the fair market value thereof on the date of distribution. The US Holder’s holding period for any such additional shares will begin on the day following the date of their distribution.

Redemption Premium

The redemption price of the pay-in-kind preference shares issued in the units offering exceeds their issue price by more than a de minimis amount. As a result, under section 305(c) of the Internal Revenue Code, such excess (the “
redemption premium”
) will be treated as a constructive distribution of additional pay-in-kind preference shares on pay-in-kind preference shares, which is required to be included in income by a US Holder as a distribution over the term of the pay-in-kind preference shares using a constant yield method similar to that used for accruing original issue discount on debt instruments.

For this purpose, the issue price of a pay-in-kind preference share acquired in the units offering will be equal to the portion of the issue price of a unit properly allocable to the pay-in-kind preference share, as described above in “
 Allocation of unit purchase price between pay-in-kind preference shares and warrants”
.. As a result, a US Holder will recognize taxable income before receiving cash payments to which such income is attributable.

US Holders are advised to consult their own tax advisors regarding the application of the redemption premium rules to the pay-in-kind preference shares.

Redemption

If a redemption of the pay-in-kind preference shares for cash is treated as a sale or exchange under section 302 of the Internal Revenue Code, the redemption would result in capital gain or loss equal to the difference between the amount of cash and the fair market value of any other proceeds received in such redemption and the US Holder’s adjusted tax basis in the pay-in-kind preference shares redeemed in the manner described below under “
 Sale or Other Disposition”
.. Alternatively, if a redemption of pay-in-kind preference shares is treated as a distribution, the redemption distribution will be taxable as a dividend to the extent of Avecia’s current or accumulated earnings and profits (as determined
for federal income tax purposes). See “
 Distributions”
..

A redemption of pay-in-kind preference shares for cash generally will be treated as a sale or exchange under section 302 of the Internal Revenue Code only if:

i.  after the redemption the US Holder
    does not own, actually or constructively within the meaning of section 318
    of the Internal Revenue Code, any of Avecia’sshares,ii  the redemption is “
substantially disproportionate”
 with respect to the redeeming US Holder as such term is defined in section 302(b)(2) of the Internal Revenue Code, or,iii  the redemption is “
not essentially equivalent to a dividend”
 with respect to the redeeming US Holder under section 302(b)(1) of the Internal
 Revenue Code. Whether a redemption qualifies as “substantially disproportionate” or
 as “
not essentially equivalent to a dividend”
as to a US Holder will depend upon all the relevant facts and circumstances at
the time of the redemption.



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Avecia Group plc20-FYear ended December 31, 2004

In particular, although a redemption
    of any preferred shares (such as pay-in-kind preference shares) from a US
    shareholder who does not own (directly or indirectly) any ordinary shares
    in the same company generally would be treated for US tax purposes as “
not
    essentially equivalent to a dividend”
, there is a risk that
    the IRS may take the position that a redemption of pay-in-kind preference
    shares from a US Holder who also owns ordinary shares of Avecia Group
    plc or of Avecia Holdings plc (or warrants to acquire any such ordinary shares)
    that are not also redeemed or contemporaneously disposed of cannot qualify
    as a sale or exchange and instead must be treated as a distribution taxable
    as a dividend. US Holders of both pay-in-kind preference shares and ordinary
    warrants (or ordinary shares of the company or Holdings) should consult their
    own tax advisors on whether any particular redemption of pay-in-kind preference
    shares would be treated as a sale or exchange or alternatively as a distribution
    taxable as a dividend.

Sale or other disposition

Upon the sale, exchange or other disposition of pay-in-kind preference shares, a US Holder generally will recognize gain or loss for US federal income tax purposes in an amount equal to the difference between the amount realized and the US Holder’s adjusted tax basis in the pay-in-kind preference share. In general, a US Holder’s adjusted tax basis in a pay-in-kind preference share is the portion of the issue price of a unit properly allocable to the pay-in-kind preference share (as described above in “
 Allocation of unit purchase price between pay-in-kind preference shares and warrants”
) plus any amount included in gross income as a constructive distribution of redemption premium taxable as a dividend
(as described above in “
 Redemption Premium”
), less the amount of any prior distribution treated as a nontaxable return of capital. Such gain or loss will be a capital gain or loss and will be long-term capital gain or loss if the pay-in-kind preference share was held for more than one year. Gain or loss from the sale or exchange of pay-in-kind preference shares generally will be treated as US source gain or loss for foreign tax credit purposes. In the case of individual US Holders, capital gains are subject to US federal income tax at preferential rates if the prescribed minimum holding periods are met. The deductibility of capital losses is subject to certain limitations.

If a US Holder receives pounds sterling (or another foreign currency) on a redemption, sale or exchange of pay-in-kind preference shares, such holder may recognize ordinary income or loss as a result of currency fluctuations between the date of such redemption, sale or exchange and the date the proceeds are converted into US dollars.

Passive foreign investment company status

Avecia currently believes that it did not qualify as a Passive Foreign Investment Company (a “PFIC”) for the 2004 taxable year for US federal income tax purposes.  PFIC status is a factual determination that must be made at the end of the close of each taxable year of the company, and therefore is subject to change.  If Avecia were to become a PFIC for any taxable year, the tax on distributions on the pay-in-kind preference shares and on any gains realized upon the disposition of such shares may be less favorable than as described herein.  Furthermore, dividend payments made by Avecia in respect of the pay-in-kind preference shares would not be eligible for “qualified dividend income” status and would be taxed at the
higher rates applicable to other items of ordinary income.  US Holders should consult their own tax advisors regarding the application of the PFIC rules to their ownership of the pay-in-kind preference shares.

US Information reporting and backup withholding

A US Holder of notes or pay-in-kind preference shares may be subject to US information reporting and possible backup withholding at a rate of 28% with respect to payments of principal and interest on the notes or dividends paid on the pay-in-kind preference shares or gross proceeds upon a sale or other disposition of any of such securities.  Certain exempt recipients (such as corporations) are not subject to these information reporting requirements.  Backup withholding will not apply to a holder who furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification, or who is otherwise exempt from backup withholding.  Any US persons required to establish their exempt status generally
must furnish IRS Form W-9 (‘Request for Taxpayer Identification Number and Certification’).  Non-US holders generally will not be subject to US information reporting or backup withholding.  However, such holders may be required to provide certification of non-US status in connection with payments received in the United States or through certain US-related financial intermediaries.



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Avecia Group plc20-FYear ended December 31, 2004

Backup withholding is not an additional
    tax; Amounts withheld as backup withholding may be credited against a Holder's
    US federal income tax liability, and a Holder may obtain a refund of any
    excess amounts withheld under the backup withholding rules by filing the
    appropriate claim for refund with the IRS in a timely manner and furnishing
    any required information.

Documents on display

Documents referred to in this document are retained at the company’s registered office at:

PO Box 42Hexagon HouseBlackleyManchester M9 8ZSUnited KingdomTelephone (+ 44) 161 740 1460

Subsidiary information

Details of the subsidiaries of Avecia Group plc are disclosed in ‘Item 4  Information on the company’ under the title ‘Organizational structure’.

Item 11 Quantitative and qualitative disclosures about market risk

All of the figures in Item 11 have been prepared under UK GAAP.

Risk management

The group’s funding, liquidity
    and exposure to interest rate and foreign exchange rate risks are managed
    by the group’s treasury department.  Treasury operations are conducted
    within a framework of policies reviewed and agreed by the board.

The group holds or issues financial instruments for two main purposes:

| | to finance operations; and
|- | --------------------------

| | to manage the interest rate and currency risk arising from its operations and from its sources of finance.
|- | ----------------------------------------------------------------------------------------------------------

These are transacted by specialist treasury personnel and the internal control environment is reviewed regularly.

Excluding risks arising from changes in the market for and prices of individual raw materials, the principal market risks to which Avecia is exposed are:

| | interest rates on debt; and
|- | ---------------------------

| | foreign exchange rates.
|- | -----------------------

The following risk management discussion and the estimated amounts generated from the analytical techniques are forward-looking statements of market risk assuming certain market conditions occur.  Actual results in the future may differ materially from these projected results due to actual developments in the global financial markets.  The analysis methods used by Avecia to assess and mitigate the risks discussed above should not be considered projections of future events or losses.

Interest rate risk

During 2004, the group had an exposure to interest rate risk and, within this category of market risk was most vulnerable to changes in US dollar, sterling and euro interest rates.  To manage interest rate risk, the group manages its proportion of fixed to variable rate borrowings within limits approved by the board, primarily through issuing long term fixed rate and deep discount bonds and variable rate term loans, and by utilizing interest rate swaps and interest rate caps. The group’s policy is to manage its exposure to interest rate fluctuations on its borrowings and deposits by using interest rate swaps and interest rate caps.  The group’s policy is to keep at least 50 per cent of net external debt at fixed or capped rates of
interest for the period of the borrowing.  At the year end and after taking account of interest rate swaps, the proportion of the group’s borrowings at fixed rates was 100% (2003:72%).



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Avecia Group plc20-FYear ended December 31, 2004

See note 19 of the UK GAAP consolidated financial statements for additional information on interest rate risks.

On June 30, 1999 the company issued 11% senior notes with a gross value of $540 million which represents £278.8 million at December 31, 2004 gross of fees.  Net of fees the carrying value of the notes was £272.6 million at December 31, 2004.  The company also issued variable rate senior debt of £470 million (out of a total facility of £485 million) with variable interest rates between LIBOR plus 2% and LIBOR plus 3% which on July 6, 1999 was redenominated into $229 million (with a variable interest rate initially set at 7.7% on $95 million and 8.2% on $134 million) and €497 million with a variable interest rate initially set at 4.6% on €436 million and 5.1% on €61 million.  Effective on August 2, 1999 the
interest rates of a portion of these variable rate loans ($58 million and €131 million) were swapped for fixed rates of 6.53% on the US Dollar loan and 3.83% on the Euro loan, and the interest rates of a further $58 million and  €131 million were capped at rates of 6.5% and 4%, respectively and were effective on August 2, 1999 and June 30, 1999, respectively.  On October 1, 1999 the final £15 million was issued and denominated into €24 million.  On 14th May 2004, all outstanding $ and € senior debt was repaid and £75m drawn in sterling with interest rates fixed six-monthly.  On 30th June 2004 all outstanding interest swaps and caps matured.

Currency risk

The group publishes its financial statements in pounds sterling and conducts businesses in many foreign currencies.  As a result, it is subject to foreign currency exchange risk due to exchange rate movements which will affect the group’s transaction costs and revenues and the translation of the results and underlying net assets of its subsidiaries.

Exchange differences arising on the retranslation of foreign currency net borrowings and foreign exchange swaps are recognized in the statement of total recognized gains and losses to match exchange differences on foreign equity investments, in accordance with the UK accounting standard SSAP 20  Foreign Currency Translation.

For the year ended December 31, 2004, 72% of Avecia’s sales were made outside of the United Kingdom and 60% of the fixed production and cost base was in the UK.  Avecia’s results of operations and financial position are thus significantly impacted by the fluctuation of the pound sterling against the major currencies in which the group transacts, namely the US Dollar, the Euro and the Japanese Yen.

In order to manage Avecia’s currency exposure, part of the debt is denominated in those currencies where the group has positive cash flow.  The Avecia board’s policy is to hedge at least 50% of its projected foreign currency net cash flow after interest and tax.  For those currencies not absorbed by debt service, the group hedges, on a rolling 12 month basis, the translation of a proportion of its forecast future net cash flows denominated in US dollars and Japanese yen with forward foreign currency contacts.  This limits in part the transactional exposure of the group’s net cash flows to movements in exchange rates.  The gain or loss on the hedge is recognized at the same time as the underlying transaction.

In respect of its debt at December 31, 2004, Avecia is exposed to the fluctuation of the US Dollar with regard to the recorded balance sheet amount of such debt.  The fixed rate notes of $540 million are denominated in US Dollars which translated at December 31, 2004 rate equate to £278.8 million gross value (£271.2 million net of unamortized fees); A 10% strengthening compared with the December 31, 2003 rates in the US Dollar exchange rate would result in an overall increase in the recorded amount of the debt of approximately £25.3 million.

Sensitivity analysis

For financial instruments held, the group has used a sensitivity analysis technique that measures the change in the fair value of the group’s financial instruments from hypothetical changes in market rates.Assuming
    December 31, 2004 fixed rate debt levels, using December 31, 2003 exchange
    rates, a one per cent fall in interest rates would adversely impact the fair
value of the fixed rate debt by £14.5 million.

The 16% preference shares of $84.5 million, which were issued on June 30, 1999 are classified within shareholders’ equity for UK GAAP purposes and have been excluded from the above sensitivity analysis.



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Avecia Group plc20-FYear ended December 31, 2004

Liquidity risk

Group policy is to match currency
    cash expenditure with currency cash income subject to the existence of a
    free market for that debt and differences in funding costs between markets.
    Net group borrowings comprise bank debt (£72.9 million; 2003: £160
    million), which is due to be repaid by November 2005 and a High Yield
    Bond (£271.2 million; 2003: £297 million) due 2009.  21% (2003:
    6%)of the group’s total borrowings at the year end
    will become due in the next 12 months, 79% (2003: 87%) in more than
    two years and 0% (2003: 67%) will become due in more than five years.

At 31 December 2004, the group also had undrawn committed borrowing facilities of £71.8 million (2003: £31.0 million).

Credit risk

Avecia contains credit risk by ongoing review procedures. Counterparties to foreign exchange contracts are all commercial banks with a long term credit rating of A1- or better.

Exchange rates

Exchange rate movements during the year adversely impacted profit before exceptional items and tax by £13.9 million.  The adverse impact of exchange rate movements on the translation of overseas operating profit was £2.0 million and on transactions in the year was £11.9 million, giving a total impact on operating profit of £13.9 million. Exchange rate movements also favorably affected the interest charge by £1.0 million.

Item 12 Description of securities other than equity securities

Not applicable to annual reports filed on Form 20-F.

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Part II

Item 13 Defaults,
      dividend arrearages and delinquencies

No matters to report.

Item 14 Material
      modifications to the rights of security holders and use of proceeds

No matters to report.

Item 15 Controls
      and Procedures

Disclosure Controls and Procedures.
    We maintain disclosure controls and procedures that are designed to ensure
    that information required to be disclosed in our Exchange Act reports is
    recorded, processed, summarized and reported within the time periods specified
    in the SEC’s rules and forms, and that such information is accumulated
    and communicated to our management, including our Chief Executive Officer
    and Chief Financial Officer, as appropriate, to allow timely decisions regarding
    required disclosure.

As of the end of the period covered
    by this Form 20-F, we carried out an evaluation, under the supervision and
    with the participation of our management, including our Chief Executive Officer
    and our Chief Financial Officer, of the effectiveness of the design and operation
    of our disclosure controls and procedures (as defined in United States Securities
    Exchange Act of 1934, as amended, Rule 13a-15(e)). Based on the foregoing,
    our Chief Executive Officer and Chief Financial Officer concluded that our
    disclosure controls and procedures were effective in timely identifying material
    information potentially required to be included in our SEC filings.

Internal Control Over Financial
      Reporting. There were no changes in the Group’s internal control over
      financial reporting that occurred during the year ended December 31,
      2004 that have materially affected, or are reasonably likely to materially
      affect, the Group’s internal control over financial reporting.

Item 16 [Reserved]

Item 16A.Audit
      Committee Financial Expert

Avecia Holdings plc, the parent company
    of the group, has established an Audit Committee to act on behalf of that
    company and for its subsidiaries, including Avecia Group plc. The members
    of this Audit Committee are the non-executive directors of Avecia Holdings
    plc. Avecia Group plc does not itself have its own audit committee. The Board
    of Directors has therefore determined that Avecia Group plc does not have
    an “audit committee financial expert” as defined in Item 16-A
    of Form 20F serving on its audit committee. It is the Board’s opinion
    that the members of the audit committee of Avecia Holdings plc collectively
    have sufficient experience and expertise, to be able to provide appropriate
    independent review and oversight of Avecia Group plc's financial reporting
    processes, internal controls and independent auditors.

Item
        16B. Code of Ethics

We have adopted a code of ethics
    that applies to all employees. A copy of the code of ethics is filed as Exhibit
    11 to this Form 20-F.

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Item 16C. Accountant’s Fees and Services

KPMG Audit Plc has served as Avecia’s
    independent public accountants for each of the fiscal years in the three
    year period ended December 31, 2004, for which audited financial statements
    appear in this annual report on Form 20-F. The auditors are elected annually
    by the Annual General Meeting.

The following table presents the
    aggregate fees for professional services and other services rendered by KPMG
    to Avecia in 2004 and 2003.

|                               |  |  | 2004 |  | 2003 | 
|------------------------------ |  |  | ---- |  | ---- | 
|                               |  |  |      |  |      | 
|                               |  |  | £m   |  | £m   | 
|Audit Fees
        (1)         |  |  | 0.4  |  | 0.4  | 
|Audit-related
        Fees (2) |  |  | 0.2  |  |     | 
|Tax Fees (3)                   |  |  | 0.3  |  | 0.3  | 
|                               |  |  |      |  |      | 
|Total                          |  |  | 0.9  |  | 0.7  | 
|                               |  |  |      |  |      | 

|1 | Audit Fees consist of fees billed for the
        annual audit services engagement and other audit services, which are
        those services that only the external auditor reasonably can provide,
        and include the Group audit; statutory audits; comfort letters and consents;
        attest services; and services associated with the filing of documents
        with the SEC.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                              

|2 | Audit-related Fees consist of fees billed
        for assurance and related services that are reasonably related to the
        performance of the audit or review of the Company’s financial statements
        or that are traditionally performed by the external auditor, and include
        consultations concerning financial accounting and reporting standards;
        due diligence related to acquisitions; and employee benefit plan audits.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|3 | Tax Fees include fees billed for tax compliance
        services, advice on original and amended tax returns and claims for refund,
        tax consultations (such as assistance in connection with tax audits and
        appeals), tax advice related to mergers and acquisitions, transfer pricing,
        tax planning services and expatriate tax planning and services.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Audit Committee Pre-approval Policies
      and Procedures

The Audit Committee has adopted the
    following pre-approval policies and procedures to govern the arrangements
    by which audit and non-audit services are approved:

| | (i) The Audit Committee will
        approve, at its first meeting in each calendar year, those categories
        of service which are pre-approved for the following 12 month period.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | (ii) The pre-approved categories
        of service are defined as Audit Services, Audit Related Services, and
        Tax Services.

| |                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) Additions to the schedule
        of pre-approved categories of service may be approved at any time by
        the Chairman of the Audit Committee. Any such changes will be notified
        to the Audit Committee at its next quarterly meeting.

| |                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) Engagement of the external
        auditors to provide services not on the schedule of pre-approved categories
        of service, must be approved in advance of the engagement by the Chairman
        of the Audit Committee. Any such pre-approvals will be notified to the
        Audit Committee at its next quarterly meeting.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 55
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

| | (v) Not withstanding paragraphs
        i) to iv) above:
| | --------------------------------------------------------

| |  | – any audit or non-audit
        assignment in excess of £250,000 requires specific pre-approval
        by Chairman of the Audit Committee.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------

| |  | – the Chairman of the
        Audit Committee will notify the Audit Committee at its next quarterly
        meeting of any approvals granted.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------

| |  | – any individual audit
        or non audit assignment below the limit above is notified to the Group
        Controller.
| |  | -------------------------------------------------------------------------------------------------------------------------

Item
        16D. Exemptions from the listing standards
        for audit committees

Not applicable.

Item
        16E. Purchases of equity securities
        by the issuer and affiliated purchasers

Not applicable.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 56
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Part III

Item 17 Financial
      statements

Not applicable.

Item 18 Financial
      statements

Index to Consolidated and Combined
      financial statements

|Report of independent auditors                                                                                                       | 59 | 
|------------------------------------------------------------------------------------------------------------------------------------ | -- | 
|                                                                                                                                     |    | 
|Consolidated profit and loss
        accounts for the years ended December 31 2004, 2003 and 2002.                                   | 60 | 
|                                                                                                                                     |    | 
|Consolidated balance sheets
        at December 31 2004 and 2003                                                                     | 61 | 
|                                                                                                                                     |    | 
|Consolidated cash flow statements
        for the years ended December 31 2004, 2003 and 2002.                                       | 62 | 
|                                                                                                                                     |    | 
|Consolidated statements of total
        recognized gains and losses for the years ended December 31 2004, 2003
        and 2002.    | 63 | 
|                                                                                                                                     |    | 
|Reconciliation of consolidated
        movements in shareholders’ funds for the years ended December 31
        2004, 2003 and 2002. | 63 | 
|                                                                                                                                     |    | 
|Notes to the consolidated financial
        statements                                                                               | 64 | 

Item 19 Exhibits

|Exhibit
          number | Description                                                                                                                                                       
|------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                         |                                                                                                                                                                   
|1.1                      | Avecia’s
          Memorandum of Association                                                                                                                      
|1.2                      | Avecia’s
          Articles of Association                                                                                                                        
|8                        | List
          of significant subsidiaries                                                                                                                        
|11                       | Code
          of Ethics                                                                                                                                          
|12.1                     | Certification
          of Jeremy P. Scudamore, Chief Executive Officer of Avecia Group plc,
          pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
|12.2                     | Certification
          of Derrick A. Nicholson, Chief Financial Officer of Avecia Group plc,
          pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|13                       | Certification pursuant to 18
        U.S.C section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
        Act of 2002                             

Please refer to item 10 – Additional
      informationfor Avecia’s Memorandum and Articles of Association.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 57
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Signatures

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

Avecia Group plc

Registrant

/s/ D A NICHOLSON\

D A Nicholson

Chief Financial Officer



Dated May 9, 2005

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 58
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Report of Independent Registered
      Public Accounting Firm

The Board of Directors and Shareholder
      of Avecia Group plc

We have audited the accompanying
    consolidated balance sheets of Avecia Group plc and subsidiaries as of December
    31, 2004 and 2003, and the related consolidated statements of profit and
    loss, cash flow, total recognized gains and losses and reconciliations of
    consolidated movements in shareholders’ funds for each of the years
    in the three-year period ended December 31, 2004. These consolidated financial
    statements are the responsibility of the Company’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 of 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 Avecia Group plc and subsidiaries as of December
    31, 2004 and 2003, and the results of their operations and their cash flows
    for each of the years in the three-year period ended December 31, 2004, in
    conformity with generally accepted accounting principles in the United Kingdom.

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

|KPMG Audit Plc                          | 
|--------------------------------------- | 
|Chartered AccountantsRegistered Auditor | 
|                                        | 
|Manchester, England
      May 9, 2005   | 

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 59
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Consolidated profit and loss account

|Avecia Group plc                                                                        |  |      |  | For theyear ended December 31, 2004 |   | For theyear ended December 31, 2004 |   | For theyear ended December 31, 2003 |   | For theyear ended December 31, 2003 |   | For theyear ended December 31, 2002 |   | For the year
          ended December 31, 2002 |  
|--------------------------------------------------------------------------------------- |  | ---- |  | ----------------------------------- | - | ----------------------------------- | - | ----------------------------------- | - | ----------------------------------- | - | ----------------------------------- | - | ---------------------------------------------- | -
|                                                                                        |  |      |  |                                     |   |                                     |   |                                     |   |                                     |   |                                     |   |                                                |  
|                                                                                        |  |      |  |                                     |   |                                     |   | Restated                            |   | Restated                            |   | Restated                            |   | Restated                                       |  
|                                                                                        |  | Note |  | £ million                           |   | £ million                           |   | £ million                           |   | £ million                           |   | £ million                           |   | £ million                                      |  
|                                                                                        |  |      |  |                                     |   |                                     |   |                                     |   |                                     |   |                                     |   |                                                |  
|Turnover: group & share
        of joint ventures                                       |  |      |  |                                     |   | 416.0                               |   |                                     |   | 497.6                               |   |                                     |   | 589.2                                          |  
|Less share of joint ventures’ turnover                                                  |  |      |  |                                     |   | (8.8                                | ) |                                     |   | (12.4                               | ) |                                     |   | (13.5                                          | )
|Group turnover                                                                          |  | 3    |  |                                     |   |                                     |   |                                     |   |                                     |   |                                     |   |                                                |  
|Continuing operations                                                                   |  |      |  | 200.1                               |   |                                     |   | 185.6                               |   |                                     |   | 250.1                               |   |                                                |  
|Discontinued operations                                                                 |  |      |  | 207.1                               |   |                                     |   | 299.6                               |   |                                     |   | 325.6                               |   |                                                |  
|                                                                                        |  |      |  |                                     |   |                                     |   |                                     |   |                                     |   |                                     |   |                                                |  
|                                                                                        |  |      |  |                                     |   | 407.2                               |   |                                     |   | 485.2                               |   |                                     |   | 575.7                                          |  
|                                                                                        |  |      |  |                                     |   |                                     |   |                                     |   |                                     |   |                                     |   |                                                |  
|Operating costs                                                                         |  | 4    |  |                                     |   | (426.8                              | ) |                                     |   | (501.1                              | ) |                                     |   | (559.3                                         | )
|Exceptional operating costs                                                             |  | 4    |  |                                     |   | (39.9                               | ) |                                     |   | (69.3                               | ) |                                     |   | (41.2                                          | )
|Other operating income                                                                  |  | 4    |  |                                     |   | 9.1                                 |   |                                     |   | 4.1                                 |   |                                     |   | 7.6                                            |  
|                                                                                        |  |      |  |                                     |   |                                     |   |                                     |   |                                     |   |                                     |   |                                                |  
|Group operating (loss)/profit                                                           |  |      |  |                                     |   |                                     |   |                                     |   |                                     |   |                                     |   |                                                |  
|Continuing operations                                                                   |  | 4    |  | (83.7                               | ) |                                     |   | (129.9                              | ) |                                     |   | (75.3                               | ) |                                                |  
|Discontinued operations                                                                 |  | 4    |  | 33.3                                |   |                                     |   | 48.8                                |   |                                     |   | 58.1                                |   |                                                |  
|                                                                                        |  |      |  |                                     |   |                                     |   |                                     |   |                                     |   |                                     |   |                                                |  
|                                                                                        |  |      |  |                                     |   | (50.4                               | ) |                                     |   | (81.1                               | ) |                                     |   | (17.2                                          | )
|Share of operating (loss)/profit
        of joint ventures                              |  |      |  |                                     |   | (6.9                                | ) |                                     |   | 1.7                                 |   |                                     |   | 2.2                                            |  
|Profit on disposal of businesses                                                        |  | 5    |  |                                     |   | 98.6                                |   |                                     |   | 15.4                                |   |                                     |   | 9.4                                            |  
|                                                                                        |  |      |  |                                     |   |                                     |   |                                     |   |                                     |   |                                     |   |                                                |  
|Profit/(loss) on ordinary activities
        before interest and taxation               |  |      |  |                                     |   | 41.3                                |   |                                     |   | (64.0                               | ) |                                     |   | (5.6                                           | )
|Other interest receivable & similar
        incomeIncome from current asset investments |  | 9    |  |                                     |   | 32.9                                |   |                                     |   | 34.3                                |   |                                     |   | 34.5                                           |  
|                                                                                        |  |      |  |                                     |   | 0.2                                 |   |                                     |   |                                    |   |                                     |   |                                               |  
|Interest payable and similar
        charges                                            |  | 10   |  |                                     |   | (51.5                               | ) |                                     |   | (61.5                               | ) |                                     |   | (65.4                                          | )
|Other finance costs                                                                     |  |      |  |                                     |   | (2.1                                | ) |                                     |   | (2.4                                | ) |                                     |   |                                               |  
|                                                                                        |  |      |  |                                     |   |                                     |   |                                     |   |                                     |   |                                     |   |                                                |  
|Profit/(loss) on ordinary activities
        before taxation                            |  |      |  |                                     |   | 20.8                                |   |                                     |   | (93.6                               | ) |                                     |   | (36.5                                          | )
|Taxation on profit/(loss) on
        ordinary activities                                |  | 11   |  |                                     |   | (1.9                                | ) |                                     |   | (0.9                                | ) |                                     |   | (6.5                                           | )
|                                                                                        |  |      |  |                                     |   |                                     |   |                                     |   |                                     |   |                                     |   |                                                |  
|Profit/(loss) on ordinary activities
        after taxation                             |  | 3-10 |  |                                     |   | 18.9                                |   |                                     |   | (94.5                               | ) |                                     |   | (43.0                                          | )
|Attributable to minority interests                                                      |  |      |  |                                     |   | (6.6                                | ) |                                     |   | (6.4                                | ) |                                     |   | (6.0                                           | )
|                                                                                        |  |      |  |                                     |   |                                     |   |                                     |   |                                     |   |                                     |   |                                                |  
|Retained profit/(loss) for
          the financial period                               |  |      |  |                                     |   | 12.3                                |   |                                     |   | (100.9                              | ) |                                     |   | (49.0                                          | )
|                                                                                        |  |      |  |                                     |   |                                     |   |                                     |   |                                     |   |                                     |   |                                                |  

2003 & 2002 have been restated
    to reflect the change in continuing/discontinued operations.

The accompanying notes are an
      integral part of these financial statements.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 60
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Consolidated balance sheet

|                                                                  |  |      |  | Avecia Group
          plc Consolidated
      Balance Sheet as at |  
|----------------------------------------------------------------- |  | ---- |  | ----------------------------------------------------------------- | -
|                                                                  |  |      |  | December 31, 2004                                                 |  
|                                                                  |  |      |  |                                                                   |  
|                                                                  |  |      |  |                                                                   |  
|                                                                  |  | Note |  | £ million                                                         |  
|Fixed assets                                                      |  |      |  |                                                                   |  
|Intangible assets                                                 |  | 12   |  |                                                                   |  
|Goodwill                                                          |  |      |  | 199.6                                                             |  
|Other intangible assets                                           |  |      |  | 8.5                                                               |  
|                                                                  |  |      |  |                                                                   |  
|                                                                  |  |      |  | 208.1                                                             |  
|Tangible assets                                                   |  | 13   |  | 198.6                                                             |  
|Investments                                                       |  |      |  |                                                                   |  
|Investments in joint ventures                                     |  | 14   |  |                                                                   |  
|Share of gross assets and
          goodwill                      |  |      |  | 9.6                                                               |  
|Share of gross liabilities                                        |  |      |  | (1.7                                                              | )
|                                                                  |  |      |  |                                                                   |  
|                                                                  |  |      |  | 7.9                                                               |  
|                                                                  |  |      |  |                                                                   |  
|                                                                  |  |      |  | 414.6                                                             |  
|Current assets                                                    |  |      |  |                                                                   |  
|Stocks                                                            |  | 15   |  | 50.2                                                              |  
|                                                                  |  |      |  |                                                                   |  
|Debtors within one year                                           |  | 16   |  | 69.7                                                              |  
|Debtors after one year                                            |  | 16   |  | 15.0                                                              |  
|                                                                  |  |      |  |                                                                   |  
|                                                                  |  |      |  | 84.7                                                              |  
|                                                                  |  |      |  |                                                                   |  
|Cash at bank and in hand                                          |  |      |  | 22.7                                                              |  
|                                                                  |  |      |  |                                                                   |  
|                                                                  |  |      |  | 157.6                                                             |  
|Creditors: amounts falling
          due within one year          |  | 17   |  | (155.6                                                            | )
|                                                                  |  |      |  |                                                                   |  
|Net current assets                                                |  |      |  | 2.0                                                               |  
|                                                                  |  |      |  |                                                                   |  
|Total assets less current
          liabilities                   |  |      |  | 416.6                                                             |  
|                                                                  |  |      |  |                                                                   |  
|Creditors: amounts falling
          due after more than one year |  | 18   |  | (278.4                                                            | )
|Provisions for liabilities
          and charges                  |  | 20   |  | (17.0                                                             | )
|Net assets excluding pension
          liability                  |  |      |  | 121.2                                                             |  
|Pension liability                                                 |  | 26   |  | (105.7                                                            | )
|                                                                  |  |      |  |                                                                   |  
|Net assets including pension
          liability                  |  |      |  | 15.5                                                              |  
|                                                                  |  |      |  |                                                                   |  
|Capital and reserves                                              |  |      |  |                                                                   |  
|Called up share capital                                           |  | 22   |  | 330.7                                                             |  
|Share premium account                                             |  | 23   |  | 14.9                                                              |  
|Profit and loss account                                           |  | 23   |  | (330.1                                                            | )
|Shares to be issued                                               |  | 23   |  |                                                                  |  
|                                                                  |  |      |  |                                                                   |  
|Shareholders’ funds                                               |  |      |  | 15.5                                                              |  
|                                                                  |  |      |  |                                                                   |  
|of which: equity shareholders’ funds                              |  |      |  | (22.1                                                             | )
|of
    which:non-equity shareholders’ funds                       |  |      |  | 37.6                                                              |  
|                                                                  |  |      |  |                                                                   |  
|                                                                  |  |      |  | 15.5                                                              |  
|Minority interests                                                |  |      |  |                                                                  |  
|                                                                  |  |      |  |                                                                   |  
|Shareholders’ funds and
        minority interests                |  |      |  | 15.5                                                              |  
|                                                                  |  |      |  |                                                                   |  

2003 has been restated to reflect
      the adoption of UITF 38.

The accompanying notes are an
      integral part of these financial statements

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 61
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Consolidated cash flow statement

|                                                                  |  |      |  | Avecia Group
          plc Consolidated |  
|----------------------------------------------------------------- |  | ---- |  | --------------------------------------- | -
|                                                                  |  |      |  | For theyear ended
    December 31,      |  
|                                                                  |  |      |  | 2004                                    |  
|                                                                  |  |      |  |                                         |  
|                                                                  |  | Note |  | £ million                               |  
|                                                                  |  |      |  |                                         |  
|Cash inflow
        from operating activities                     |  | 27   |  | 11.2                                    |  
|Dividends from joint ventures                                     |  | 28   |  | 2.5                                     |  
|Returns on
        investments and servicing of finance           |  | 28   |  | (38.4                                   | )
|Taxation                                                          |  |      |  | (0.2                                    | )
|Capital expenditure
        and financial investment              |  | 28   |  | (13.3                                   | )
|Acquisitions and disposals                                        |  | 28   |  | 186.9                                   |  
|                                                                  |  |      |  |                                         |  
|Cash inflow
        before financing                              |  |      |  | 148.7                                   |  
|                                                                  |  |      |  |                                         |  
|Financing                                                         |  | 28   |  | (133.8                                  | )
|                                                                  |  |      |  |                                         |  
|Increase/(decrease)
        in cash in the period                 |  |      |  | 14.9                                    |  
|                                                                  |  |      |  |                                         |  
|Reconciliation
          of net cash flow to movement in net debt | 
|                                                                  |  |      |  | Avecia Group
          plc Consolidated |  
|                                                                  |  |      |  | For theYear ended
    December 31,      |  
|                                                                  |  |      |  | 2004                                    |  
|                                                                  |  |      |  |                                         |  
|                                                                  |  | Note |  | £ million                               |  
|                                                                  |  |      |  |                                         |  
|Increase/(decrease)
          in cash in the period               |  |      |  | 14.9                                    |  
|                                                                  |  |      |  |                                         |  
|Cash inflow
        from increase in debt and lease financing     |  |      |  | (117.5                                  | )
|Cash outflow from decrease in
        debt and lease financing    |  |      |  | 251.3                                   |  
|                                                                  |  |      |  |                                         |  
|Change in
        net debt resulting from cash flows              |  |      |  | 148.7                                   |  
|                                                                  |  |      |  |                                         |  
|Cash/(loans
        and finance leases) disposed with subsidiary  |  |      |  | (0.2                                    | )
|Translation differences                                           |  |      |  | 33.6                                    |  
|Non-cash items                                                    |  |      |  | (8.7                                    | )
|                                                                  |  |      |  |                                         |  
|Movement in
        net debt in the period                        |  |      |  | 173.4                                   |  
|Net debt at the start of the
        period                       |  |      |  | (498.4                                  | )
|                                                                  |  |      |  |                                         |  
|Net debt at
        the end of the period                         |  | 29   |  | (325.0                                  | )
|                                                                  |  |      |  |                                         |  

The accompanying notes are an
      integral part of these financial statements.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 62
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Consolidated statement of total
      recognized gains and losses

|                                                                                                |  | Avecia Group
          plc Consolidated |  
|----------------------------------------------------------------------------------------------- |  | --------------------------------------- | -
|                                                                                                |  | For the year ended
    December 31,     |  
|                                                                                                |  | 2004                                    |  
|                                                                                                |  |                                         |  
|                                                                                                |  | £ million                               |  
|Profit/(loss) for the financial
          period                                                |  |                                         |  
|Group                                                                                           |  | 25.8                                    |  
|Share of joint ventures                                                                         |  | (6.9                                    | )
|                                                                                                |  |                                         |  
|                                                                                                |  | 18.9                                    |  
|Net exchange differences on
        the retranslation of net investments and related borrowings |  | (5.9                                    | )
|Actuarial loss relating to pensions
        liability                                           |  | (10.5                                   | )
|                                                                                                |  |                                         |  
|Total recognized gains/(losses)
          relating to the financial year                        |  | 2.5                                     |  
|Prior year adjustment (UITF38)                                                                  |  | (0.5                                    | )
|                                                                                                |  |                                         |  
|Total recognized gains/(losses)
          since last annual report                              |  | 2.0                                     |  
|                                                                                                |  |                                         |  

Reconciliation of consolidated
      movements in shareholders’ funds

|                                                                       |  |       |  | Avecia Group
          plc Consolidated      |  
|---------------------------------------------------------------------- |  | ----- |  | -------------------------------------------- | -
|                                                                       |  |       |  | For the year ended
    December 31,
    2004 |  
|                                                                       |  |       |  |                                              |  
|                                                                       |  |       |  |                                              |  
|                                                                       |  | Notes |  | £ million                                    |  
|                                                                       |  |       |  |                                              |  
|Profit/(loss) for the financial
          period                       |  |       |  | 18.9                                         |  
|Appropriation of profit relating
        to non equity shares          |  |       |  | (6.6                                         | )
|                                                                       |  |       |  |                                              |  
|                                                                       |  |       |  | 12.3                                         |  
|Other recognized gains and losses
        relating to the period (net) |  | 23    |  | (18.4                                        | )
|New share capital subscribed                                           |  | 22    |  | 0.2                                          |  
|Premium on share issues (net
        of issue costs)                   |  | 23    |  | 6.0                                          |  
|Shares to be issued                                                    |  | 23    |  | (3.1                                         | )
|Amortization of share issue
        costs                              |  | 23    |  | 0.3                                          |  
|                                                                       |  |       |  |                                              |  
|Net addition to shareholders’ funds                                    |  |       |  | (2.7                                         | )
|                                                                       |  |       |  |                                              |  
|Opening shareholders’ funds
        as previously stated               |  |       |  | 18.2                                         |  
|Prior year adjustment  UITF38                                         |  |       |  |                                             |  
|                                                                       |  |       |  |                                              |  
|Opening shareholders funds
          restated                          |  |       |  | 18.2                                         |  
|                                                                       |  |       |  |                                              |  
|Closing shareholders’ funds                                            |  |       |  | 15.5                                         |  
|                                                                       |  |       |  |                                              |  

The accompanying notes are an
      integral part of these financial statements.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 63
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements

|1 | Basis of preparation
|- | --------------------

General

The financial statements have been
    prepared in accordance with generally accepted accounting standards in the
    United Kingdom (‘UK GAAP’), and under the historical cost accounting
    rules. These accounting standards differ in certain significant aspects from
    generally accepted accounting principles in the United States (‘US
    GAAP’) (see note 34).

The information set out in these
    accounts does not constitute the company’s statutory accounts for the
    years ended December 31, 2004, 2003 and 2002. Those accounts have been reported
    on by the company’s auditors; their reports were unqualified and did
    not contain a statement under section 237(2) or (3) of the Companies Act
    1985. The accounts for 2003 have been delivered to the registrar of companies
    and those for 2004 will be delivered in due course.

Consolidated financial statements

The consolidated financial statements
    include the financial position of the company and its subsidiary undertakings
    for the years ended December 31, 2004 and December 31, 2003 and the financial
    results of the company and its subsidiary undertakings for the years ended
    December 31, 2004, December 31, 2003 and December 31, 2002. The acquisition
    method of accounting has been adopted. Under this method, the results of
    subsidiary undertakings acquired or disposed of in the year are included
    in the consolidated profit and loss account from the date of acquisition
    or up to the date of disposal. All significant inter company accounts and
    transactions have been eliminated.

A joint venture is an undertaking
    in which the group has a long-term interest and over which it exercises joint
    control. The group’s share of the profits less losses of joint ventures
    is included in the consolidated profit and loss account, and its interest
    in their net assets is included in investments in the consolidated balance
    sheet.

Going Concern

The financial statements have been
    prepared on the assumption that the Group remains a going concern. The following
    paragraphs summarise the issues and basis on which the directors have reached
    their conclusion.

At 31 December 2004 the Group had
    debt under its Banking Facilities secured by a fixed and floating charge
    over its properties, assets and undertakings.

Following the successful disposal
    of its NeoResins and Displays businesses after 31 December 2004, the Group
    used the proceeds of these disposals to repay all term debt outstanding under
    the bank facilities and 77% of the High Yield Bonds in issue. In addition
    the Group has currently retained circa. £60 million of the net proceeds
    after transaction costs, which will be utilised to manage liquidity, re-invest
    in the Group or make further repayments of debt.

As part of the Group’s ongoing
    strategy the Group will continue to effect further divestments at such times
    as the directors believe will generate appropriate value.

The directors have reviewed the Group’s
    budget for the current year and outline projections for the subsequent year,
    including cash flows and forecasts of liquidity available. Following this
    review, the directors have formed a judgement that, at the time of approval
    of the financial statements, the Group has sufficient resources to continue
    operating for the foreseeable future. For these reasons the directors continue
    to prepare the financial statements on a going concern basis.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 64
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

|2 | Accounting policies
|- | -------------------

The following accounting policies
    have been applied consistently in dealing with items which are considered
    material in relation to the financial statements.

Own Shares Held

UITF Abstract 38 ‘Accounting
    for ESOP trusts’ is effective for accounting periods ending on or after
    22 June 2004. As a result the Group’s own shares held by employee trusts,
    which are held at the lower of purchase cost and net realisable value and
    have previously been shown in debtors, are now deducted in arriving at shareholders’ funds.
    There has been no profit and loss effect from this change. The net effect
    on shareholders funds was a deduction of £0.5m (2003: £0.3m).

Goodwill

On the acquisition of a business,
    fair values are attributed to the net assets acquired. Purchased goodwill,
    representing the excess of the fair value of the consideration given over
    the fair value of the separable net assets acquired, is capitalized and is
    amortized to nil by equal annual installments over its estimated useful life.

Goodwill arising on the acquisition
    of the Specialty Chemicals division of AstraZeneca plc is being amortized
    over 15 years. Goodwill arising on subsequent acquisitions is also being
    amortized over 15 years.

On the subsequent disposal or termination
    of a business acquired, the profit or loss on disposal or termination is
    calculated after charging/crediting the unamortized amount of any related
    goodwill/negative goodwill.

Goodwill is reviewed for impairment
    whenever events or changes in circumstances indicate that the full carrying
    amount may not be recoverable.

Investments

A joint venture is an entity in which
    an interest is held on a long term basis and which is jointly controlled
    with one or more other venturers under a contractual agreement.

The group’s share of the profits
    and losses of all significant joint ventures is included in the consolidated
    profit and loss account using the equity accounting method. The holding value
    of significant joint ventures in the group balance sheet is calculated by
    reference to Avecia’s equity in the net assets of such joint ventures,
    as shown by the most recent accounts available, adjusted where appropriate.

Depreciation and amortization

The book value of each tangible fixed
    asset is written off evenly over its estimated remaining life. Reviews are
    made periodically of the estimated remaining lives of individual productive
    assets, taking account of commercial and technological obsolescence as well
    as normal wear and tear. The total asset lives approximate to 15 years for
    buildings and 10 years for plant and equipment. Depreciation of assets qualifying
    for grants is calculated on their full cost.

Intangible assets acquired, including
    patents and intellectual property rights, are capitalized and amortized on
    a straight line basis over their estimated useful lives (not exceeding 20
    years). Internally developed intangible assets are not capitalized.

Impairment of long-lived assets

Long-lived assets and certain identifiable
    intangibles are reviewed for impairment whenever events or changes in circumstances
    indicate that their carrying amount may not be recoverable. Recoverability
    of assets to be held and used is measured by a comparison of the carrying
    amount of such an asset to discounted future net cash flows
    expected to be generated by them. If such assets are considered to be impaired,
    the impairment to be recognized is measured by the amount by which the carrying
    amounts of the assets exceed their fair value. Assets to be disposed of are
    reported at the lower of their carrying amount or fair value less costs to
    sell.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 65
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

|2 | Accounting policies(continued)
|- | ------------------------------

Environmental liabilities

The group is exposed to environmental
    liabilities relating to operations, principally in respect of soil and groundwater
    remediation costs. Provisions for these costs are made when the group has
    a present obligation as a result of a past event, expenditure on remedial
    work is probable and the cost can be estimated within a reasonable range
    of possible outcomes.

Foreign currencies

Profit and loss accounts of overseas
    operations recorded in foreign currencies are translated into sterling at
    average rates for the relevant accounting periods. Assets and liabilities
    are translated at rates prevailing at the balance sheet date.

Exchange differences on short-term
    foreign currency borrowings and deposits are included within net interest
    payable. Exchange differences on all other transactions, except relevant
    foreign currency loans, are taken to operating profit. In the consolidated
    financial statements exchange differences arising from the translation of
    the net investments of overseas subsidiaries, joint ventures and associates
    are taken directly to reserves via the consolidated statement of total recognized
    gains or losses. Differences on relevant foreign currency loans, together
    with related tax, are taken to reserves via the statement of total recognized
    gains and losses and offset against the differences on net investments, as
    they are considered to be a hedge against movements on the net investments.
    To the extent that foreign currency loans are not considered to be a hedge
    the foreign exchange difference is booked to the profit and loss account.

Government grants

Government grants made as a contribution
    towards revenue expenditure, or for an objective with an associated revenue
    cost (such as job creation) are included on the balance sheet as deferred
    income and released to the profit and loss account in line with the costs
    being incurred.

Capital based government grants are
    included within accruals and deferred income in the balance sheet and credited
    to operating profit over the estimated useful economic lives of the assets
    to which they relate.

Where grants comprise capital and
    revenue elements, these elements are split out on a reasonable basis and
    each element is treated as described above.

Leases

Assets held under finance leases
    are capitalized and included in tangible fixed assets at fair value. Each
    asset is depreciated over the shorter of the lease term or its useful life.
    The obligations related to finance leases, net of finance charges in respect
    of future periods, are included as appropriate under creditors due within,
    or creditors due after, one year. The interest element of the rental obligation
    is allocated to accounting periods during the lease term to reflect a constant
    rate of interest on the remaining balance of the obligation for each accounting
    period.

Rentals under operating leases are
    charged to the profit and loss account on a straight-line basis over the
    lease term.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 66
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

|2 | Accounting policies(continued)
|- | ------------------------------

Post-retirement benefits

Avecia operates both Defined Benefit
    and Defined Contribution schemes. The assets of the pension schemes are held
    separately from those of the Group. In the case of defined benefit schemes,
    assets are

measured using market values. Liabilities
      are measured using a projected unit method and discounted at the current
      rate of return of a high quality corporate bond of equivalent term and currency.
      Costs and liabilities are assessed in accordance with the advice of independent
      qualified actuaries. The pension scheme surplus (to the extent that it is
      recoverable) or deficit is recognised in full. The movement in the scheme
      surplus/deficit is split between operating charges, finance items and, in
      the statement of total recognised gains and losses, actuarial gains and losses.

In the case of Defined Contribution
    schemes, the amount charged to the profit and loss account represents the
    contributions payable to the scheme in the period.

Research and development and
        advertising expenditure

Research and development and advertising
    expenditure is charged to the profit and loss account in the period in which
    it is incurred.

Stocks

Stocks are stated at the lower of
    cost and net realisable value. The first in, first out or an average method
    of valuation is used. In determining cost, depreciation is included but selling
    expenses and certain overhead expenses (principally central administration
    costs) are excluded. Net realisable value is determined as selling price
    less costs of disposal.

Taxation

The charge for taxation is based
    on the profits for the period and takes into account taxation deferred because
    of timing differences between the treatment of certain items for taxation
    and for accounting purposes. Deferred tax assets are recognized, without
    discounting, to the extent that, on the basis of all available evidence,
    it can be regarded as more likely than not that there would be suitable profits
    from which the future reversal of the underlying timing differences can be
    deducted.

Turnover and revenue recognition

The company generates revenue through
    sales of specialty chemicals in the open market, through raw material conversion
    and supply and development contracts. Turnover excludes inter-segment turnover
    and value added taxes.

Revenue is recognized when services
    have been rendered and significant risks and rewards in respect of ownership
    of the products are passed to the customer. Where multiple-element sales
    arrangements exist, this entails the company recognizing revenue on individual
    contract elements for work performed or services rendered during the period.

Cash and liquid resources

Cash, for the purpose of the cash
    flow statement, comprises cash in hand and deposits repayable on demand,
    less overdrafts payable on demand.

Liquid resources are current asset
    investments which are disposable without curtailing or disrupting the business
    and are either readily convertible into known amounts of cash at or close
    to their carrying values or traded in an active market. Liquid resources
    comprise term deposits of less than one year (other than cash), government
    securities and investments in money market managed funds.

Financial instruments

Financial instruments are used to
    hedge exposures to fluctuations in interest and foreign exchange rates. Instruments
    accounted for as hedges are structured so as to reduce the market risk associated
    with the underlying transaction being hedged and are designated as a hedge
    at the inception of the contract.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 67
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

2      Accounting
      policies(continued)

Receipts and payments on interest
      rate instruments are recognized on an accrual basis over the lives of the
      instruments. Gains and losses on contracts hedging forecast transaction
      cash flows are recognized in the same hedged periods. Cash flows associated
      with derivative financial instruments are classified in the cash flow statement
      in a manner consistent with those of the transactions being hedged. Finance
      costs associated with debt issuances are netted against the carrying value
      of the related debt and charged to the profit and loss account over the
      lives of the issue. If the underlying transaction to a hedge ceases
      to exist, the hedge is terminated and the profits and losses on termination
      are recognized in the profit and loss account immediately.

If the hedge transaction is terminated,
    the profits and losses on termination are held on the balance sheet and amortized
    over the life of the original underlying transaction.

Use of estimates

The preparation of financial statements
    in conformity with generally accepted accounting principles requires management
    to make estimates and assumptions that affect the reported amounts of assets
    and liabilities and disclosure of contingent assets and liabilities at the
    date of the financial statements, and the reported amounts of revenues and
    expenses during the reporting period. Actual results could differ from those
    estimates.

3      Segmental
      information

Classes of business

Avecia is a global group of specialized
    chemical businesses, which develop, manufacture and market chemical products
    to customers in a wide range of industries. Avecia operates through three
    main businesses which report to the central management team. Inter segment
    sales are minimal. The group continues to re-evaluate its segments and has
    re-stated its disclosure to conform to these new segments.

The following is a brief description
    of each business segment:

Chemicals produces chemical
    intermediates for pharmaceutical, agrochemical products and other chemical
    products;

Biotechnology manufacturing
    and process development services for advanced medicines;

Electronic Materials supplier
    of color and black ink for ink jet printers, consumables for color photocopiers
    and laser printers; and organic light emitting polymers for flat panel displays.

Discontinued Operations comprises
    of i. the Stahl business (sold in January 2002), ii. the entire Specialty
    Products business segment (the final parts of the segment, the Additives
    and Biocides businesses, having been sold in January and April 2004 respectively),
    and iii. the NeoResins business (supplier of water-borne resins used as binders
    and additives in the paint, coating, adhesives and printing ink industries)
    that was sold subsequent to the year end (see note 31, Post Balance Sheet
    Events).

The following tables analyze certain
    profit and loss and net asset items by business segment. No segment allocation
    has been shown for interest and taxation as they have not been allocated
    to these businesses. The accounting policies for each segment are the same
    as those for the consolidated/combined business. Central costs and overheads
    are not allocated to individual segments. The Group’s policy is to
    transfer products internally at external market prices.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 68
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

3      Segmental
      information(continued)

The tables below set out information
    for each of the industry segments and geographic areas of operation.

Avecia Group plc consolidated

|                                                                                 |  | For
          the year ended December 31, 2004 |          
|-------------------------------------------------------------------------------- |  | ---------------------------------------------- | ---------
|                                                                                 |  |                                                |          
|                                                                                 |  |                                                | Chemicals
|                                                                                 |  |                                                |          
|                                                                                 |  |                                                | £ million
|Turnover                                                                         |  |                                                |          
|Total sales                                                                      |  |                                                | 77.8     
|Inter-segmental sales                                                            |  |                                                |         
|Joint venture sales                                                              |  |                                                |         
|                                                                                 |  |                                                |          
|Sales to third parties                                                           |  |                                                | 77.8     
|                                                                                 |  |                                                |          
|Segment operating (loss)/profit
          before:                                |  |                                                | (31.3    
|Share of operating profit in
        joint ventures                              |  |                                                |         
|Profit on disposal of business                                                   |  |                                                |         
|                                                                                 |  |                                                |          
|Segment (loss)/profit before
          interest, taxation and minority interests |  |                                                | (31.3    
|                                                                                 |  |                                                |          
|Unallocated costs                                                                |  |                                                |          
|                                                                                 |  |                                                |          
|Group profit before interest,
          taxation and minority interests          |  |                                                |          
|                                                                                 |  |                                                |          
|Net assets as at December
          31, 2004                                     |  |                                                | 37.2     
|                                                                                 |  |                                                |          
|Unallocated net liabilities                                                      |  |                                                |          
|Share of joint ventures’ net
        assets                                      |  |                                                |         
|                                                                                 |  |                                                |          
|                                                                                 |  |                                                |          
|Total net assets as at December
          31, 2004                               |  |                                                |          
|                                                                                 |  |                                                |          

Unallocated costs relate to amortization,
    depreciation, UK & US head office costs, exceptional operating items
    and restructuring costs.

Unallocated net liabilities relate
    to goodwill less corporate liabilities and external loans.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 69
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

3      Segmental
      information(continued)

Avecia Group plc consolidated

|                                                                                 |  | For
          the year ended December 31, 2003 (restated) |          
|-------------------------------------------------------------------------------- |  | --------------------------------------------------------- | ---------
|                                                                                 |  |                                                           |          
|                                                                                 |  |                                                           | Chemicals
|                                                                                 |  |                                                           |          
|                                                                                 |  |                                                           | £ million
|Turnover                                                                         |  |                                                           |          
|Total sales                                                                      |  |                                                           | 92.0     
|Inter-segmental sales                                                            |  |                                                           |         
|Joint venture
        sales                                                      |  |                                                           |         
|                                                                                 |  |                                                           |          
|Sales to third
        parties                                                   |  |                                                           | 92.0     
|                                                                                 |  |                                                           |          
|Segment
          operating (loss)/profit before:                                |  |                                                           | (70.1    
|Share of operating profit in
        Joint ventures                              |  |                                                           |         
|Profit on
        disposal of business                                           |  |                                                           |         
|                                                                                 |  |                                                           |          
|Segment
          (loss)/profit before interest, taxation and minority interests |  |                                                           | (70.1    
|                                                                                 |  |                                                           |          
|Unallocated
        costs                                                        |  |                                                           |          
|Group (loss) before interest,
          taxation and minority interests          |  |                                                           |          
|                                                                                 |  |                                                           |          
|Net assets
          as at December 31, 2003                                     |  |                                                           | 54.1     
|                                                                                 |  |                                                           |          
|Unallocated
        net liabilities                                              |  |                                                           |          
|Share of joint ventures’ net
        assets                                      |  |                                                           |         
|Total net
          assets as at December 31, 2003                               |  |                                                           |          
|                                                                                 |  |                                                           |          

Unallocated costs relate to amortization,
    depreciation, UK & US head office costs, exceptional operating items
    and restructuring costs.

Unallocated net liabilities relate
    to goodwill less corporate liabilities and external loans.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 70
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

3      Segmental
      information(continued)

Avecia Group plc consolidated

|                                                                                 |  | For
          the year ended December 31, 2002 (restated) |          
|-------------------------------------------------------------------------------- |  | --------------------------------------------------------- | ---------
|                                                                                 |  |                                                           |          
|                                                                                 |  |                                                           | Chemicals
|                                                                                 |  |                                                           |          
|                                                                                 |  |                                                           | £ million
|Turnover                                                                         |  |                                                           |          
|Total sales                                                                      |  |                                                           | 136.3    
|Inter-segmental sales                                                            |  |                                                           |         
|Joint venture sales                                                              |  |                                                           |         
|                                                                                 |  |                                                           |          
|Sales to third parties                                                           |  |                                                           | 136.3    
|                                                                                 |  |                                                           |          
|Segment operating (loss)/
          profit before:                               |  |                                                           | (0.1     
|Share of operating profit in
        joint ventures                              |  |                                                           |         
|Profit on disposal of business                                                   |  |                                                           |         
|                                                                                 |  |                                                           |          
|Segment (loss)/profit before
          interest, taxation and minority interests |  |                                                           | (0.1     
|                                                                                 |  |                                                           |          
|Unallocated costs                                                                |  |                                                           |          
|                                                                                 |  |                                                           |          
|Group (loss) before interest,
          taxation and minority interests          |  |                                                           |          
|                                                                                 |  |                                                           |          
|Net assets as at December
          31, 2002                                     |  |                                                           | 151.1    
|                                                                                 |  |                                                           |          
|Unallocated net liabilities                                                      |  |                                                           |          
|Share of joint ventures’ net
        assets                                      |  |                                                           |         
|                                                                                 |  |                                                           |          
|Total net assets as at December
          31, 2002                               |  |                                                           |          
|                                                                                 |  |                                                           |          

Unallocated costs relate to amortization,
    depreciation, UK & US head office costs, exceptional operating items
    and restructuring costs.

Unallocated net liabilities relate
    to goodwill less corporate liabilities and external loans.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 71
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

3      Segmental
      information(continued)

Avecia Group plc consolidated

|                                                                                       |  | For the year
          ended December 31, 2004 |          
|-------------------------------------------------------------------------------------- |  | ---------------------------------------------- | ---------
|                                                                                       |  |                                                |          
|                                                                                       |  |                                                | UK       
|                                                                                       |  |                                                |          
|                                                                                       |  |                                                | £ million
|Turnover                                                                               |  |                                                |          
|Sales by destination                                                                   |  |                                                |          
|Total sales                                                                            |  |                                                | 50.2     
|Inter-segmental sales                                                                  |  |                                                | (0.2     
|Sales to joint
        ventures                                                        |  |                                                | (0.5     
|                                                                                       |  |                                                |          
|Sales to third
        parties                                                         |  |                                                | 49.5     
|                                                                                       |  |                                                |          
|Sales by origin                                                                        |  |                                                |          
|Total sales                                                                            |  |                                                | 119.8    
|Inter-segmental sales                                                                  |  |                                                | (0.3     
|Joint venture
        sales                                                            |  |                                                | (3.6     
|                                                                                       |  |                                                |          
|Sales to third
        parties                                                         |  |                                                | 115.9    
|                                                                                       |  |                                                |          
|Segment
          operating (loss)/profit before:                                      |  |                                                | (54.2    
|Share of operating profit/(loss)
        in joint ventures                             |  |                                                | 0.4      
|Profit/(loss)
        on disposal of business                                          |  |                                                | 127.8    
|                                                                                       |  |                                                |          
|Segment/group
          profit/(loss) before interest, taxation and minority interests |  |                                                | 74.0     
|                                                                                       |  |                                                |          
|Net (liabilities)/assets
          as at December 31, 2004                             |  |                                                | (67.4    
|Joint ventures                                                                         |  |                                                | 5.1      
|                                                                                       |  |                                                |          
|Total net
          assets as at December 31, 2004                                     |  |                                                |          
|                                                                                       |  |                                                |          

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 72
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

3      Segmental
      information(continued)

Avecia Group plc consolidated

|                                                                                       |  | For the year
          ended December 31, 2003 |          
|-------------------------------------------------------------------------------------- |  | ---------------------------------------------- | ---------
|                                                                                       |  |                                                |          
|                                                                                       |  |                                                | UK       
|                                                                                       |  |                                                |          
|                                                                                       |  |                                                | £ million
|Turnover                                                                               |  |                                                |          
|Sales by destination                                                                   |  |                                                |          
|Total sales                                                                            |  |                                                | 51.9     
|Inter-segmental sales                                                                  |  |                                                | (0.1     
|Sales to joint ventures                                                                |  |                                                | (0.4     
|                                                                                       |  |                                                |          
|Sales to third parties                                                                 |  |                                                | 51.4     
|                                                                                       |  |                                                |          
|Sales by origin                                                                        |  |                                                |          
|Total sales                                                                            |  |                                                | 135.5    
|Inter-segmental sales                                                                  |  |                                                | (0.4     
|Joint venture sales                                                                    |  |                                                | (4.6     
|                                                                                       |  |                                                |          
|Sales to third parties                                                                 |  |                                                | 130.5    
|                                                                                       |  |                                                |          
|Segment operating (loss)/profit
          before:                                      |  |                                                | (48.2    
|Share of operating profit in
        joint ventures                                    |  |                                                | 1.0      
|Profit/(loss) on disposal of
        business                                          |  |                                                | 6.1      
|                                                                                       |  |                                                |          
|Segment/group (loss)/profit
          before interest, taxation and minority interests |  |                                                | (41.1    
|                                                                                       |  |                                                |          
|Net (liabilities)/assets
          as at December 31, 2003                             |  |                                                | (86.3    
|                                                                                       |  |                                                |          
|Joint ventures                                                                         |  |                                                | 5.8      
|                                                                                       |  |                                                |          
|Total net assets as at December
          31, 2003                                     |  |                                                |          
|                                                                                       |  |                                                |          

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 73
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

3      Segmental
      information(continued)

Avecia Group plc consolidated

|                                                                                       |  | For the year
          ended December 31, 2002 |          
|-------------------------------------------------------------------------------------- |  | ---------------------------------------------- | ---------
|                                                                                       |  |                                                |          
|                                                                                       |  |                                                | UK       
|                                                                                       |  |                                                |          
|                                                                                       |  |                                                | £ million
|Turnover                                                                               |  |                                                |          
|Sales by destination                                                                   |  |                                                |          
|Total sales                                                                            |  |                                                | 91.6     
|Inter-segmental sales                                                                  |  |                                                | (0.2     
|Sales to joint
        ventures                                                        |  |                                                |         
|                                                                                       |  |                                                |          
|Sales to third
        parties                                                         |  |                                                | 91.4     
|                                                                                       |  |                                                |          
|Sales by origin                                                                        |  |                                                |          
|Total sales                                                                            |  |                                                | 168.7    
|Inter-segmental sales                                                                  |  |                                                | (0.3     
|Joint venture
        sales                                                            |  |                                                | (4.4     
|                                                                                       |  |                                                |          
|Sales to third
        parties                                                         |  |                                                | 164.0    
|                                                                                       |  |                                                |          
|Segment
          operating (loss)/profit before:                                      |  |                                                | (10.5    
|Share of operating profit in
        joint ventures                                    |  |                                                | 0.9      
|(Loss)/Profit
        on disposal of business                                          |  |                                                | (15.9    
|                                                                                       |  |                                                |          
|Segment/group
          (loss)/profit before interest, taxation and minority interests |  |                                                | (25.5    
|                                                                                       |  |                                                |          
|Net (liabilities)/assets
          as at December 31, 2002                             |  |                                                | (82.6    
|Joint ventures                                                                         |  |                                                | 6.0      
|                                                                                       |  |                                                |          
|Total net
          assets as at December 31, 2002                                     |  |                                                |          
|                                                                                       |  |                                                |          

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 74
|                           |   



---



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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

3      Segmental
      information(continued)

|                             |  | Avecia Group
          plc Consolidated |                      
|---------------------------- |  | --------------------------------------- | ---------------------
|                             |  |                                         |                      
|                             |  |                                         | As atDecember 31,2004
|                             |  |                                         |                      
|                             |  |                                         | £ million            
|Total assets                 |  |                                         |                      
|Chemicals                    |  |                                         | 54.6                 
|Biotechnology                |  |                                         | 98.6                 
|Electronic
        Materials |  |                                         | 73.3                 
|Discontinued Operations      |  |                                         | 103.4                
|Other                        |  |                                         | 242.3                
|                             |  |                                         |                      
|                             |  |                                         | 572.2                
|                             |  |                                         |                      

Other includes all goodwill.

|                                                                      |  | Avecia Group
          plc Consolidated |                                 
|--------------------------------------------------------------------- |  | --------------------------------------- | --------------------------------
|                                                                      |  |                                         |                                 
|                                                                      |  |                                         | For theYearendedDecember 31,2004
|                                                                      |  |                                         |                                 
|                                                                      |  |                                         | £ million                       
|Capital expenditure on tangible
          and intangible fixed assets |  |                                         |                                 
|Chemicals                                                             |  |                                         | 1.8                             
|Biotechnology                                                         |  |                                         | 4.7                             
|Electronic Materials                                                  |  |                                         | 2.4                             
|Discontinued Operations                                               |  |                                         | 5.6                             
|Other                                                                 |  |                                         | 0.8                             
|                                                                      |  |                                         |                                 
|Total                                                                 |  |                                         | 15.3                            
|                                                                      |  |                                         |                                 

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 75
|                           |   

---



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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

3      Segmental
      information(continued)

|                              |  | Avecia
          Group plcConsolidated |                                         
|----------------------------- |  | -------------------------------------- | ----------------------------------------
|                              |  |                                        |                                         
|                              |  |                                        | For theyear endedDecember 31,
      2004
|                              |  |                                        |                                         
|                              |  |                                        | £ million                               
|Depreciation and amortization |  |                                        |                                         
|Chemicals                     |  |                                        | 28.8                                    
|Biotechnology                 |  |                                        | 6.2                                     
|Electronic Materials          |  |                                        | 7.0                                     
|Discontinued Operations       |  |                                        | 6.9                                     
|Other                         |  |                                        | 32.0                                    
|                              |  |                                        |                                         
|Total                         |  |                                        | 80.9                                    
|                              |  |                                        |                                         

Included in the year ended 31 December, 2004 is £22.2
    million of fixed asset impairment charge in Chemicals (2003: £55.2
    million; 2002:£8.6 million). Other includes amortization of all
    goodwill.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 76
|                           |   

---



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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

3      Segmental
      information(continued)

Geographic areas

|                             |  | Avecia Group
          plc Consolidated |                                    
|---------------------------- |  | --------------------------------------- | -----------------------------------
|                             |  |                                         |                                    
|                             |  |                                         | As at
      December 31,
      2004
|                             |  |                                         | £ million                          
|                             |  |                                         |                                    
|Net assets                   |  |                                         |                                    
|United Kingdom               |  |                                         | (62.3                              
|Continental Europe           |  |                                         | 118.2                              
|The Americas                 |  |                                         | (47.3                              
|Asia, Africa and Australasia |  |                                         | 6.9                                
|                             |  |                                         |                                    
|                             |  |                                         | 15.5                               
|                             |  |                                         |                                    

|                             |  | Avecia Group
          plc Consolidated |                                    
|---------------------------- |  | --------------------------------------- | -----------------------------------
|                             |  |                                         |                                    
|                             |  |                                         | As at
      December 31,
      2004
|                             |  |                                         | £ million                          
|                             |  |                                         |                                    
|Tangible fixed assets        |  |                                         |                                    
|United Kingdom               |  |                                         | 118.3                              
|Continental Europe           |  |                                         | 38.2                               
|The Americas                 |  |                                         | 42.0                               
|Asia, Africa and Australasia |  |                                         | 0.1                                
|                             |  |                                         |                                    
|                             |  |                                         | 198.6                              
|                             |  |                                         |                                    

|                             |  | Avecia Group
          plc Consolidated |                  
|---------------------------- |  | --------------------------------------- | -----------------
|                             |  |                                         |                  
|                             |  |                                         | For theyear ended
|                             |  |                                         | December 31,     
|                             |  |                                         | 2004             
|                             |  |                                         |                  
|Average number of employees  |  |                                         |                  
|United Kingdom               |  |                                         | 1,453            
|Continental Europe           |  |                                         | 570              
|The Americas                 |  |                                         | 479              
|Asia, Africa and Australasia |  |                                         | 25               
|                             |  |                                         |                  
|                             |  |                                         | 2,527            
|                             |  |                                         |                  

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 77
|                           |   

---



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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

4      Group
      operating profit

|                                                                         |  | Avecia Group
          plc Consolidated |                                               
|------------------------------------------------------------------------ |  | --------------------------------------- | ----------------------------------------------
|                                                                         |  |                                         |                                               
|                                                                         |  |                                         | For the year
          ended December 31, 2004
|                                                                         |  |                                         |                                               
|                                                                         |  |                                         | Continuing operations                         
|                                                                         |  |                                         |                                               
|                                                                         |  |                                         | £ million                                     
|Operating costs before exceptionals                                      |  |                                         |                                               
|Cost of sales                                                            |  |                                         | (140.0                                        
|Distribution costs                                                       |  |                                         | (4.7                                          
|Research and
        development                                         |  |                                         | (34.9                                         
|Selling, general and administrative
        expenses                     |  |                                         | (73.8                                         
|                                                                         |  |                                         |                                               
|                                                                         |  |                                         | (253.4                                        
|                                                                         |  |                                         |                                               
|Exceptional operating costs                                              |  |                                         |                                               
|Restructuring
        and site closure (net of pension curtailment gains |  |                                         | (15.9                                         
|Impairment of Goodwill, Intangible
        and Tangible Assets           |  |                                         | (22.3)                                        
|Onerous contract                                                         |  |                                         | (1.7                                          
|                                                                         |  |                                         |                                               
|                                                                         |  |                                         | (39.9                                         
|                                                                         |  |                                         |                                               
|Other operating income                                                   |  |                                         |                                               
|Royalty income                                                           |  |                                         |                                              
|Other income                                                             |  |                                         | 9.5                                           
|                                                                         |  |                                         |                                               
|                                                                         |  |                                         | 9.5                                           
|                                                                         |  |                                         |                                               
|Total charge
        for depreciation and amortization included above    |  |                                         | (65.9                                         
|                                                                         |  |                                         |                                               

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 78
|                           |   

---



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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

4      Group
      operating profit(continued)

|                                                                      |  | Avecia Group
          plc Consolidated |                                                        
|--------------------------------------------------------------------- |  | --------------------------------------- | -------------------------------------------------------
|                                                                      |  |                                         |                                                        
|                                                                      |  |                                         | For the year
          ended December 31, 2002 Restated
|                                                                      |  |                                         |                                                        
|                                                                      |  |                                         | ContinuingOperations                                   
|                                                                      |  |                                         |                                                        
|                                                                      |  |                                         | £ million                                              
|Operating costs before exceptionals                                   |  |                                         |                                                        
|Cost of sales                                                         |  |                                         | (178.4)                                                
|Distribution costs                                                    |  |                                         | (3.1)                                                  
|Research and development                                              |  |                                         | (42.3)                                                 
|Selling, general and administrative
        expenses                  |  |                                         | (66.3)                                                 
|                                                                      |  |                                         |                                                        
|                                                                      |  |                                         | (290.1)                                                
|                                                                      |  |                                         |                                                        
|Exceptional operating costs                                           |  |                                         |                                                        
|Restructuring and site closure                                        |  |                                         | (11.1)                                                 
|Impairment of Goodwill, Intangible
        and Tangible Assets        |  |                                         | (30.1)                                                 
|Onerous contract                                                      |  |                                         |                                                       
|                                                                      |  |                                         |                                                        
|                                                                      |  |                                         | (41.2)                                                 
|                                                                      |  |                                         |                                                        
|Other operating income                                                |  |                                         |                                                        
|Royalty income                                                        |  |                                         | 0.8                                                    
|Other income                                                          |  |                                         | 5.1                                                    
|                                                                      |  |                                         |                                                        
|                                                                      |  |                                         | 5.9                                                    
|                                                                      |  |                                         |                                                        
|Total charge for depreciation
        and amortization included above |  |                                         | (90.3)                                                 
|                                                                      |  |                                         |                                                        

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 79
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

5      Profit
      on disposal of businesses

In January 2004 the Group completed
    the sale of the Additives business to The Lubrizol Corporation. The principal
    effects on the reported results are as follows:

|                                                                   |  |  | 2004 |  
|------------------------------------------------------------------ |  |  | ---- | -
|                                                                   |  |  |      |  
|                                                                   |  |  | £m   |  
|Cash flow                                                          |  |  |      |  
|Working capital
        settlement                                 |  |  |     |  
|Cash disposed                                                      |  |  | (0.1 | )
|Sale of business                                                   |  |  | 69.0 |  
|                                                                   |  |  |      |  
|Profit on disposal                                                 |  |  |      |  
|Goodwill written off on disposal                                   |  |  | 25.0 |  
|Net assets disposed (net of
        pension fund curtailment gain) |  |  | 6.7  |  
|Disposal costs                                                     |  |  | 3.5  |  
|Profit on disposal                                                 |  |  | 33.8 |  
|                                                                   |  |  |      |  
|                                                                   |  |  | 69.0 |  
|                                                                   |  |  |      |  
|Consideration                                                      |  |  |      |  
|Cash                                                               |  |  | 69.0 |  
|Working capital settlement                                         |  |  |     |  
|                                                                   |  |  |      |  
|                                                                   |  |  | 69.0 |  
|                                                                   |  |  |      |  

In April 2004 the Group completed
    the sale of the Biocides business to Arch Chemicals, Inc. The principal effects
    on the reported results are as follows:

|                                                                   |  |  | 2004  |  
|------------------------------------------------------------------ |  |  | ----- | -
|                                                                   |  |  |       |  
|                                                                   |  |  | £m    |  
|Cash flow                                                          |  |  |       |  
|Working capital
        settlement                                 |  |  | 4.1   |  
|Cash disposed                                                      |  |  | (0.1  | )
|Sale of business                                                   |  |  | 119.4 |  
|                                                                   |  |  |       |  
|Profit on disposal                                                 |  |  |       |  
|Goodwill written off on disposal                                   |  |  | 23.4  |  
|Net assets disposed (net of
        pension fund curtailment gain) |  |  | 31.6  |  
|Disposal costs                                                     |  |  | 4.8   |  
|Profit on disposal                                                 |  |  | 63.7  |  
|                                                                   |  |  |       |  
|                                                                   |  |  | 123.5 |  
|                                                                   |  |  |       |  
|Consideration                                                      |  |  |       |  
|Cash                                                               |  |  | 110.2 |  
|Shares in Arch Chemicals, Inc.
        (initial consideration)     |  |  | 8.3   |  
|Shares in
        Arch Chemicals, Inc. (deferred consideration)    |  |  | 0.9   |  
|Working capital settlement                                         |  |  | 4.1   |  
|                                                                   |  |  |       |  
|                                                                   |  |  | 123.5 |  
|                                                                   |  |  |       |  

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 80
|                           |   

---



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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

5      Profit on disposal
      of businesses(continued)

The shares in Arch Chemicals, Inc.
    received as part of the initial consideration were held as a current asset
    investment and were disposed of later in the year at a profit of £1.8
    million which is included within operating profit. The shares in Arch Chemicals,
    Inc. received as deferred consideration were received in January 2005.

In November 2004 the Group completed
    the sale of the Special Drug Mixtures business to the Copperhead Chemical
    Company .

The principal effects on the reported
    results are as follows:

|                                         |  |  | 2004 | 
|---------------------------------------- |  |  | ---- | 
|                                         |  |  |      | 
|                                         |  |  | £m   | 
|Cash flow                                |  |  |      | 
|Sale of business                         |  |  | 6.3  | 
|                                         |  |  |      | 
|Profit on disposal                       |  |  |      | 
|Goodwill written
        off on disposal |  |  | 2.7  | 
|Net assets disposed                      |  |  | 2.4  | 
|Disposal costs                           |  |  | 0.1  | 
|Profit on disposal                       |  |  | 1.1  | 
|                                         |  |  |      | 
|                                         |  |  | 6.3  | 
|                                         |  |  |      | 
|Consideration                            |  |  |      | 
|Cash                                     |  |  | 6.3  | 
|                                         |  |  |      | 

Additionally, during the year the
    group reported £0.1m loss relating to the sale of Stahl which took
    place in 2002.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 81
|                           |   

---



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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

6      Profit/(loss)
      on ordinary activities before taxation

|                                                                                      |  | Avecia
          Group plc Consolidated |                   
|------------------------------------------------------------------------------------- |  | --------------------------------------- | ------------------
|                                                                                      |  |                                         |                   
|                                                                                      |  |                                         | For the year ended
|                                                                                      |  |                                         | December 31,      
|                                                                                      |  |                                         | 2004              
|                                                                                      |  |                                         |                   
|                                                                                      |  |                                         | £ million         
|                                                                                      |  |                                         |                   
|Profit/(loss) on ordinary
            activities before taxation is stated            |  |                                         |                   
|                                                                                      |  |                                         |                   
|– after charging                                                                      |  |                                         |                   
|                                                                                      |  |                                         |                   
|Auditors’ remuneration:                                                               |  |                                         |                   
|– group
        audit                                                                 |  |                                         | 0.4               
|– fees paid to the auditors
        and their associates in respect of other services |  |                                         | 0.6               
|Depreciation and other amounts
        written off tangible fixed assets:             |  |                                         |                   
|Owned                                                                                 |  |                                         | 25.6              
|Leased                                                                                |  |                                         | 1.1               
|Impairment
        of tangible and intangible fixed assets                            |  |                                         | 22.3              
|Impairment of goodwill                                                                |  |                                         |                  
|Amortization
        of goodwill                                                      |  |                                         | 22.4              
|Amortization of goodwill for
        joint ventures                                   |  |                                         | 0.9               
|Impairment of goodwill for joint
        ventures                                     |  |                                         | 7.2               
|Amortization of intellectual
        property rights                                  |  |                                         | 1.5               
|Exchange losses                                                                       |  |                                         |                  
|Operating leases:                                                                     |  |                                         |                   
|Land & buildings                                                                      |  |                                         | 0.3               
|Other                                                                                 |  |                                         |                  
|Research and development expenditure                                                  |  |                                         | 45.4              
|                                                                                      |  |                                         |                   
|– after crediting                                                                     |  |                                         |                   
|                                                                                      |  |                                         |                   
|Exchange gains                                                                        |  |                                         | 32.1              
|Government grants                                                                     |  |                                         | 1.2               

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 82
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

7      Remuneration
      of directors

|                                                                                              |  | Avecia Group
          plc                    |      
|--------------------------------------------------------------------------------------------- |  | --------------------------------------------- | -----
|                                                                                              |  |                                               |      
|                                                                                              |  | For
          the year endedDecember 31, 2004 |      
|                                                                                              |  |                                               |      
|                                                                                              |  |                                               | £’000
|                                                                                              |  |                                               |      
|Directors’ emoluments                                                                         |  |                                               | 1,179
|                                                                                              |  |                                               |      
|Included in the above amounts
        paid to third parties in respect of directors’ services |  |                                               |     
|                                                                                              |  |                                               |      

The aggregate of emoluments of the
    highest paid director were £522,313 for the year ended December 31,
    2004, (2003: £366,253) and company pension contributions of £12,240 (2003: £11,880) were
    made to a money purchase scheme on his behalf.

|                                                                                     |  |  | Number of directors | 
|------------------------------------------------------------------------------------ |  |  | ------------------- | 
|                                                                                     |  |  |                     | 
|                                                                                     |  |  | 2004                | 
|                                                                                     |  |  |                     | 
|Retirement benefits are accruing
        to the following number of directors under: |  |  |                     | 
|                                                                                     |  |  |                     | 
|Money purchase schemes                                                               |  |  | 2                   | 
|Defined benefit schemes                                                              |  |  | 1                   | 
|                                                                                     |  |  |                     | 

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 83
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

8      Staff
      numbers and costs

The average number of persons employed
    (including directors) during the period, analyzed by business segment, was
    as follows:

|                     |  |                              | Number of employees                     |                             
|-------------------- |  | ---------------------------- | --------------------------------------- | ----------------------------
|                     |  |                              |                                         |                             
|                     |  |                              | Avecia Group
          plc Consolidated |                             
|                     |  |                              |                                         |                             
|                     |  | For
          the year ended |                                         | For
          the year ended
|                     |  | December
          31,2004   |                                         | December
          31, 2003 
|                     |  |                              |                                         |                             
|Biotechnology        |  |                              | 562                                     |                             
|Chemicals            |  |                              | 696                                     |                             
|Electronic Materials |  |                              | 461                                     |                             
|Discontinued         |  |                              | 668                                     |                             
|Other                |  |                              | 140                                     |                             
|                     |  |                              |                                         |                             
|                     |  |                              | 2,527                                   |                             
|                     |  |                              |                                         |                             

The employee numbers for 2003 and
    2002 have been amended to show the average number of persons employed during
    those periods. These periods previously showed the number of persons employed
    at the end of each period.

The aggregate payroll costs were
    as follows:

|                        |  |                              | Avecia Group
          plc Consolidated |                             
|----------------------- |  | ---------------------------- | --------------------------------------- | ----------------------------
|                        |  |                              |                                         |                             
|                        |  | For
          the year ended |                                         | For
          the year ended
|                        |  | December
          31, 2004  |                                         | December
          31, 2003 
|                        |  |                              |                                         |                             
|                        |  |                              | £ million                               |                             
|                        |  |                              |                                         |                             
|Wages and salaries      |  |                              | 89.6                                    |                             
|Social security costs   |  |                              | 9.4                                     |                             
|Other pension costs     |  |                              | 11.2                                    |                             
|                        |  |                              |                                         |                             
|                        |  |                              | 110.2                                   |                             
|Other employment costs: |  |                              |                                         |                             
|Severance costs         |  |                              | 10.1                                    |                             
|Post retirement costs   |  |                              | 0.8                                     |                             
|Other                   |  |                              |                                        |                             
|                        |  |                              |                                         |                             
|                        |  |                              | 10.9                                    |                             
|                        |  |                              |                                         |                             
|                        |  |                              | 121.1                                   |                             
|                        |  |                              |                                         |                             

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 84
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

9      Other
      interest receivable and similar income

|                   |  |                              | Avecia Group
          plc Consolidated |                             
|------------------ |  | ---------------------------- | --------------------------------------- | ----------------------------
|                   |  |                              |                                         |                             
|                   |  | For
          the year ended |                                         | For
          the year ended
|                   |  | December
          31, 2004  |                                         | December
          31, 2003 
|                   |  |                              |                                         |                             
|                   |  |                              | £ million                               |                             
|                   |  |                              |                                         |                             
|Net exchange gains |  |                              | 32.1                                    |                             
|On bank deposits   |  |                              | 0.7                                     |                             
|Other              |  |                              | 0.1                                     |                             
|                   |  |                              |                                         |                             
|                   |  |                              | 32.9                                    |                             
|                   |  |                              |                                         |                             

10      Interest
      payable and similar charges

|                                                                                         |  |                              | Avecia Group
          plc Consolidated |                             
|---------------------------------------------------------------------------------------- |  | ---------------------------- | --------------------------------------- | ----------------------------
|                                                                                         |  |                              |                                         |                             
|                                                                                         |  | For the year
          ended |                                         | For the year
          ended
|                                                                                         |  | December 31,
          2004  |                                         | December 31,
          2003 
|                                                                                         |  |                              |                                         |                             
|                                                                                         |  |                              | £ million                               |                             
|                                                                                         |  |                              |                                         |                             
|Net exchange losses                                                                      |  |                              |                                        |                             
|On bank loans and overdrafts                                                             |  |                              | 6.8                                     |                             
|On all other loans                                                                       |  |                              | 34.2                                    |                             
|Amortization of finance fees                                                             |  |                              | 10.2                                    |                             
|Finance charges payable in respect
        of finance leases and hire purchase contracts |  |                              | 0.3                                     |                             
|Losses on early repayments of
        debt                                               |  |                              |                                        |                             
|                                                                                         |  |                              |                                         |                             
|                                                                                         |  |                              | 51.5                                    |                             
|                                                                                         |  |                              |                                         |                             

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 85
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

11      Taxation

The provision for tax is as follows:

|                                                                                                                                                                                                       |  |                              | Avecia Group
          plc Consolidated |                             
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | --------------------------------------- | ----------------------------
|                                                                                                                                                                                                       |  |                              |                                         |                             
|                                                                                                                                                                                                       |  | For the year
          ended |                                         | For the year
          ended
|                                                                                                                                                                                                       |  | December 31,
          2004  |                                         | December 31,
          2003 
|                                                                                                                                                                                                       |  |                              |                                         |                             
|                                                                                                                                                                                                       |  |                              | £ million                               |                             
|                                                                                                                                                                                                       |  |                              |                                         |                             
|UK taxation charge at United
        Kingdom corporation tax rate of 30% for year ended December 31, 2004
        (30% for year ended December 31, 2003; 30% for year ended December
        31, 2002) |  |                              |                                        |                             
|Deferred taxation                                                                                                                                                                                      |  |                              | 0.6                                     |                             
|Overseas taxation                                                                                                                                                                                      |  |                              | 1.3                                     |                             
|                                                                                                                                                                                                       |  |                              |                                         |                             
|                                                                                                                                                                                                       |  |                              | 1.9                                     |                             
|                                                                                                                                                                                                       |  |                              |                                         |                             

At December 31, 2004 there were £86.9m
    of UK tax losses to be carried forward with no expiration date (2003: £159.2
    m). In addition, at that date, the group had US$ 30.7 million of US federal
    tax net operating losses which expire in years 2020 to 2023 (2003: $41.2
    m). No deferred tax asset was recognized in respect of these losses which
    results in the high effective tax rate for the group. There is £5.2m
    non current and £0.5m current deferred tax (see note 20).

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 86
|                           |   

---



Back to Contents

Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

11      Taxation(continued)

Factors affecting tax charge for
      year

The tax assessed for the period is
    lower than the standard rate of corporation tax in the UK (30%). The differences
    are explained below:

|                                                                                                             |  | For the year
          ended December 31, 2004 |       | For the year
          ended December 31, 2003 |  | For the year
          ended December 31, 2002 |  
|------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------- | ----- | ---------------------------------------------- |  | ---------------------------------------------- | -
|                                                                                                             |  |                                                |       |                                                |  |                                                |  
|                                                                                                             |  |                                                | £m    |                                                |  | £m                                             |  
|                                                                                                             |  |                                                |       |                                                |  |                                                |  
|Profit/(loss) on ordinary activities
        before tax                                                      |  |                                                | 20.8  |                                                |  | (93.6                                          | )
|                                                                                                             |  |                                                |       |                                                |  |                                                |  
|Profit/(loss) on ordinary activities
        multiplied by standard rate of corporation tax in the UK of 30% |  |                                                | 6.2   |                                                |  | (28.1                                          | )
|Effects of:                                                                                                  |  |                                                |       |                                                |  |                                                |  
|Expenses not deductible for
        tax :                                                                    |  |                                                |       |                                                |  |                                                |  
|Goodwill
        amortisation                                                                                |  |                                                | 21.3  |                                                |  | 6.4                                            |  
|Depreciation for the period
        in excess of capital allowances                                          |  |                                                | 1.6   |                                                |  | 14.7                                           |  
|Disposal
        of assets                                                                                   |  |                                                | 0.3   |                                                |  |                                               |  
|Non taxable income                                                                                           |  |                                                | (9.0  | )                                              |  | (3.9                                           | )
|Gain on disposal of subsidiary
        not taxable                                                           |  |                                                |      |                                                |  |                                               |  
|Adjustment of depreciation and
        goodwill on business disposals                                        |  |                                                |      |                                                |  | 0.8                                            |  
|Generation of additional tax
        losses in the year                                                      |  |                                                | 1.1   |                                                |  | 21.6                                           |  
|Higher rates on overseas earnings                                                                            |  |                                                | 3.2   |                                                |  |                                               |  
|Pension fund payment                                                                                         |  |                                                |      |                                                |  |                                               |  
|Tax losses utilised                                                                                          |  |                                                | (19.7 | )                                              |  | (10.7                                          | )
|State taxes                                                                                                  |  |                                                | 0.2   |                                                |  | 0.2                                            |  
|Profit in inventory                                                                                          |  |                                                | (1.8  | )                                              |  | (0.3                                           | )
|Previous year adjustment                                                                                     |  |                                                | (2.2  | )                                              |  |                                               |  
|R&D tax credits                                                                                              |  |                                                | (0.3  | )                                              |  |                                               |  
|Dividends not taxable                                                                                        |  |                                                | 0.4   |                                                |  |                                               |  
|                                                                                                             |  |                                                |       |                                                |  |                                                |  
|Total current taxes                                                                                          |  |                                                | 1.3   |                                                |  | 0.7                                            |  
|Deferred tax charge for the
        period                                                                   |  |                                                | 0.6   |                                                |  | 0.2                                            |  
|                                                                                                             |  |                                                |       |                                                |  |                                                |  
|Deferred taxes                                                                                               |  |                                                |       |                                                |  |                                                |  
|Profit in inventory                                                                                          |  |                                                | 0.2   |                                                |  |                                               |  
|Unremitted earnings                                                                                          |  |                                                | 0.6   |                                                |  |                                               |  
|Other timing differences                                                                                     |  |                                                | (0.2  | )                                              |  | 0.2                                            |  
|                                                                                                             |  |                                                |       |                                                |  |                                                |  
|Total deferred taxes                                                                                         |  |                                                | 0.6   |                                                |  | 0.2                                            |  
|                                                                                                             |  |                                                |       |                                                |  |                                                |  
|Taxes on income from ordinary
        activities                                                             |  |                                                | 1.9   |                                                |  | 0.9                                            |  
|                                                                                                             |  |                                                |       |                                                |  |                                                |  

All current and deferred income tax
    expense for the year is attributable to foreign operations.Analysis of loss on ordinary activities
    before taxation :

|                  |  | For the year
          ended December 31, 2004 |           | For the year
          ended December 31, 2003 |  | For the year
          ended December 31, 2002 |  
|----------------- |  | ---------------------------------------------- | --------- | ---------------------------------------------- |  | ---------------------------------------------- | -
|                  |  |                                                |           |                                                |  |                                                |  
|                  |  |                                                | £ million |                                                |  | £ million                                      |  
|                  |  |                                                |           |                                                |  |                                                |  
|UK activities     |  |                                                | 0.3       |                                                |  | (63.5                                          | )
|Non UK activities |  |                                                | 22.8      |                                                |  | (30.1                                          | )
|                  |  |                                                |           |                                                |  |                                                |  
|Total             |  |                                                | 23.1      |                                                |  | (93.6                                          | )
|                  |  |                                                |           |                                                |  |                                                |  

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 87
|                           |   

---



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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

12      Intangible
      fixed assets

|                                |  |  | Avecia Group
          plcConsolidated as at December 31, 2004 |  
|------------------------------- |  |  | -------------------------------------------------------------- | -
|                                |  |  |                                                                |  
|                                |  |  | Goodwill                                                       |  
|                                |  |  |                                                                |  
|                                |  |  | £ million                                                      |  
|Cost
            or valuation   |  |  |                                                                |  
|At beginning of year            |  |  | 443.6                                                          |  
|Additions                       |  |  |                                                               |  
|Disposals                       |  |  | (106.7                                                         | )
|Translation
        adjustments |  |  | (6.3                                                           | )
|                                |  |  |                                                                |  
|At end of year                  |  |  | 330.6                                                          |  
|                                |  |  |                                                                |  
|Amortization                    |  |  |                                                                |  
|At beginning of year            |  |  | 165.9                                                          |  
|Charge for
        year         |  |  | 22.4                                                           |  
|Impairment                      |  |  |                                                               |  
|Disposals                       |  |  | (55.6                                                          | )
|Translation adjustments         |  |  | (1.7                                                           | )
|                                |  |  |                                                                |  
|At end of year                  |  |  | 131.0                                                          |  
|                                |  |  |                                                                |  
|Net
            book value      |  |  |                                                                |  
|At December
          31, 2004  |  |  | 199.6                                                          |  
|                                |  |  |                                                                |  

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 88
|                           |   

---



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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

12      Intangible
      fixed assets(continued)

|                                    |  |  | Avecia Group
          plcConsolidated as at December 31, 2003 |  
|----------------------------------- |  |  | -------------------------------------------------------------- | -
|                                    |  |  |                                                                |  
|                                    |  |  | Goodwill                                                       |  
|                                    |  |  |                                                                |  
|                                    |  |  | £ million                                                      |  
|Cost
            or valuation       |  |  |                                                                |  
|At beginning
        of year        |  |  | 444.2                                                          |  
|Acquisition
        of subsidiaries |  |  |                                                               |  
|Additions                           |  |  |                                                               |  
|Disposals                           |  |  | (1.6                                                           | )
|Translation
        adjustments     |  |  | 1.0                                                            |  
|                                    |  |  |                                                                |  
|At end of
        year              |  |  | 443.6                                                          |  
|                                    |  |  |                                                                |  
|Amortization                        |  |  |                                                                |  
|At beginning
        of year        |  |  | 125.9                                                          |  
|Charge for
        year             |  |  | 29.6                                                           |  
|Impairment                          |  |  | 13.4                                                           |  
|Disposals                           |  |  | (1.6                                                           | )
|Translation
        adjustments     |  |  | (1.4                                                           | )
|                                    |  |  |                                                                |  
|At end of
        year              |  |  | 165.9                                                          |  
|                                    |  |  |                                                                |  
|Net
            book value          |  |  |                                                                |  
|At December
          31, 2003      |  |  | 277.7                                                          |  
|                                    |  |  |                                                                |  

The acquisition values of intellectual
    property rights acquired as part of the business represent the fair value
    at the acquisition date. Goodwill is being amortized evenly over the directors’ estimate
    of the weighted average useful life of 15 years, following a detailed review
    of the factors affecting its durability, including the estimated life span
    of the group’s products and technology, the stability of the industry
    and the group’s competitive position within it.

The goodwill impairment of £13.4
    million charged during the year ending December 31, 2003 relates to Chemicals,
    mainly goodwill created on the acquisition of Torcan. The £13.4 million
    impairment charged during 2003 was calculated with reference to value in
    use of the income generating units using a discount rate of 16.6%.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 89
|                           |   

---



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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

13      Tangible
      fixed assets

|                        |  |                    | Avecia Group
          plc Consolidated as at December 31, 2004 |                    
|----------------------- |  | ------------------ | --------------------------------------------------------------- | -------------------
|                        |  |                    |                                                                 |                    
|                        |  | Land and buildings |                                                                 | Plant and equipment
|                        |  |                    |                                                                 |                    
|                        |  |                    | £ million                                                       |                    
|Cost or valuation       |  |                    |                                                                 |                    
|At beginning of year    |  |                    | 54.8                                                            |                    
|Additions               |  |                    | 0.1                                                             |                    
|Disposals               |  |                    | (3.6                                                            | )                  
|Transfers               |  |                    | 2.6                                                             |                    
|Translation adjustments |  |                    | (2.4                                                            | )                  
|                        |  |                    |                                                                 |                    
|At end of year          |  |                    | 51.5                                                            |                    
|                        |  |                    |                                                                 |                    
|Depreciation            |  |                    |                                                                 |                    
|At beginning of year    |  |                    | 7.8                                                             |                    
|Charge for year         |  |                    | 2.8                                                             |                    
|Impairment              |  |                    | 1.1                                                             |                    
|Disposals               |  |                    | (0.2                                                            | )                  
|Translation adjustments |  |                    | (1.0                                                            | )                  
|                        |  |                    |                                                                 |                    
|At end of year          |  |                    | 10.5                                                            |                    
|                        |  |                    |                                                                 |                    
|Net book value          |  |                    |                                                                 |                    
|At December 31, 2004    |  |                    | 41.0                                                            |                    
|                        |  |                    |                                                                 |                    

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 90
|                           |   

---



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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

13      Tangible
      fixed assets(continued)

|                        |  |  | Avecia Group
          plc Consolidated as at December 31, 2003 |  
|----------------------- |  |  | --------------------------------------------------------------- | -
|                        |  |  |                                                                 |  
|                        |  |  | Land and buildings                                              |  
|                        |  |  |                                                                 |  
|                        |  |  | £ million                                                       |  
|Cost or valuation       |  |  |                                                                 |  
|At beginning of year    |  |  | 61.7                                                            |  
|Additions               |  |  | 0.1                                                             |  
|Disposals               |  |  | (8.2                                                            | )
|Transfers               |  |  | 1.6                                                             |  
|Translation adjustments |  |  | (0.4                                                            | )
|                        |  |  |                                                                 |  
|At end of year          |  |  | 54.8                                                            |  
|                        |  |  |                                                                 |  
|Depreciation            |  |  |                                                                 |  
|At beginning of year    |  |  | 2.9                                                             |  
|Charge for year         |  |  | 6.0                                                             |  
|Impairment              |  |  |                                                                |  
|Disposals               |  |  | (0.9                                                            | )
|Translation adjustments |  |  | (0.2                                                            | )
|                        |  |  |                                                                 |  
|At end of year          |  |  | 7.8                                                             |  
|                        |  |  |                                                                 |  
|Net book value          |  |  |                                                                 |  
|At December 31, 2003    |  |  | 47.0                                                            |  
|                        |  |  |                                                                 |  

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 91
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

13      Tangible
      fixed assets(continued)

The net book value of land and buildings
    comprises:

|                |  |                             | Avecia Group
          plc
      Consolidated |                            
|--------------- |  | --------------------------- | --------------------------------------------- | ---------------------------
|                |  |                             |                                               |                            
|                |  | December
          31, 2004 |                                               | December
          31, 2003
|                |  |                             |                                               |                            
|                |  |                             | £ million                                     |                            
|                |  |                             |                                               |                            
|Freehold        |  |                             | 39.3                                          |                            
|Long leasehold  |  |                             | 1.7                                           |                            
|Short leasehold |  |                             |                                              |                            
|                |  |                             |                                               |                            
|                |  |                             | 41.0                                          |                            
|                |  |                             |                                               |                            

The cost of land and buildings includes £43.5million
    of depreciable assets at December 31, 2004 (2003: £40.6 million).

Included in the total net book value
    of land and buildings is £0.7 million in respect of assets held under
    finance leases at December 31, 2004 (2003: £0.4 million). Depreciation
    for the year ended December 31, 2004 on these assets was £0.1 million (2003: £0.3
    million). In respect of plant and equipment the net book value of assets
    held under finance leases is £3.9 million (2003: £5.4 million).
    Depreciation on these assets was £3.9 million (2003: £3.3
    million).

Depreciation was not charged on land
    with a cost of £7.7 million included in land and buildings during the
    year ended December 31, 2004 (2003: £6.4 million).

Where applicable, the impairment
    charged during the year was calculated with reference to value in use of
    the assets using a discount rate of 16.0%.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 92
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

14      Fixed
      asset investments

|                                               |  | Avecia Group
          plcConsolidated as at December 31, 2004 |          
|---------------------------------------------- |  | -------------------------------------------------------------- | ---------
|                                               |  |                                                                |          
|                                               |  | Investments
          injoint ventures                         |          
|                                               |  |                                                                |          
|                                               |  |                                                                | £ million
|Cost                                           |  |                                                                |          
|At beginning of year                           |  |                                                                |          
|Goodwill                                       |  |                                                                | 14.1     
|Exchange movements on goodwill                 |  |                                                                | (1.3     
|Share of net assets                            |  |                                                                | 9.8      
|Translation adjustments                        |  |                                                                | (0.3     
|Capital contributions                          |  |                                                                | (0.3     
|                                               |  |                                                                |          
|At end of year                                 |  |                                                                | 22.0     
|                                               |  |                                                                |          
|Share of post acquisition
            reserves |  |                                                                |          
|At beginning of year                           |  |                                                                | (0.3     
|Retained profits less losses                   |  |                                                                | 1.1      
|Dividends received                             |  |                                                                | (2.0     
|                                               |  |                                                                |          
|At end of year                                 |  |                                                                | (1.2     
|                                               |  |                                                                |          
|Amortization                                   |  |                                                                |          
|At beginning of year                           |  |                                                                | (4.8     
|Charged for the year                           |  |                                                                | (0.9     
|Impairment                                     |  |                                                                | (7.2     
|                                               |  |                                                                |          
|At end of year                                 |  |                                                                | (12.9    
|                                               |  |                                                                |          
|Net book value                                 |  |                                                                |          
|At December 31, 2004                           |  |                                                                | 7.9      
|                                               |  |                                                                |          
|At December 31, 2003                           |  |                                                                | 18.8     
|                                               |  |                                                                |          

Net book value of £7.9 million
    comprises net assets of £7.9 million and goodwill of £Nil.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 93
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

14      Fixed
      asset investments(continued)

|                                               |  | Avecia Group
          plcConsolidated as at December 31, 2003 |          
|---------------------------------------------- |  | -------------------------------------------------------------- | ---------
|                                               |  |                                                                |          
|                                               |  | Investments
          injoint ventures                         |          
|                                               |  |                                                                |          
|                                               |  |                                                                | £ million
|Cost                                           |  |                                                                |          
|At beginning of year                           |  |                                                                |          
|Goodwill                                       |  |                                                                | 15.5     
|Exchange movements on goodwill                 |  |                                                                | (1.3     
|Share of net assets                            |  |                                                                | 10.6     
|Translation adjustments                        |  |                                                                | (0.5     
|Capital contributions                          |  |                                                                | (0.4     
|                                               |  |                                                                |          
|At end of year                                 |  |                                                                | 23.9     
|                                               |  |                                                                |          
|Share of post acquisition
            reserves |  |                                                                |          
|At beginning of year                           |  |                                                                | (0.4     
|Retained profits less losses                   |  |                                                                | 2.7      
|Dividends received                             |  |                                                                | (2.6     
|                                               |  |                                                                |          
|At end of year                                 |  |                                                                | (0.3     
|                                               |  |                                                                |          
|Amortization                                   |  |                                                                |          
|At beginning of year                           |  |                                                                | (3.8     
|Charged for the year                           |  |                                                                | (1.0     
|                                               |  |                                                                |          
|At end of year                                 |  |                                                                | (4.8     
|                                               |  |                                                                |          
|Net book value                                 |  |                                                                |          
|At December 31, 2003                           |  |                                                                | 18.8     
|                                               |  |                                                                |          
|At December 31, 2002                           |  |                                                                | 21.8     
|                                               |  |                                                                |          
|                                               |  |                                                                |          

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 94
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

14      Fixed
      asset investments(continued)

The principal undertakings of Avecia
    Group plc are as follows.

|                                    |  | Country of incorporation |                 | Principal Activity |  | Percentage of
          equity owned | 
|----------------------------------- |  | ------------------------ | --------------- | ------------------ |  | ------------------------------------ | 
|                                    |  |                          |                 |                    |  |                                      | 
|Subsidiary
            undertakings |  |                          |                 |                    |  |                                      | 
|                                    |  |                          |                 |                    |  |                                      | 
|Avecia Corporation
        Limited  |  |                          | UK              |                    |  | Holding company                      | 
|Avecia Investments
        Limited  |  |                          | UK              |                    |  | Holding company                      | 
|Avecia UK
        Holdings Limited  |  |                          | UK              |                    |  | Holding company                      | 
|Avecia Limited                      |  |                          | UK              |                    |  | Chemical manufacture                 | 
|Avecia Holdings
        BV (#)      |  |                          | The Netherlands |                    |  | Holding company                      | 
|Avecia BV
        (#)               |  |                          | The Netherlands |                    |  | Chemical manufacture                 | 
|Avecia Inc.                         |  |                          | USA             |                    |  | Chemical manufacture                 | 
|Avecia Holdings
        Inc.        |  |                          | USA             |                    |  | Holding company                      | 
|Torcan Chemical
        Limited     |  |                          | Canada          |                    |  | Chemical manufacture                 | 
|NeoResins
        Inc. (#)          |  |                          | USA             |                    |  | Chemical manufacture                 | 
|Avecia Biotechnology
        Inc.   |  |                          | USA             |                    |  | Chemical manufacture                 | 
|Avecia Spain
        SL (#)         |  |                          | Spain           |                    |  | Chemical manufacture                 | 
|                                    |  |                          |                 |                    |  |                                      | 
|Joint
            ventures          |  |                          |                 |                    |  |                                      | 
|                                    |  |                          |                 |                    |  |                                      | 
|Image Polymers
        Europe       |  |                          | UK              |                    |  | Chemical manufacture                 | 
|Image Polymers
        Company      |  |                          | USA             |                    |  | Chemical manufacture                 | 

* All ordinary shares held.# Sold as part of the NeoResins disposal
on February 2, 2005

Under the terms of certain financing
    agreements, distribution by subsidiary undertakings beyond Avecia Investments
    Limited are restricted to specific purposes.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 95
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

(1)     14      Fixed
      asset investments(continued)

The following information is relevant
    to an understanding of the investments in joint ventures.The amounts included in respect of
    joint ventures comprise the following:

|                                    |  |  | Avecia Group
          plc Consolidated        |  
|----------------------------------- |  |  | ---------------------------------------------- | -
|                                    |  |  |                                                |  
|                                    |  |  | As at/period ended December
          31, 2004 |  
|                                    |  |  |                                                |  
|                                    |  |  | £ million                                      |  
|                                    |  |  |                                                |  
|Share of turnover of joint ventures |  |  | 8.8                                            |  
|                                    |  |  |                                                |  
|Share of assets                     |  |  | 9.6                                            |  
|Share of liabilities                |  |  | (1.7                                           | )
|                                    |  |  |                                                |  
|Share of net assets                 |  |  | 7.9                                            |  
|                                    |  |  |                                                |  

The net book value of joint ventures
    as disclosed on the balance sheet includes goodwill of £nil at December
    31, 2004 (2003: £9.4 million).

15      Stocks

|                                            |  |                             | Avecia Group
          plc Consolidated |                            
|------------------------------------------- |  | --------------------------- | --------------------------------------- | ---------------------------
|                                            |  |                             |                                         |                            
|                                            |  | December 31,
          2004 |                                         | December 31,
          2003
|                                            |  |                             |                                         |                            
|                                            |  |                             | £ million                               |                            
|                                            |  |                             |                                         |                            
|Raw materials and consumables               |  |                             | 24.4                                    |                            
|Work in progress                            |  |                             | 7.0                                     |                            
|Finished goods and goods for
        resale |  |                             | 18.8                                    |                            
|                                            |  |                             |                                         |                            
|                                            |  |                             | 50.2                                    |                            
|                                            |  |                             |                                         |                            

Stock is stated net of provisions
    of £5.4 million at December 31, 2004, (2003: £3.8 million).

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 96
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

16      Debtors

|                                                        |  |                             | Avecia Group
          plc Consolidated |                            
|------------------------------------------------------- |  | --------------------------- | --------------------------------------- | ---------------------------
|                                                        |  |                             |                                         |                            
|                                                        |  | December 31,
          2004 |                                         | December 31,
          2003
|                                                        |  |                             |                                         |                            
|                                                        |  |                             |                                         |                            
|                                                        |  |                             | £ million                               |                            
|Debtors due within one year                             |  |                             |                                         |                            
|Trade debtors (net of provisions
        for bad debts) |  |                             | 59.1                                    |                            
|Other debtors                                           |  |                             | 5.7                                     |                            
|Prepayments and accrued income                          |  |                             | 4.5                                     |                            
|Amounts receivable from joint
        ventures          |  |                             | 0.4                                     |                            
|                                                        |  |                             |                                         |                            
|                                                        |  |                             | 69.7                                    |                            
|                                                        |  |                             |                                         |                            
|                                                        |  |                             |                                         |                            
|                                                        |  |                             | £ million                               |                            
|Debtors due after more one
          year               |  |                             |                                         |                            
|Amounts owed by parent undertakings                     |  |                             | 15.0                                    |                            
|                                                        |  |                             |                                         |                            

Total debtors include trade debtors
    of £nil, other debtors of £0.8 million, prepayments and accrued
    income of £Nil and pensions prepayments of £nil million due after
    more than one year at December 31, 2004. At December 31, 2003 the comparative
    amounts were £nil million, £0.8 million, £nil million and £nil
    million respectively. Amounts owed by parent undertakings are due after more
    than one year and do not bear interest.

2003 other debtors and total debtors
    were restated and reduced by £0.5m for the UITF38 prior period adjustment.
    At December 31, 2004, debtors of £9.0 million (2003: £12.5
    million) were in respect of sales made by the US businesses.

Provision for bad and doubtful
      debts

|                                               |  |                             | Avecia Group
          plc Consolidated |                            
|---------------------------------------------- |  | --------------------------- | --------------------------------------- | ---------------------------
|                                               |  |                             |                                         |                            
|                                               |  | December 31,
          2004 |                                         | December 31,
          2003
|                                               |  |                             |                                         |                            
|                                               |  |                             | £ million                               |                            
|Provision for bad and doubtful
          debts |  |                             |                                         |                            
|At beginning of year                           |  |                             | 1.8                                     |                            
|(Credit)/charge for period                     |  |                             | 1.2                                     |                            
|Amount utilized and other movements            |  |                             | (0.5                                    | )                          
|                                               |  |                             |                                         |                            
|At end of year                                 |  |                             | 2.5                                     |                            
|                                               |  |                             |                                         |                            
|                                               |  |                             |                                         |                            

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 97
|                           |   

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated
        financial statements(continued)

17      Creditors:
      amounts falling due within one year

|                                                                                   |  |  |     |  |  |     |  |  | Avecia Group
          plc Consolidated | 
|---------------------------------------------------------------------------------- |  |  | --- |  |  | --- |  |  | --------------------------------------- | 
|                                                                                   |  |  |     |  |  |     |  |  |                                         | 
|                                                                                   |  |  |     |  |  |     |  |  | December 31,                            | 
|                                                                                   |  |  |     |  |  |     |  |  | 2004                                    | 
|                                                                                   |  |  |     |  |  |     |  |  |                                         | 
|                                                                                   |  |  |     |  |  |     |  |  | £ million                               | 
|                                                                                   |  |  |     |  |  |     |  |  |                                         | 
|Bank loans and overdrafts (see
        note 19)                                    |  |  |     |  |  |     |  |  | 72.8                                    | 
|Obligations under
        finance leases and hire purchase contracts (see note 19) |  |  | 0.8 |  |  | 0.7 | 
|Trade creditors                                                                    |  |  |     |  |  |     |  |  | 50.2                                    | 
|Taxation and social security                                                       |  |  |     |  |  |     |  |  | 5.7                                     | 
|Other creditors                                                                    |  |  |     |  |  |     |  |  | 4.0                                     | 
|Accruals and deferred income                                                       |  |  |     |  |  |     |  |  | 22.1                                    | 
|                                                                                   |  |  |     |  |  |     |  |  |                                         | 
|                                                                                   |  |  |     |  |  |     |  |  | 155.6                                   | 
|                                                                                   |  |  |     |  |  |     |  |  |                                         | 

The weighted average interest rate
    for short-term borrowings, before interest hedging, at December 31, 2004
    was 7.7% (2003: 5.4%).

The analysis of the 2003 comparative
    figures for the group has been reclassified in order to maintain consistency
    of presentation with the current year. Taxation and social security has been
    reclassified as £4.3m from £8.8m and other creditors have been
    reclassified as £9.4m from £4.9. There is no change to total
    creditors. Bank loans at December 31, 2004 are shown net of finance costs
    of £3.9 million (2003: £4.2 million) which are being amortized
    over the life of the debt.

18      Creditors:
      amounts falling due after more than one year

|                                                                                   |  |  | Avecia Group
          plc Consolidated | 
|---------------------------------------------------------------------------------- |  |  | --------------------------------------- | 
|                                                                                   |  |  |                                         | 
|                                                                                   |  |  | December 31,                            | 
|                                                                                   |  |  | 2004                                    | 
|                                                                                   |  |  |                                         | 
|                                                                                   |  |  | £ million                               | 
|                                                                                   |  |  |                                         | 
|Bank loans and overdrafts (see
        note 19)                                    |  |  |                                        | 
|Other loans (see note 19)                                                          |  |  | 272.6                                   | 
|Amounts owed to related undertakings                                               |  |  |                                        | 
|Obligations under finance leases
        and hire purchase contracts (see note 19) |  |  | 3.7                                     | 
|Other creditors                                                                    |  |  | 0.9                                     | 
|Accruals and deferred income                                                       |  |  | 1.2                                     | 
|                                                                                   |  |  |                                         | 
|                                                                                   |  |  | 278.4                                   | 
|                                                                                   |  |  |                                         | 

Bank loans and other loans as at
    December 31, 2004 are shown net of finance costs of £6.2 million (2003: £12.1
    million) which are being amortized over the life of the debt.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 98
|                           |   

---



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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

19      Borrowings, financial instruments and risk management

Analysis of debt shown net of unamortized issuance costs

|                                     |  |  | Avecia Group
          plc Consolidated | 
|------------------------------------ |  |  | --------------------------------------- | 
|                                     |  |  |                                         | 
|                                     |  |  | Gross repayableDecember 31,             | 
|                                     |  |  | 2004                                    | 
|                                     |  |  |                                         | 
|                                     |  |  | £ million                               | 
|Debt can be analyzed as falling due: |  |  |                                         | 
|In one year or less, or on demand    |  |  | 75.0                                    | 
|Between one and two years            |  |  |                                        | 
|Between two and three years          |  |  |                                        | 
|Between three and four years         |  |  |                                        | 
|Between four and five years          |  |  | 278.8                                   | 
|In five years or more                |  |  |                                        | 
|                                     |  |  |                                         | 
|                                     |  |  | 353.8                                   | 
|                                     |  |  |                                         | 

|                                           |  |  | Avecia Group
          plc Consolidated | 
|------------------------------------------ |  |  | --------------------------------------- | 
|                                           |  |  |                                         | 
|                                           |  |  | Gross repayableDecember 31,             | 
|                                           |  |  | 2003                                    | 
|                                           |  |  |                                         | 
|                                           |  |  | £ million                               | 
|Debt can be analyzed as falling due:       |  |  |                                         | 
|In one year or less, or on demand          |  |  | 74.1                                    | 
|Between one and two years                  |  |  | 38.6                                    | 
|Between two and three years                |  |  | 43.4                                    | 
|Between three and four years               |  |  | 36.6                                    | 
|Between four and five years                |  |  | 18.3                                    | 
|In five years or more                      |  |  | 306.2                                   | 
|                                           |  |  |                                         | 
|                                           |  |  | 517.2                                   | 
|                                           |  |  |                                         | 
|Amounts repayable in more than five years: |  |  |                                         | 
|                                           |  |  | Gross repayableDecember 31,             | 
|                                           |  |  | 2003                                    | 
|                                           |  |  |                                         | 
|                                           |  |  | £ million                               | 
|                                           |  |  |                                         | 
|High Yield Bonds                           |  |  | 306.2                                   | 
|                                           |  |  |                                         | 

High Yield BondThe High Yield Bond is repayable in 2009 and interest is fixed at 11%.  The difference between net and gross repayable is unamortized fees.

|                           |   
|-------------------------- | --
|Registered number: 3768265 | 99
|                           |   

---



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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated
        financial statements(continued)

19      Borrowings, financial instruments and risk management(continued)

Debt covenants and restrictions

Term loans

Under the conditions of the term loans entered into by the group, Avecia Corporation Limited, a wholly owned subsidiary of Avecia Group plc, and certain of its subsidiaries have guaranteed the obligations of each other.  In addition, the various obligations under the credit agreement are secured by security interests created over certain of the assets of Avecia Corporation Limited and its subsidiaries.

The agreement entered into by Avecia Corporation Limited and Avecia Investments Limited with the lenders of the term loans contains customary events of default and various restrictive covenants.  These covenants place restrictions on the actions of Avecia Investments Limited and its subsidiaries, in particular in relation to the payment of dividends and other specified payments to Avecia Corporation Limited or any of its holding companies, other than in certain specific circumstances.  The credit agreement also contains financial covenants, including maintenance of financial ratios, including among others:

-      a ratio of Consolidated EBITDA to Consolidated Net Interest Charges-      a
ratio of Adjusted Cash Flow to Relevant Expenditure-      a
ratio of Net Senior Debt to Consolidated EBITDA-      a
maximum limitation on capital expenditure.

Following the disposal of NeoResins, in February 2005, the Term loans were fully repaid from the proceeds (see Note 31).

High yield bond

The high yield bond issued by Avecia Group plc is guaranteed by Avecia Corporation Limited.  Payments under the guarantee will be subordinated to the guarantor’s payment of its obligations under the term loan agreements.  Under the terms of the bond, Avecia Group plc and certain of its subsidiaries are subject to restrictions over the sale of assets unless certain, specified conditions are met.

In addition, Avecia Group plc has committed:

| | − | that none of the restricted subsidiaries may declare or pay any dividend or other distribution on account of Avecia or any of its restricted subsidiaries’ equity interests unless certain, specified conditions are met;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | − | not to purchase, redeem or otherwise acquire or retire any equity interest of itself or any intermediate holding company;
| | - | -------------------------------------------------------------------------------------------------------------------------

| | − | not to make any payment on or in respect of any subordinated debt with specified exceptions;
| | - | --------------------------------------------------------------------------------------------

| | − | not to make any restricted investment;
| | - | --------------------------------------

| | − | to comply with specified restrictions over the incurrence of debt and issuance of preferred stock;
| | - | --------------------------------------------------------------------------------------------------

| | − | to comply with specified restrictions on merger, consolidation or sale of all or substantially all assets;
| | - | ----------------------------------------------------------------------------------------------------------

| | − | to comply with specified restrictions on transactions with affiliates;
| | - | ----------------------------------------------------------------------

| | − | to comply with specified restrictions on issuing guarantees of debt by restricted subsidiaries;
| | - | -----------------------------------------------------------------------------------------------

| | − | to comply with specified restrictions on designations of unrestricted subsidiaries.
| | - | -----------------------------------------------------------------------------------

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 100
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated
        financial statements(continued)

19      Borrowings, financial instruments and risk management(continued)

The maturity of obligations under finance leases and hire purchase contracts is as follows:

|                             |  |  | Avecia Group
          plc Consolidated |  
|---------------------------- |  |  | --------------------------------------- | -
|                             |  |  |                                         |  
|                             |  |  | December 31,2004                        |  
|                             |  |  |                                         |  
|                             |  |  | £ million                               |  
|                             |  |  |                                         |  
|Within one year              |  |  | 1.0                                     |  
|Between one and two years    |  |  | 0.9                                     |  
|Between two and three years  |  |  | 0.8                                     |  
|Between three and four years |  |  | 0.8                                     |  
|Between four and five years  |  |  | 0.8                                     |  
|Over five years              |  |  | 1.2                                     |  
|                             |  |  |                                         |  
|                             |  |  | 5.5                                     |  
|Less future finance charges  |  |  | (1.0                                    | )
|                             |  |  |                                         |  
|                             |  |  | 4.5                                     |  
|                             |  |  |                                         |  

At December 31, 2004, £nil (2003: £132.7 million)of borrowings falling due after more than one year were secured on assets of the group.

Operations

The Group’s treasury department manages the group’s funding, liquidity and exposure to interest rates and foreign exchange rate risks.

The Group holds or issues financial instruments for two main purposes:

to finance its operations;

to manage the interest rate and currency risks arising from its operations and from its sources of finance.

In addition, various financial instruments  for example, trade debtors, trade creditors, accruals and pre-payments  arise directly from the Group’s operations.

The Group finances its operations by a mixture of bank borrowings and high yield bonds.  The Group’s long term loans are raised centrally by Group finance companies which fund operating subsidiaries, on commercial terms, all of which are included in the consolidated financial statements.  The Group now borrows in the UK sterling market with interest rates fixed six-monthly.  All derivatives previously used for interest rate management have matured.

The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and market price risk.  The board reviews and agrees policies for managing each of these risks and they are summarized below.  These policies have remained unchanged since incorporation.

Financial instruments comprise net borrowings together with other instruments deemed to be financial instruments under FRS 13 including long term debtors, other long term creditors and provisions for liabilities and charges. Disclosure dealt within this note exclude short term debtors and creditors where permitted by FRS 13.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 101
|                           |    

---



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Avecia Group plc20-FYear ended December 31, 2004

Notes to the combined
        and consolidated financial statements(continued)

19      Borrowings, financial instruments and risk management(continued)

Finance and interest rate risk

The group’s policy is to manage exposure to interest rate fluctuations on its borrowings and deposits by using interest rate swaps and interest rate caps.  The group’s policy is to keep at least 50 per cent of net external debt at fixed or capped rates of interest for the period of the borrowing.  At the year-end, after taking account of interest rate swaps, the proportion of the group’s borrowings at fixed rates was 100 per cent (2003: 72 per cent).

Liquidity risk

Group policy is to match currency cash expenditure with currency cash income subject to the existence of a free market for that currency’s debt and differences in funding costs between markets. Group borrowings comprise bank debt £72.9 million (2003: £160.4 million)which is due to be repaid by November 2005 and a High Yield Bond £272.6 million (2003: £296.9 million)due 2009, both shown net of unamortized fees. 21 per cent (2003: 6 per cent)of the group’s total borrowings at the year end will become due in the next 12 months, 79 per cent (2003: 87 per cent)in more than two years and 0 per cent (2003: 67 per cent) will become due in more than five years.

At December 31, 2004, the group also had undrawn committed borrowing facilities of £71.8 million (2003: £31.0 million).  Commitment fees are paid on the undrawn portion of these facilities.

Currency risk

The group publishes its financial statements in pounds sterling and conducts businesses in several foreign currencies.  As a result, it is subject to foreign currency exchange risk due to exchange rate movements which will affect the group’s transaction costs and revenues, and the translation of the results and underlying net assets of its subsidiaries. By holding borrowings in foreign currencies, the group hedges a substantial portion of its exposure to fluctuations on the translation into pounds sterling of its foreign currency net assets.

The group hedges, on a rolling 12 month basis, the translation of a proportion of its forecast future net cash flow denominated in US Dollars (50%), Euro (50%) and Japanese Yen (50%) with forward foreign currency contracts.  This limits in part the transactional exposure of the group’s net cash flow to movements in exchange rates.  The gain or loss on the hedge is recognized at the same time as the underlying transaction.

At December 31, 2004 the group had £16.2 million of outstanding gross foreign exchange contracts as a result of the transaction exposure cover outlined above. Of the total £2.0 million were to sell US Dollars, £9.9 million were to sell Japanese Yen, £4.3 million were to buy US Dollars.

At December 31, 2003 the group had £49.3 million of outstanding gross foreign exchange contracts as a result of the transaction exposure cover outlined above. Of the total £32.0 million were to sell US Dollars, £15.2 million were to sell Japanese Yen, £2.1 million were to buy US Dollars.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 102
|                           |    

---



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Avecia Group plc20-F
Year ended December 31, 2004

Notes to the combined and consolidated
      financial statements(continued)

19      Borrowings, financial instruments and risk management(continued)

Interest rate risk profile of financial liabilities and assets

After taking account of interest rate swaps and caps, the currency and interest rate profile of the financial liabilities and assets of the group was as follows:

As at December 31, 2004

|                      |  |  | Floatingrateinterest |  |  | Cappedrateinterest |  |  | Fixedrateinterest |  |  | Zeroratedinterest |  |  | Total     |  |  | Weighted average fixed interest
          rate |  |  | Weighted average
    period for
    which rate
    is fixed |  |  | Weighted average
    period for
    which no
    interest is
    payable | 
|--------------------- |  |  | -------------------- |  |  | ------------------ |  |  | ----------------- |  |  | ----------------- |  |  | --------- |  |  | ---------------------------------------------- |  |  | ----------------------------------------------------------- |  |  | ------------------------------------------------------------------------ | 
|                      |  |  |                      |  |  |                    |  |  |                   |  |  |                   |  |  |           |  |  |                                                |  |  |                                                             |  |  |                                                                          | 
|                      |  |  | £ million            |  |  | £ million          |  |  | £ million         |  |  | £ million         |  |  | £ million |  |  | %                                              |  |  | Years                                                       |  |  | Years                                                                    | 
|Financial liabilities |  |  |                      |  |  |                    |  |  |                   |  |  |                   |  |  |           |  |  |                                                |  |  |                                                             |  |  |                                                                          | 
|Sterling              |  |  | 4.4                  |  |  |                   |  |  | 72.9              |  |  | 6.6               |  |  | 83.9      |  |  | 7.7                                            |  |  | 0.9                                                         |  |  | 11.9                                                                     | 
|US dollar             |  |  |                     |  |  |                   |  |  | 310.3             |  |  |                  |  |  | 310.3     |  |  | 11.6                                           |  |  | 4.7                                                         |  |  |                                                                         | 
|Euro                  |  |  |                     |  |  |                   |  |  |                  |  |  |                  |  |  |          |  |  |                                               |  |  |                                                            |  |  |                                                                         | 
|                      |  |  |                      |  |  |                    |  |  |                   |  |  |                   |  |  |           |  |  |                                                |  |  |                                                             |  |  |                                                                          | 
|Total                 |  |  | 4.4                  |  |  |                   |  |  | 383.2             |  |  | 6.6               |  |  | 394.2     |  |  | 10.9                                           |  |  | 3.9                                                         |  |  | 11.9                                                                     | 
|                      |  |  |                      |  |  |                    |  |  |                   |  |  |                   |  |  |           |  |  |                                                |  |  |                                                             |  |  |                                                                          | 
|Financial assets      |  |  |                      |  |  |                    |  |  |                   |  |  |                   |  |  |           |  |  |                                                |  |  |                                                             |  |  |                                                                          | 
|Sterling              |  |  |                     |  |  |                   |  |  |                  |  |  | 0.8               |  |  | 0.8       |  |  |                                                |  |  |                                                             |  |  |                                                                          | 
|US dollar             |  |  | 8.7                  |  |  |                   |  |  |                  |  |  |                  |  |  | 8.7       |  |  |                                                |  |  |                                                             |  |  |                                                                          | 
|Other                 |  |  | 2.9                  |  |  |                   |  |  |                  |  |  |                  |  |  | 2.9       |  |  |                                                |  |  |                                                             |  |  |                                                                          | 
|                      |  |  |                      |  |  |                    |  |  |                   |  |  |                   |  |  |           |  |  |                                                |  |  |                                                             |  |  |                                                                          | 
|Total                 |  |  | 11.6                 |  |  |                   |  |  |                  |  |  | 0.8               |  |  | 12.4      |  |  |                                                |  |  |                                                             |  |  |                                                                          | 
|                      |  |  |                      |  |  |                    |  |  |                   |  |  |                   |  |  |           |  |  |                                                |  |  |                                                             |  |  |                                                                          | 



|As at December 31, 2003 |  |  |                      |  |  |                    |  |  |                   |  |  |                   |  |  |           |  |  |                                                      |  |  |                                                                 |  |  |                                                                              | 
|----------------------- |  |  | -------------------- |  |  | ------------------ |  |  | ----------------- |  |  | ----------------- |  |  | --------- |  |  | ---------------------------------------------------- |  |  | --------------------------------------------------------------- |  |  | ---------------------------------------------------------------------------- | 
|                        |  |  | Floatingrateinterest |  |  | Cappedrateinterest |  |  | Fixedrateinterest |  |  | Zeroratedinterest |  |  | Total     |  |  | Weighted
    average
    fixed
    interest
    rate |  |  | Weighted
    average
    period for
    which rate
    is fixed |  |  | Weighted
    average
    period for
    which no
    interest is
    payable | 
|                        |  |  |                      |  |  |                    |  |  |                   |  |  |                   |  |  |           |  |  |                                                      |  |  |                                                                 |  |  |                                                                              | 
|                        |  |  | £ million            |  |  | £ million          |  |  | £ million         |  |  | £ million         |  |  | £ million |  |  | %                                                    |  |  | Years                                                           |  |  | Years                                                                        | 
|Financial liabilities   |  |  |                      |  |  |                    |  |  |                   |  |  |                   |  |  |           |  |  |                                                      |  |  |                                                                 |  |  |                                                                              | 
|Sterling                |  |  | 5.4                  |  |  |                   |  |  |                  |  |  | 1.7               |  |  | 7.1       |  |  |                                                     |  |  |                                                                |  |  | 11.4                                                                         | 
|US dollar               |  |  | 4.4                  |  |  | 32.9               |  |  | 369.7             |  |  |                  |  |  | 407.0     |  |  | 11.1                                                 |  |  | 5.2                                                             |  |  |                                                                             | 
|Euro                    |  |  | 26.6                 |  |  | 63.6               |  |  |                  |  |  |                  |  |  | 90.2      |  |  |                                                     |  |  |                                                                |  |  |                                                                             | 
|                        |  |  |                      |  |  |                    |  |  |                   |  |  |                   |  |  |           |  |  |                                                      |  |  |                                                                 |  |  |                                                                              | 
|Total                   |  |  | 36.4                 |  |  | 96.5               |  |  | 369.7             |  |  | 1.7               |  |  | 504.3     |  |  | 11.1                                                 |  |  | 5.2                                                             |  |  | 11.4                                                                         | 
|                        |  |  |                      |  |  |                    |  |  |                   |  |  |                   |  |  |           |  |  |                                                      |  |  |                                                                 |  |  |                                                                              | 
|Financial assets        |  |  |                      |  |  |                    |  |  |                   |  |  |                   |  |  |           |  |  |                                                      |  |  |                                                                 |  |  |                                                                              | 
|Sterling                |  |  | 1.1                  |  |  |                   |  |  |                  |  |  | 2.3               |  |  | 3.4       |  |  |                                                      |  |  |                                                                 |  |  | 0.5                                                                          | 
|US dollar               |  |  | 0.8                  |  |  |                   |  |  |                  |  |  |                  |  |  | 0.8       |  |  |                                                      |  |  |                                                                 |  |  |                                                                             | 
|Other                   |  |  | 3.7                  |  |  |                   |  |  |                  |  |  |                  |  |  | 3.7       |  |  |                                                      |  |  |                                                                 |  |  |                                                                             | 
|                        |  |  |                      |  |  |                    |  |  |                   |  |  |                   |  |  |           |  |  |                                                      |  |  |                                                                 |  |  |                                                                              | 
|Total                   |  |  | 5.6                  |  |  |                   |  |  |                  |  |  | 2.3               |  |  | 7.9       |  |  |                                                      |  |  |                                                                 |  |  | 0.5                                                                          | 

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 103
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the combined
        and consolidated financial statements(continued)

19      Borrowings, financial instruments and risk management(continued)

The floating rate financial liabilities comprise bank borrowings bearing interest at rates fixed six months in advance by reference to the six month LIBOR.

The financial liabilities on which no interest is paid include pensions of £0.7m (2003: £1.2m) (see note 20).

The financial assets include cash balances placed on money market at call.

Currency exposures

At December 31, 2004, the net monetary assets and liabilities denominated in currencies other than the functional currencies of the group companies (other than certain non-sterling borrowings treated as hedges of net investments in overseas operations), were as follows:

|                                                 |  |  | Avecia Group
          plc Consolidated                      | 
|------------------------------------------------ |  |  | ------------------------------------------------------------ | 
|                                                 |  |  | Net foreign
          currency monetary assets/(liabilities) | 
|                                                 |  |  |                                                              | 
|Functional currency of group
          operation |  |  | Sterling                                                     | 
|                                                 |  |  |                                                              | 
|                                                 |  |  | £ million                                                    | 
|                                                 |  |  |                                                              | 
|Sterling                                         |  |  |                                                             | 
|US dollar                                        |  |  |                                                             | 
|Euro                                             |  |  |                                                             | 
|Japanese yen                                     |  |  |                                                             | 
|Other                                            |  |  |                                                             | 
|                                                 |  |  |                                                              | 
|Total                                            |  |  |                                                             | 
|                                                 |  |  |                                                              | 

As at December 31, 2003

|                                                 |  |  | Avecia Group
          plc Consolidated                      | 
|------------------------------------------------ |  |  | ------------------------------------------------------------ | 
|                                                 |  |  | Net foreign
          currency monetary assets/(liabilities) | 
|                                                 |  |  |                                                              | 
|Functional currency of group
          operation |  |  | Sterling                                                     | 
|                                                 |  |  |                                                              | 
|                                                 |  |  | £ million                                                    | 
|                                                 |  |  |                                                              | 
|Sterling                                         |  |  |                                                             | 
|US dollar                                        |  |  |                                                             | 
|Euro                                             |  |  | 0.7                                                          | 
|Japanese yen                                     |  |  |                                                             | 
|Other                                            |  |  |                                                             | 
|                                                 |  |  |                                                              | 
|Total                                            |  |  | 0.7                                                          | 
|                                                 |  |  |                                                              | 

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 104
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the combined
        and consolidated financial statements(continued)

19      Borrowings, financial instruments and risk management(continued)

Maturity of financial liabilities

The maturity profile of the group’s financial liabilities at December 31, 2004 was as follows:

|                                                    |  |  | Avecia Group
          plcConsolidated | 
|--------------------------------------------------- |  |  | -------------------------------------- | 
|                                                    |  |  |                                        | 
|                                                    |  |  | Gross repayable                        | 
|                                                    |  |  |                                        | 
|                                                    |  |  | £ million                              | 
|                                                    |  |  |                                        | 
|In one year or less, or on demand                   |  |  | 76.0                                   | 
|In more than one year but not more than two years   |  |  | 0.9                                    | 
|In more than two years but not more than five years |  |  | 281.3                                  | 
|In more than five years                             |  |  | 47.7                                   | 
|                                                    |  |  |                                        | 
|                                                    |  |  | 405.9                                  | 
|                                                    |  |  |                                        | 

The above figures include preference shares, the redemption of which is mandatory on July 1, 2010.  They may, however, be redeemed at the option of the company on or after January 1, 2005 or earlier on certain public equity offerings at a redemption value equal to the liquidation preference value ($25 per share) plus all accumulated and unpaid dividends to the date of redemption.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 105
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the combined
        and consolidated financial statements(continued)

19      Borrowings, financial instruments and risk management(continued)

The maturity profile of the group’s financial liabilities at December 31, 2003 was as follows:

|                                                    |  |  | Avecia Group
          plcConsolidated | 
|--------------------------------------------------- |  |  | -------------------------------------- | 
|                                                    |  |  |                                        | 
|                                                    |  |  | Gross repayable                        | 
|                                                    |  |  |                                        | 
|                                                    |  |  | £ million                              | 
|                                                    |  |  |                                        | 
|In one year or less, or on demand                   |  |  | 31.4                                   | 
|In more than one year but not more than two years   |  |  | 39.8                                   | 
|In more than two years but not more than five years |  |  | 100.7                                  | 
|In more than five years                             |  |  | 351.1                                  | 
|                                                    |  |  |                                        | 
|                                                    |  |  | 523.0                                  | 
|                                                    |  |  |                                        | 

The above figures include preference shares, the redemption of which is mandatory on July 1, 2010.  They may, however, be redeemed at the option of the company at a redemption value equal to the liquidation preference value ($25 per share) plus all accumulated and unpaid dividends to the date of redemption.

Credit risk and market risk

The above financial instruments are subject to credit and market risk.  Avecia contains credit risk by ongoing review procedures.  All financial instruments are transacted with commercial banks.  The notional principal values of balance sheet financial instruments do not represent amounts exchanged by the parties and are not a measure of the credit risk to the group of these instruments. The credit risk of these instruments is limited to the positive fair values of such contracts.

Market risk is the sensitivity of the value of financial instruments to changes in related currency and interest rates.  The group is not exposed to material market risk because gains and losses on the derivative financial instruments are largely offset by gains and losses on the underlying assets, liabilities and transactions subject to hedge.

Borrowing facilities

The group has various borrowing facilities available to it.  The undrawn committed facilities available at December 31, 2004 were as follows:

|                                                                   |  |  | December 31, 2004 |  |  | December 31, 2003 | 
|------------------------------------------------------------------ |  |  | ----------------- |  |  | ----------------- | 
|                                                                   |  |  |                   |  |  |                   | 
|                                                                   |  |  | £ million         |  |  | £ million         | 
|                                                                   |  |  |                   |  |  |                   | 
|Expiring in one year or less                                       |  |  | 71.8              |  |  |                  | 
|Expiring in more than one year
        but not more than two years |  |  |                  |  |  |                  | 
|Expiring in more than two years                                    |  |  |                  |  |  | 31.0              | 
|                                                                   |  |  |                   |  |  |                   | 
|Total                                                              |  |  | 71.8              |  |  | 31.0              | 
|                                                                   |  |  |                   |  |  |                   | 

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 106
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the combined
        and consolidated financial statements(continued)

19      Borrowings, financial instruments and risk management(continued)

Terms

The facility was set up under normal banking conditions.

Fees paid

The arrangement fees incurred on setting up the facilities are being amortized over the terms of the loans.  Commitment fees of 0.5% are charged on the undrawn facility.

Conditions under which commitments may be withdrawn

Default under the conditions of the facility may cause the commitments to be withdrawn.  This includes any default on the covenants in place.

Fair values of financial assets and financial liabilities

Set out below is a comparison by category of book values and fair values of all the group’s financial assets and financial liabilities as at December 31, 2004.

|                                                                                                                 |  |  | Book value |   |  | Fair value |  
|---------------------------------------------------------------------------------------------------------------- |  |  | ---------- | - |  | ---------- | -
|                                                                                                                 |  |  |            |   |  |            |  
|                                                                                                                 |  |  | £ million  |   |  | £ million  |  
|Primary financial instruments held or issued to finance the group’s operations:                                  |  |  |            |   |  |            |  
|Short term borrowings and current portion of long term borrowings                                                |  |  | (72.9      | ) |  | (72.9      | )
|Long term borrowings                                                                                             |  |  | (272.9     | ) |  | (294.7     | )
|Finance leases                                                                                                   |  |  | (50.7      | ) |  | (72.8      | )
|Other financial assets                                                                                           |  |  | 0.8        |   |  | 0.8        |  
|Cash at bank and in hand                                                                                         |  |  | 11.6       |   |  | 11.6       |  
|                                                                                                                 |  |  |            |   |  |            |  
|Derivative financial instruments held to manage the interest rate:                                               |  |  |            |   |  |            |  
|Interest rate swaps and similar instruments  gains                                                              |  |  |           |   |  |           |  
|Interest rate swaps and similar instruments  losses                                                             |  |  |           |   |  |           |  
|Interest rate caps and collars  gains                                                                           |  |  |           |   |  |           |  
|Interest rate caps and collars  losses                                                                          |  |  |           |   |  |           |  
|Derivative financial instruments held or issued to hedge the currency exposure on expected future net cash flow: |  |  |            |   |  |            |  
|Forward foreign currency contracts  gains                                                                       |  |  |           |   |  | 0.2        |  
|Forward foreign currency contracts  losses                                                                      |  |  |           |   |  | (0.3       | )
|                                                                                                                 |  |  |            |   |  |            |  
|                                                                                                                 |  |  | (384.1     | ) |  | (428.1     | )
|                                                                                                                 |  |  |            |   |  |            |  

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 107
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the combined
        and consolidated financial statements(continued)

19      Borrowings, financial instruments and risk management(continued)

Set out below is a comparison by category of book values and fair values of all the group’s financial assets and financial liabilities as at December 31, 2003.

|                                                                                                                 |  |  | Book value |   |  | Fair value |  
|---------------------------------------------------------------------------------------------------------------- |  |  | ---------- | - |  | ---------- | -
|                                                                                                                 |  |  |            |   |  |            |  
|                                                                                                                 |  |  | £ million  |   |  | £ million  |  
|Primary financial instruments held or issued to finance the group’s operations:                                  |  |  |            |   |  |            |  
|Short term borrowings and current portion of long term borrowings                                                |  |  | (26.0      | ) |  | (26.0      | )
|Long term borrowings                                                                                             |  |  | (431.0     | ) |  | (402.7     | )
|Finance lease and other                                                                                          |  |  | (57.9      | ) |  | (79.1      | )
|Other financial assets                                                                                           |  |  | 2.0        |   |  | 2.0        |  
|Cash at bank and in hand                                                                                         |  |  | 8.0        |   |  | 8.0        |  
|Derivative financial instruments held to manage the interest rate:                                               |  |  |            |   |  |            |  
|Interest rate swaps and similar instruments  gains                                                              |  |  |           |   |  |           |  
|Interest rate swaps and similar instruments  losses                                                             |  |  |           |   |  | (0.9       | )
|Interest rate caps and collars  gains                                                                           |  |  | 0.3        |   |  |           |  
|Interest rate caps and collars  losses                                                                          |  |  |           |   |  |           |  
|Derivative financial instruments held or issued to hedge the currency exposure on expected future net cash flow: |  |  |            |   |  |            |  
|Forward foreign currency contracts  gains                                                                       |  |  |           |   |  | 4.9        |  
|Forward foreign currency contracts  losses                                                                      |  |  |           |   |  | (0.4       | )
|                                                                                                                 |  |  |            |   |  |            |  
|                                                                                                                 |  |  | (504.6     | ) |  | (494.2     | )
|                                                                                                                 |  |  |            |   |  |            |  

Market values have been used to determine the fair value of forward foreign currency contracts and all listed debt issued.  The fair values of all other items have been calculated by discounting expected future cash flows at 31 December, 2004 LIBOR interest rates.

Fair value judgments and changes in market conditions and assumptions could significantly affect these estimates.  The disclosed values are those which are representative of fair values at the dates indicated.  No financial instruments were held for the purposes of dealing or other financial instrument trading activities.

Hedges

As explained in the introduction, the group’s policy is to hedge the following exposures:

Interest rate risk, using interest swaps and caps contracts;

Net cash flow, using forward foreign currency contracts.

Gains and losses on instruments used for hedging are not recognized until the exposure that is being hedged is itself recognized.  Unrecognized gains and losses on instruments used for hedging, and the movements therein are as follows:

|                                                                |  |  | 2004Gains |  |  | 2004Losses |   |  | 2004Total net gains/(losses) |  
|--------------------------------------------------------------- |  |  | --------- |  |  | ---------- | - |  | ---------------------------- | -
|                                                                |  |  |           |  |  |            |   |  |                              |  
|                                                                |  |  | £ million |  |  | £ million  |   |  | £ million                    |  
|                                                                |  |  |           |  |  |            |   |  |                              |  
|Gains/(losses) arising in 2004 that were not recognized in 2004 |  |  | 0.2       |  |  | (0.3       | ) |  | (0.1                         | )
|Of which:Gains/(losses) expected to be recognized in 2005       |  |  | 0.2       |  |  | (0.3       | ) |  | (0.1                         | )

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 108
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated
        financial statements(continued)

20      Provisions
      for liabilities and charges

|                             |  | Pensions
          and
      similar obligations |           | Deferred 
      taxation |  | Environmental
          provisions |  | Reorganization
          and other provisions |           | Total | 
|---------------------------- |  | ------------------------------------------------ | --------- | ------------------------ |  | ---------------------------------- |  | --------------------------------------------- | --------- | ----- | 
|                             |  |                                                  |           |                          |  |                                    |  |                                               |           |       | 
|                             |  |                                                  | £ million |                          |  | £ million                          |  |                                               | £ million |       | 
|                             |  |                                                  |           |                          |  |                                    |  |                                               |           |       | 
|January 1, 2003              |  |                                                  | 1.1       |                          |  | 4.7                                |  |                                               | 0.5       |       | 
|Charge/(credit) for the year |  |                                                  | 0.1       |                          |  | 0.1                                |  |                                               | 0.1       |       | 
|Utilized during year         |  |                                                  | 0.1       |                          |  |                                   |  |                                               | (0.2      | )     | 
|Other movements              |  |                                                  | (0.1      | )                        |  |                                   |  |                                               |          |       | 
|Exchange                     |  |                                                  |          |                          |  | 0.4                                |  |                                               | 0.1       |       | 
|                             |  |                                                  |           |                          |  |                                    |  |                                               |           |       | 
|At December 31, 2003         |  |                                                  | 1.2       |                          |  | 5.2                                |  |                                               | 0.5       |       | 
|                             |  |                                                  |           |                          |  |                                    |  |                                               |           |       | 
|At January 1, 2004           |  |                                                  | 1.2       |                          |  | 5.2                                |  |                                               | 0.5       |       | 
|Charge/(credit) for the year |  |                                                  | 0.1       |                          |  | 0.5                                |  |                                               | (0.1      | )     | 
|Utilized during year         |  |                                                  | (0.1      | )                        |  |                                   |  |                                               |          |       | 
|Other movements              |  |                                                  | (0.3      | )                        |  |                                   |  |                                               |          |       | 
|Exchange                     |  |                                                  | (0.2      | )                        |  |                                   |  |                                               |          |       | 
|                             |  |                                                  |           |                          |  |                                    |  |                                               |           |       | 
|At December 31, 2004         |  |                                                  | 0.7       |                          |  | 5.7                                |  |                                               | 0.4       |       | 
|                             |  |                                                  |           |                          |  |                                    |  |                                               |           |       | 

The reorganization and other provisions
    primarily relate to severance costs.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 109
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated
        financial statements(continued)

20      Provisions
      for liabilities and charges(continued)

The amounts of deferred taxation
    accounted for in the Group balance sheet and the full potential amounts of
    deferred taxation comprised the following deferred tax liabilities and assets
    at December 31, 2004:

|                                                                                            |  | Avecia
          Group plcConsolidated |                           
|------------------------------------------------------------------------------------------- |  | -------------------------------------- | --------------------------
|                                                                                            |  | December
          31, 2004            |                           
|                                                                                            |  |                                        |                           
|                                                                                            |  |                                        | Provision for deferred tax
|                                                                                            |  |                                        |                           
|                                                                                            |  |                                        | £ million                 
|Deferred tax liabilities                                                                    |  |                                        |                           
|Difference between accumulated
        depreciation and amortization and capital allowances |  |                                        | 1.6                       
|Other timing differences                                                                    |  |                                        | 4.1                       
|                                                                                            |  |                                        |                           
|                                                                                            |  |                                        | 5.7                       
|                                                                                            |  |                                        |                           
|Deferred tax asset                                                                          |  |                                        |                           
|Tax losses for future utilization                                                           |  |                                        |                          
|                                                                                            |  |                                        |                           
|Net deferred tax (liability)/asset                                                          |  |                                        | (5.7                      
|                                                                                            |  |                                        |                           

|                                                                                            |  |  | Avecia Group
          plcConsolidated |  
|------------------------------------------------------------------------------------------- |  |  | -------------------------------------- | -
|                                                                                            |  |  | December 31,
          2003            |  
|                                                                                            |  |  |                                        |  
|                                                                                            |  |  | Provision for deferred tax             |  
|                                                                                            |  |  |                                        |  
|                                                                                            |  |  | £ million                              |  
|Deferred tax liabilities                                                                    |  |  |                                        |  
|Difference between accumulated
        depreciation and amortization and capital allowances |  |  | 2.3                                    |  
|Other timing differences                                                                    |  |  | 2.9                                    |  
|                                                                                            |  |  |                                        |  
|                                                                                            |  |  | 5.2                                    |  
|                                                                                            |  |  |                                        |  
|Deferred tax asset                                                                          |  |  |                                        |  
|Tax losses for future utilization                                                           |  |  |                                       |  
|                                                                                            |  |  |                                        |  
|Net deferred tax (liability)/asset                                                          |  |  | (5.2                                   | )
|                                                                                            |  |  |                                        |  



Deferred tax assets which are not
    accounted for represent deferred tax assets (principally net operating losses)
    for which an off setting valuation allowance has been made in full.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 110
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated
        financial statements(continued)

20      Provisions
      for liabilities and charges(continued)

|                                               |  | Avecia Group
          plc Consolidated |                        
|---------------------------------------------- |  | --------------------------------------- | -----------------------
|                                               |  |                                         |                        
|                                               |  |                                         | December 31,
      2004
|                                               |  |                                         |                        
|                                               |  |                                         | £ million              
|Deferred taxation provision
          movement |  |                                         |                        
|At beginning
        of year                   |  |                                         | 5.2                    
|Charge for the year                            |  |                                         | 0.5                    
|Exchange differences                           |  |                                         |                       
|                                               |  |                                         |                        
|At end of
        year                         |  |                                         | 5.7                    
|                                               |  |                                         |                        

A deferred tax provision of £0.6m
    (2003:£nil) has been made in respect of UK corporation tax and foreign
    withholding tax on accumulated undistributed reserves in foreign subsidiaries
    as at December 31, 2004.

21      Acquisitions

There were no acquisitions during
    2004.

In 2003 the group made a deferred
    payment of £1.9 million for the acquisition of the remaining 85% of
    Covion Organic Semiconductors Gmbh which took place on December 31, 2001.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 111
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated
        financial statements(continued)

22      Called
      up share capital

|                                                                                               |  | Avecia Group
          plc Consolidated |                            
|---------------------------------------------------------------------------------------------- |  | --------------------------------------- | ---------------------------
|                                                                                               |  |                                         |                            
|                                                                                               |  |                                         | December 31,
          2004
|                                                                                               |  |                                         |                            
|                                                                                               |  |                                         | Number ofshares            
|                                                                                               |  |                                         |                            
|                                                                                               |  |                                         |                            
|Authorized                                                                                     |  |                                         |                            
|Equity: Ordinary
        shares of £1.00 each                                                  |  |                                         | 400,000,000                
|Non-equity Pay-in-kind (PIK)
        16% cumulative redeemable preference shares of $1.00 each |  |                                         | 3,500,000                  
|                                                                                               |  |                                         |                            
|                                                                                               |  |                                         | 403,500,000                
|                                                                                               |  |                                         |                            
|Allotted, called up and
            fully paid                                                 |  |                                         |                            
|Equity: Ordinary
        shares of £1.00 each                                                  |  |                                         | 329,100,001                
|Non-equity Pay-in-kind (PIK)
        16% cumulative redeemable preference shares of $1.00 each |  |                                         | 3,022,496                  
|                                                                                               |  |                                         |                            
|                                                                                               |  |                                         | 332,122,497                
|                                                                                               |  |                                         |                            

Redeemable preference shares

The redemption of preference shares
    is mandatory on July 1, 2010 but may be redeemed at the option of the Company
    on or after January 1, 2005 or earlier on certain public equity offerings
    at a redemption value equal to the liquidation preference value plus all
    accumulated and unpaid dividends to the date of redemption. On a winding
    up they would rank in priority to ordinary shares. Up to July 1, 2004 the
    company issued further PIK preference shares instead of a cash dividend (based
    on the liquidated preference amount of $25 per share). Subsequent to July
    1, 2004 this option was no longer available and subsequent dividends became
    payable in cash. The PIK preference shares have no voting rights at meetings
    of the ordinary shareholders and attract a dividend of 16 per cent. The carrying
    value of the preferred shares is being increased from the date of issue to
    the mandatory redemption date, by the interest method, such that the carrying
    value at the mandatory redemption date will equal the redemption value of
    $25 per share. The accretion for 2004 was £0.1 million (2003: £0.2
    million).

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 112
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated
        financial statements(continued)

23      Share
      premium and reserves

Avecia Group plc  Consolidated
      for the year ended December 31, 2004

|                                                                     |  | Equity
          share capital |           | Non-equity
          share capital |  | Sharesto beissued |   | Sharepremiumaccount |           | Profitand lossaccount |  | Total     |  
|-------------------------------------------------------------------- |  | ------------------------------ | --------- | ---------------------------------- |  | ----------------- | - | ------------------- | --------- | --------------------- |  | --------- | -
|                                                                     |  |                                |           |                                    |  |                   |   |                     |           |                       |  |           |  
|                                                                     |  |                                | £ million |                                    |  | £ million         |   |                     | £ million |                       |  | £ million |  
|                                                                     |  |                                |           |                                    |  |                   |   |                     |           |                       |  |           |  
|At January
        1, 2003 as previously stated                      |  |                                | 329.1     |                                    |  | 1.4               |   |                     | 2.8       |                       |  | 15.2      |  
|Impact of adopting UITF38                                            |  |                                |          |                                    |  |                  |   |                     |          |                       |  |          |  
|                                                                     |  |                                |           |                                    |  |                   |   |                     |           |                       |  |           |  
|At December
        31, 2002 restated and at January 1,
        2003 |  |                                | 329.1     |                                    |  | 1.4               |   |                     | 2.8       |                       |  | 15.2      |  
|Loss for year                                                        |  |                                |          |                                    |  |                  |   |                     |          |                       |  |          |  
|Appropriation
        re PIK preference shares                       |  |                                |          |                                    |  |                  |   |                     |          |                       |  |          |  
|Foreign exchange                                                     |  |                                |          |                                    |  | (0.1              | ) |                     | (0.1      | )                     |  | (1.6      | )
|Amortization
        of share issue costs                            |  |                                |          |                                    |  |                  |   |                     |          |                       |  | 0.3       |  
|Non-equity dividend                                                  |  |                                |          |                                    |  |                  |   |                     | 6.1       |                       |  |          |  
|Reserve reclassification                                             |  |                                |          |                                    |  |                  |   |                     |          |                       |  | (6.1      | )
|Shares issued in year                                                |  |                                |          |                                    |  | 0.2               |   |                     | (5.8      | )                     |  | 5.6       |  
|Losses recognized
        in pension scheme                          |  |                                |          |                                    |  |                  |   |                     |          |                       |  |          |  
|UITF38 ESOP adjustment                                               |  |                                |          |                                    |  |                  |   |                     |          |                       |  |          |  
|                                                                     |  |                                |           |                                    |  |                   |   |                     |           |                       |  |           |  
|At December
        31, 2003 restated                                |  |                                | 329.1     |                                    |  | 1.5               |   |                     | 3.0       |                       |  | 13.4      |  
|                                                                     |  |                                |           |                                    |  |                   |   |                     |           |                       |  |           |  
|At January
        1, 2004                                           |  |                                | 329.1     |                                    |  | 1.5               |   |                     | 3.0       |                       |  | 13.4      |  
|Profit for year                                                      |  |                                |          |                                    |  |                  |   |                     |          |                       |  |          |  
|Appropriation
        re PIK preference shares                       |  |                                |          |                                    |  |                  |   |                     |          |                       |  |          |  
|Foreign exchange                                                     |  |                                |          |                                    |  | (0.1              | ) |                     | 0.1       |                       |  | (1.7      | )
|Amortization
        of share issue costs                            |  |                                |          |                                    |  |                  |   |                     |          |                       |  | 0.3       |  
|Non-equity dividend                                                  |  |                                |          |                                    |  |                  |   |                     | 3.1       |                       |  |          |  
|Reserve reclassification                                             |  |                                |          |                                    |  |                  |   |                     |          |                       |  | (3.1      | )
|Shares issued in year                                                |  |                                |          |                                    |  | 0.2               |   |                     | (6.2      | )                     |  | 6.0       |  
|Losses recognized
        in pension scheme                          |  |                                |          |                                    |  |                  |   |                     |          |                       |  |          |  
|UITF38 ESOP adjustment                                               |  |                                |           |                                    |  |                   |   |                     |           |                       |  |           |  
|                                                                     |  |                                |           |                                    |  |                   |   |                     |           |                       |  |           |  
|At 31 December
        2004                                          |  |                                | 329.1     |                                    |  | 1.6               |   |                     |          |                       |  | 14.9      |  
|                                                                     |  |                                |           |                                    |  |                   |   |                     |           |                       |  |           |  

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 113
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated
        financial statements(continued)

24      Contingent
      liabilities and contingent assets

Environmental

The group has environmental liabilities
    at some of its current or former sites and is subject to contingencies pursuant
    to laws and regulations which in the future may require it to take action
    to correct the effects on the environment of the prior disposal, release
    or escape of chemical substances. Sites which were formerly part of the specialty
    chemicals business of the AstraZeneca group but which were not in operation
    at the date of the group’s acquisition of the business in June 1999
    were not transferred to the group.

An Environmental Deed of Covenant
    entered into by companies in the AstraZeneca group, notably Zeneca Limited
    (as a principal seller of the business to the group) and AstraZeneca plc
    (as guarantor), on the group’s acquisition of AstraZeneca’s specialty
    chemicals business, provides certain indemnities to and by group companies
    for environmental liabilities and costs arising from events or circumstances
    existing prior to the acquisition. These include liabilities relating to
    or arising out of pre-acquisition contamination at sites which were transferred
    to group companies in 1999 but which have subsequently been disposed of,
    notably at the St. Clair du Rhone site, France and the Mount Pleasant site,
    Tennessee. These also include historic liabilities arising on any sites previously
    owned by companies acquired by the group in the course of the acquisition
    transaction but where the sites in question were not themselves part of the
    acquisition transaction. The liability of the AstraZeneca group to indemnify
    group companies in respect of these matters is, subject to certain exceptions,
    subject to maximum caps of liability, de minimis levels of liability,
    time limits for claims to be made and/or contributions by group companies.
    Where time limits or caps on liability apply, on the expiry of the relevant
    time limit or if the environmental liabilities and costs exceed the relevant
    cap, the environmental liabilities and costs, or excess thereof, would be
    the responsibility of group companies. On the disposal of relevant businesses
    out of the group, where purchasers have assumed liabilities which may be
    subject to indemnity from the AstraZeneca group under the Environmental Deed
    or which may otherwise be the responsibility of group companies under the
    deed, the benefits and obligations under the Environmental Deed have, insofar
    as they relate to the sold businesses or sites, been assigned to the purchasers
    subject to appropriate limitations on the maximum amounts which the purchasers
    may claim under the Environmental Deed.

While the outcome of some of these
    matters cannot be readily foreseen, the directors believe that they will
    be disposed of without material effect on the financial position as shown
    in these consolidated financial statements.

The ultimate requirement for remediation
    work and its cost are difficult to estimate. However, where such costs are
    not within the scope of the indemnities provided by the deed of covenant
    referred to above, and where such costs are deemed probable and identifiable,
    provision has been made in the financial statements.

Litigation and other claims

Various companies in the group are
    parties to legal actions and claims by third parties, regulatory and fiscal
    authorities. While the outcome of some of these matters cannot be readily
    foreseen, the directors believe that they will be disposed of without material
    effect on the financial position as shown in these consolidated financial
    statements.

Excise Duties Inspection, Spain

During 2003, the Spanish tax authority
    carried out a tax inspection of the quantity of alcohol used by Avecia Spain
    (the company) exempt from excise duties, compared with its authorization.
    The period covered was 1999 to 2002. The tax inspector came to the view that
    the Company had exceeded its authority limit for each year and issued an
    assessment for the excise duty arising from that excess. The final amount
    of the assessment was €4.2 million. The company appealed against the
    assessment to the Administrative Tribunal. In November 2004, the Company
    heard that the Tribunal had not accepted the appeal. The Company therefore
    submitted a further appeal to the Court of Justice. A decision on this further
    appeal is not expected for many months.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 114
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated
        financial statements(continued)

24      Contingent
      liabilities and contingent assets(continued)

On 2 February 2005, the Company was
    purchased by Koninklijke DSM NV (“DSM”) as part of the NeoResins
    business disposal by the Avecia Group. Under Paragraph 3.1.2 of the Tax Deed
    to the disposal, DSM accepted responsibility for any liability arising from
    the assessment. The liability of the Avecia Group ceased at that point.

Corporate Tax Audit, Avecia Spain

During 2003 and 2004, the Spanish
    tax authority carried out a corporate tax audit at Avecia Spain. As a result
    the tax inspector decided that the merger transaction undertaken by the Company
    in 1999 did not have sufficient economic reasons to qualify for the beneficial
    tax regime for restructuring processes. In October 2004 the tax inspector
    therefore raised an assessment on the Company for tax on the capital gain
    arising from the goodwill and tangible assets revaluation. The amount of
    the assessment including delay interest, was €18.7m. During January
    2005, the Company appealed against that assessment.

On 2 February 2005, the Company was
    purchased by Koninklijke DSM NV(“DSM”) as part of the NeoResins
    business disposal by the Avecia Group. Under Paragraph 3.1.1 of the Tax Deed
    to the disposal, DSM accepted responsibility for any liability arising from
    the assessment. The liability of the Avecia Group ceased at that point.

Corporate Tax Audit, Stahl Iberica,
      Spain

Stahl Iberica was owned by the Avecia
    Group in 1999 at the time it undertook a similar merger transaction as that
    for Avecia Spain referred to above. The Spanish tax authority carried out
    a parallel tax audit at Stahl Iberica, but the tax inspector delayed his
    conclusions until a decision was made in the case of Avecia Spain.

The tax inspector has now issued
    (in March 2005) a preliminary tax assessment for tax on the capital gain
    arising to Stahl Iberica. The amount of the tax assessment including delay
    interest is €3.1m. Until a final assessment is issued in the period
    up to June 2005, no appeal is required.

Avecia believes that a claim could
    be made by the current owners of Stahl Iberica under the Tax Deed relating
    to the disposal of the Stahl Group in 2002. Until that claim is received,
    it is not possible to calculate the extent of Avecia’s liability.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 115
|                           |    

---



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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated
        financial statements(continued)

25      Commitments

(a)      Capital
    commitments of the group at the end of the financial period, for which no
    provision has been made, are as follows:

|                                       |  | Avecia Group
          plc Consolidated |                        
|-------------------------------------- |  | --------------------------------------- | -----------------------
|                                       |  |                                         |                        
|                                       |  |                                         | December 31,
      2004
|                                       |  |                                         |                        
|                                       |  |                                         | £ million              
|                                       |  |                                         |                        
|Contracted
        capital commitments |  |                                         | 5.3                    
|                                       |  |                                         |                        

(b)      Annual
    commitments under non-cancellable operating leases are as follows:

|                                               |  | Avecia Group
          plc Consolidated |                         
|---------------------------------------------- |  | --------------------------------------- | ------------------------
|                                               |  |                                         |                         
|                                               |  | December
          31, 2004             |                         
|                                               |  |                                         |                         
|                                               |  |                                         | Land and
      buildings
|                                               |  |                                         |                         
|                                               |  |                                         | £ million               
|Operating leases which expire:                 |  |                                         |                         
|Within
        one year                        |  |                                         |                        
|In
        the second to fifth years inclusive |  |                                         | 0.5                     
|After
        five years                       |  |                                         | 2.2                     
|                                               |  |                                         |                         
|                                               |  |                                         | 2.7                     
|                                               |  |                                         |                         

The future minimum lease payments
    under operating and finance leases, including finance charges, were as follows:

|                                        |  | Operating
          leases             |                         | Finance leases                         | 
|--------------------------------------- |  | -------------------------------------- | ----------------------- | -------------------------------------- | 
|                                        |  |                                        |                         |                                        | 
|                                        |  | Avecia
          Group plcConsolidated |                         | Avecia
          Group plcConsolidated | 
|                                        |  |                                        |                         |                                        | 
|                                        |  |                                        | December 31,
      2004 |                                        | 
|                                        |  |                                        |                         |                                        | 
|                                        |  |                                        | £ million               |                                        | 
|                                        |  |                                        |                         |                                        | 
|Due in one
        year or less         |  |                                        | 0.7                     |                                        | 
|Due between one and two years           |  |                                        | 0.4                     |                                        | 
|Due between
        two and three years |  |                                        | 0.4                     |                                        | 
|Due between three and four years        |  |                                        | 0.4                     |                                        | 
|Due between
        four and five years |  |                                        | 0.4                     |                                        | 
|Due in five years or more               |  |                                        | 0.4                     |                                        | 
|                                        |  |                                        |                         |                                        | 
|                                        |  |                                        | 2.7                     |                                        | 
|                                        |  |                                        |                         |                                        | 

There were no commitments (2003: £nil) under
    finance leases at the balance sheet date that were due to commence thereafter.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 116
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated
        financial statements(continued)

26      Pension
      scheme

The Avecia group participates in
    retirement plans, which cover the majority of its employees. These plans
    are either defined contribution, where the level of company contribution
    is fixed at a set level or percentage of employees pay, or defined benefit,
    where benefits are based on employees’ years of service and average
    final remunerations. In general all plans are funded through separate trustee-administered
    funds. The pension cost for the main defined benefit plans is established
    in accordance with the advice of independent qualified actuaries based on
    valuations undertaken on varying dates. There are material plans in the UK,
    the US and the Netherlands.

UK

An actuarial valuation was carried
    out as at March 31, 2003 using a market-led approach. The assets are taken
    at market value with the liabilities valued using financial assumptions derived
    from market yields on Government Fixed Interest and Index Linked gilts at
    the valuation date. The significant assumptions used in this valuation were
    UK price inflation of 2.5 per cent pa, investment returns of 6.5 per cent
    pa (pre-retirement) and 5.0 per cent pa (post-retirement), salary increases
    of 3.5 per cent pa and pension increases of 2.5 per cent pa. The market value
    of the fund’s assets was £109.6 million and represented 64 per
    cent of the accrued liabilities at that date allowing for projected future
    salary increases. The next valuation will be as at March 2006.

The contribution rate currently payable
    by the employer is 14.5 per cent of pensionable salaries plus special contributions
    of £480,000 per month. Employees pay varying levels of contribution
    in accordance with the rules and the current average is 3.6 per cent of pensionable
    salaries.

Avecia’s investment policy
    for the UK pension scheme is to consider a full range of asset classes, the
    risks and rewards of alternative asset allocation strategies, the suitability
    of each asset class in the planned asset allocation strategy, and the need
    for appropriate diversification. It is the trustee’s policy to delegate
    all day-to-day decisions about the investments that fall within each investment
    option to the fund manager.

US

In the US an actuarial valuation
    was carried out as at January 1, 2003. The significant assumptions used in
    this valuation were that the rate of return on investment would be 8.0 per
    cent pa, the rate of salary increases would be 5.0 per cent and pension increases
    0 per cent pa. The market value of the plans’ assets at that date was
    $31.0 million. The primary reason for the decrease in market value of plans’ assets
    from $41.5 million as at January 1, 2002 was the transfer out of $8.4 million
    of trust assets in 2002 coincidental with the sale of Stahl. The January
    1, 2003 market value of the plans’ assets represented 64 per cent of
    the accrued liabilities as at that date, based on salaries projected to the
    date of retirement or assumed earlier death or leaving service. There is
    a deficiency of $11.4 million on this funding level basis and the basis of
    the actuarial value of assets that is used in the US to determine employer
    contributions.

During the year $3.5 million was
    funded into the plan’s trust. It is anticipated that amounts will also
    be funded in 2005. Employer contributions are based on the minimum funding
    requirements of ERISA.

Netherlands

In the Netherlands an actuarial valuation
    was carried out as at December 31, 2003. The value of assets was € 42.265
    million, which represents 107.4 per cent of the plan liabilities at that
    date. Total contributions in 2003 were payable at a rate of 23.2 per cent
    of pensionable salaries less the state pension offset of € 15,973. In
    2003 this was approximately equivalent to 14.5 per cent of members’ pensionable
    salaries. Contributions are currently payable by the employee at the rate
    of 2 per cent between earnings limits of € 23,960 and € 43,065
    and 7.5 per cent of earnings above the € 43,065 limit. In 2003 this
    was equivalent to approximately 1.8 per cent of gross pensionable salaries.
    Employer’s contribution is approximately 12.7 per cent.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 117
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated
        financial statements(continued)

26      Pension
      scheme(continued)

Further additional payments have
    been made by Avecia in 2003 for a total amount of € 1.48 million to
    close the gap between liabilities and assets because of a negative return
    on assets in 2001 and 2002. At the end of 2002 Stahl left the Avecia Pension
    fund and transferring liabilities for an amount of € 23.5 million to
    the Stahl Pension fund. Per January 1, 2004 we changed, after reaching
    agreement with the stakeholders, the pension plan from a final pay into an
    average weighted system and furthermore increased the contribution from the
    employees to a higher level.

Major Assumptions

|                                                |  |  | 2004% |  |  | 2003% |  |  | 2002%       | 
|----------------------------------------------- |  |  | ----- |  |  | ----- |  |  | ----------- | 
|                                                |  |  |       |  |  |       |  |  |             | 
|                                                |  |  | UK    |  |  | US    |  |  | Netherlands | 
|                                                |  |  |       |  |  |       |  |  |             | 
|                                                |  |  |       |  |  |       |  |  |             | 
|Rate of general
        increase in salaries    |  |  | 3.90  |  |  | 4.25  |  |  | 3.00        | 
|Rate of increase to pensions
        in payment |  |  | 2.70  |  |  |      |  |  | 1.75        | 
|Discount rate
        for scheme liabilities    |  |  | 5.30  |  |  | 6.25  |  |  | 4.50        | 
|Inflation                                       |  |  | 2.90  |  |  | 3.25  |  |  | 2.00        | 

The assets in the schemes and the
    expected rate of return were:

|                                    |  |  | Long term rate of return
          expected 31 December 2004 |  |  | Value as at 31 December
          2004 |   |  | Long term rate of return
          expected 31 December2004 |  |  | Value as at 31 December
          2004 |   |  | Long term rate of return
          expected 31 December 2004 |  |  | Value as at 31 December
          2004 |  
|----------------------------------- |  |  | ------------------------------------------------------------ |  |  | -------------------------------------- | - |  | ----------------------------------------------------------- |  |  | -------------------------------------- | - |  | ------------------------------------------------------------ |  |  | -------------------------------------- | -
|                                    |  |  |                                                              |  |  |                                        |   |  |                                                             |  |  |                                        |   |  |                                                              |  |  |                                        |  
|                                    |  |  | UK                                                           |  |  | UK                                     |   |  | USA                                                         |  |  | USA                                    |   |  | Netherlands                                                  |  |  | Netherlands                            |  
|                                    |  |  | % pa                                                         |  |  | £ million                              |   |  | % pa                                                        |  |  | £ million                              |   |  | % pa                                                         |  |  | £ million                              |  
|                                    |  |  |                                                              |  |  |                                        |   |  |                                                             |  |  |                                        |   |  |                                                              |  |  |                                        |  
|Equities                            |  |  | 7.5                                                          |  |  | 137.4                                  |   |  | 10.5                                                        |  |  | 8.9                                    |   |  | 7.7                                                          |  |  | 9.6                                    |  
|Bonds                               |  |  | 4.6                                                          |  |  | 34.8                                   |   |  | 7.0                                                         |  |  | 4.0                                    |   |  | 4.3                                                          |  |  | 23.1                                   |  
|Cash                                |  |  | 5.0                                                          |  |  | 3.1                                    |   |  |                                                            |  |  |                                       |   |  |                                                             |  |  |                                       |  
|                                    |  |  |                                                              |  |  |                                        |   |  |                                                             |  |  |                                        |   |  |                                                              |  |  |                                        |  
|Market value
        of assets      |  |  |                                                              |  |  | 175.3                                  |   |  |                                                             |  |  | 12.9                                   |   |  |                                                              |  |  | 32.7                                   |  
|Present value of scheme liabilities |  |  |                                                              |  |  | (248.2                                 | ) |  |                                                             |  |  | (22.1                                  | ) |  |                                                              |  |  | (47.4                                  | )
|                                    |  |  |                                                              |  |  |                                        |   |  |                                                             |  |  |                                        |   |  |                                                              |  |  |                                        |  
|Deficit                             |  |  |                                                              |  |  | (72.9                                  | ) |  |                                                             |  |  | (9.2                                   | ) |  |                                                              |  |  | (14.7                                  | )
|                                    |  |  |                                                              |  |  |                                        |   |  |                                                             |  |  |                                        |   |  |                                                              |  |  |                                        |  

The Investment return is calculated
    using the expected rate of return for each asset class, taking into account
    assumptions on inflation and fund diversification. The return for each asset
    class is set with reference to current market yields and making assumptions
    regarding the expected return on equities in the long term.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 118
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

26      Pension Scheme(continued)

|                                    |  |  | Long term 
    rate of return 
    expected 
    31 December 
    2003 |  |  | Value as at 
    31 December 
    2003 |   |  | Long term 
    rate of return 
    expected 
    31 December2003 |  |  | Value as at 
    31 December 
    2003 |   |  | Long term
    rate of return 
    expected 
    31 December 
    2003 |  |  | Value as at 
    31 December 
    2003 |  
|----------------------------------- |  |  | ---------------------------------------------------------------------- |  |  | -------------------------------------- | - |  | ---------------------------------------------------------------- |  |  | -------------------------------------- | - |  | --------------------------------------------------------------------- |  |  | -------------------------------------- | -
|                                    |  |  | UK                                                                     |  |  | UK                                     |   |  | USA                                                              |  |  | USA                                    |   |  | Netherlands                                                           |  |  | Netherlands                            |  
|                                    |  |  |                                                                        |  |  |                                        |   |  |                                                                  |  |  |                                        |   |  |                                                                       |  |  |                                        |  
|                                    |  |  | % pa                                                                   |  |  | £m                                     |   |  | % pa                                                             |  |  | £m                                     |   |  | % pa                                                                  |  |  | £m                                     |  
|                                    |  |  |                                                                        |  |  |                                        |   |  |                                                                  |  |  |                                        |   |  |                                                                       |  |  |                                        |  
|Equities                            |  |  | 7.8                                                                    |  |  | 122.5                                  |   |  | 10.5                                                             |  |  | 8.9                                    |   |  | 8.3                                                                   |  |  | 11.3                                   |  
|Bonds                               |  |  | 4.8                                                                    |  |  | 18.3                                   |   |  | 7.0                                                              |  |  | 4.6                                    |   |  | 4.3                                                                   |  |  | 17.7                                   |  
|Cash                                |  |  | 4.5                                                                    |  |  | 2.1                                    |   |  |                                                                 |  |  |                                       |   |  |                                                                      |  |  | 0.2                                    |  
|                                    |  |  |                                                                        |  |  |                                        |   |  |                                                                  |  |  |                                        |   |  |                                                                       |  |  |                                        |  
|Market value of assets              |  |  |                                                                        |  |  | 142.9                                  |   |  |                                                                  |  |  | 13.5                                   |   |  |                                                                       |  |  | 29.2                                   |  
|Present value of scheme liabilities |  |  |                                                                        |  |  | (222.2                                 | ) |  |                                                                  |  |  | (25.2                                  | ) |  |                                                                       |  |  | (41.2                                  | )
|                                    |  |  |                                                                        |  |  |                                        |   |  |                                                                  |  |  |                                        |   |  |                                                                       |  |  |                                        |  
|Deficit                             |  |  |                                                                        |  |  | (79.3                                  | ) |  |                                                                  |  |  | (11.7                                  | ) |  |                                                                       |  |  | (12.0                                  | )
|                                    |  |  |                                                                        |  |  |                                        |   |  |                                                                  |  |  |                                        |   |  |                                                                       |  |  |                                        |  
|                                    |  |  |                                                                        |  |  |                                        |   |  |                                                                  |  |  |                                        |   |  |                                                                       |  |  |                                        |  
|Deferred tax                        |  |  |                                                                        |  |  |                                       |   |  |                                                                  |  |  |                                       |   |  |                                                                       |  |  | (3.4                                   | )

|         |  |  | Long term rate 
    of return expected 
    31 December 
    2002 |  |  | Value as at 
    31 December 
    2002 |  |  | Long term rate 
    of return expected 
    31 December2002 |  |  | Value as at 
    31 December 
    2002 |  |  | Long term rate 
    of return expected 
    31 December 
    2002 |  |  | Value as at 
    31 December 
    2002 | 
|-------- |  |  | ----------------------------------------------------------------- |  |  | -------------------------------------- |  |  | ----------------------------------------------------------- |  |  | -------------------------------------- |  |  | ----------------------------------------------------------------- |  |  | -------------------------------------- | 
|         |  |  | UK                                                                |  |  | UK                                     |  |  | USA                                                         |  |  | USA                                    |  |  | Netherlands                                                       |  |  | Netherlands                            | 
|         |  |  |                                                                   |  |  |                                        |  |  |                                                             |  |  |                                        |  |  |                                                                   |  |  |                                        | 
|         |  |  | % pa                                                              |  |  | £m                                     |  |  | % pa                                                        |  |  | £m                                     |  |  | % pa                                                              |  |  | £m                                     | 
|         |  |  |                                                                   |  |  |                                        |  |  |                                                             |  |  |                                        |  |  |                                                                   |  |  |                                        | 
|Equities |  |  | 7.5                                                               |  |  | 92.5                                   |  |  | 11.0                                                        |  |  | 11.0                                   |  |  | 8.5                                                               |  |  | 7.1                                    | 
|Bonds    |  |  | 4.5                                                               |  |  | 15.6                                   |  |  | 5.7                                                         |  |  | 6.7                                    |  |  | 4.5                                                               |  |  | 15.0                                   | 
|Cash     |  |  | 4.2                                                               |  |  | 1.4                                    |  |  |                                                            |  |  |                                       |  |  | 0.0                                                               |  |  | 0.7                                    | 

There were no assets relating to Other Post Retirement Benefits.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 119
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

26      Pension Scheme(continued)

Movement in deficit during the year

|                                        |  | Year ended
          31 December 2004 |   |  | Year ended
          31 December 2003 |  
|--------------------------------------- |  | ------------------------------------- | - |  | ------------------------------------- | -
|                                        |  |                                       |   |  |                                       |  
|                                        |  | UK                                    |   |  | USA                                   |  
|                                        |  |                                       |   |  |                                       |  
|                                        |  | £m                                    |   |  | £m                                    |  
|                                        |  |                                       |   |  |                                       |  
|Deficit at start of year                |  | (79.3                                 | ) |  | (11.7                                 | )
|Current service cost                    |  | (8.3                                  | ) |  | (0.8                                  | )
|Past service cost                       |  | (0.4                                  | ) |  |                                      |  
|Company contributions                   |  | 17.7                                  |   |  | 2.0                                   |  
|Other financing(charge)/credit          |  | (1.1                                  | ) |  | (0.1                                  | )
|Actuarial gain/(loss)                   |  | (5.1                                  | ) |  | (2.4                                  | )
|Exchange gain/(loss)                    |  |                                      |   |  | 1.0                                   |  
|Gain/loss due to settlement/curtailment |  | 3.6                                   |   |  | 2.8                                   |  
|                                        |  |                                       |   |  |                                       |  
|Deficit at end of year                  |  | (72.9                                 | ) |  | (9.2                                  | )
|                                        |  |                                       |   |  |                                       |  

Analysis of the amounts charged to operating profit :

|                     |  | Year ended
          31 December 2004 |   |  | Year ended
          31 December 2003 |  
|-------------------- |  | ------------------------------------- | - |  | ------------------------------------- | -
|                     |  |                                       |   |  |                                       |  
|                     |  | UK                                    |   |  | USA                                   |  
|                     |  |                                       |   |  |                                       |  
|                     |  | £m                                    |   |  | £m                                    |  
|                     |  |                                       |   |  |                                       |  
|Current service cost |  | (8.3                                  | ) |  | (0.8                                  | )
|Past service cost    |  | (0.4                                  | ) |  |                                      |  
|                     |  |                                       |   |  |                                       |  
|                     |  | (8.7                                  | ) |  | (0.8                                  | )
|                     |  |                                       |   |  |                                       |  

Analysis of amounts included in Other Financing (charge)/credit :

|                          |  | Year ended
          31 December 2004 |   |  | Year ended
          31 December 2003 |  
|------------------------- |  | ------------------------------------- | - |  | ------------------------------------- | -
|                          |  |                                       |   |  |                                       |  
|                          |  | UK                                    |   |  | USA                                   |  
|                          |  |                                       |   |  |                                       |  
|                          |  | £m                                    |   |  | £m                                    |  
|                          |  |                                       |   |  |                                       |  
|Interest cost             |  | (12.2                                 | ) |  | (1.3                                  | )
|Expected return on assets |  | 11.1                                  |   |  | 1.2                                   |  
|                          |  |                                       |   |  |                                       |  
|                          |  | (1.1                                  | ) |  | (0.1                                  | )
|                          |  |                                       |   |  |                                       |  

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 120
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

26      Pension Scheme(continued)

Analysis of the amount recognised in statement of total recognised gains and losses :

|                                                                 |  | Year ended 31 December 2004 |  
|---------------------------------------------------------------- |  | --------------------------- | -
|                                                                 |  |                             |  
|                                                                 |  | UK                          |  
|                                                                 |  |                             |  
|                                                                 |  | £m                          |  
|                                                                 |  |                             |  
|Difference between Actual and Expected return on assets          |  | 5.8                         |  
|Experience gains and losses                                      |  | (1.9                        | )
|Effects of changes in assumptions on value of scheme liabilities |  | (9.0                        | )
|                                                                 |  |                             |  
|                                                                 |  | (5.1                        | )
|                                                                 |  |                             |  

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 121
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

26      Pension Scheme(continued)

|                                                                 |  | Year ended 31 December 2003 |  
|---------------------------------------------------------------- |  | --------------------------- | -
|                                                                 |  |                             |  
|                                                                 |  | UK                          |  
|                                                                 |  |                             |  
|                                                                 |  | £m                          |  
|                                                                 |  |                             |  
|Difference between Actual and Expected return on assets          |  | 14.2                        |  
|Experience gains and losses                                      |  | (9.4                        | )
|Effects of changes in assumptions on value of scheme liabilities |  | (31.9                       | )
|                                                                 |  |                             |  
|                                                                 |  | (27.1                       | )
|                                                                 |  |                             |  

History of Experience Gains and Losses

|                                                                          |  |  |             |  |  | 2004  |   |  | 2003  |  
|------------------------------------------------------------------------- |  |  | ----------- |  |  | ----- | - |  | ----- | -
|                                                                          |  |  |             |  |  |       |   |  |       |  
|Difference between the expected and actual return on scheme assets        |  |  | (£ million) |  |  | 6.5   |   |  | 15.3  |  
|Percentage of scheme assets                                               |  |  |             |  |  | 3%    |   |  | 8%    |  
|                                                                          |  |  |             |  |  |       |   |  |       |  
|Experience gains and losses on scheme liabilities                         |  |  | (£ million) |  |  | (2.2  | ) |  | (17.8 | )
|Percentage of the present value of scheme liabilities                     |  |  |             |  |  | (1%   | ) |  | (6%   | )
|                                                                          |  |  |             |  |  |       |   |  |       |  
|Changes in assumptions re value of liabilities                            |  |  | (£ million) |  |  | (12.9 | ) |  | (27.3 | )
|As a percentage of scheme liabilities                                     |  |  |             |  |  | (4%   | ) |  | (9%   | )
|                                                                          |  |  |             |  |  |       |   |  |       |  
|Total amount recognised in statement of total recognised gains and losses |  |  | (£ million) |  |  | (8.6  | ) |  | (29.6 | )
|As a percentage of scheme liabilities                                     |  |  |             |  |  | (3%   | ) |  | (10%  | )

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 122
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

26      Pension Scheme(continued)

For purposes of US GAAP, the pension costs of all significant plans have been shown in the following tables in accordance with the requirements of SFAS No 132  ‘Employers’ Disclosures about Pensions and Other Post-retirement Benefits’.

The changes in projected benefit obligations and plan assets and details of the funded status of these retirement plans, together with the changes in the accumulated other post-retirement benefit obligations, under SFAS No 132 are as follows:

|                                                    |  | Pension benefits                              |           | Other post-retirement
    benefits            | 
|--------------------------------------------------- |  | --------------------------------------------- | --------- | --------------------------------------------- | 
|                                                    |  | Avecia
          Group plc
      Consolidated |           | Avecia
          Group plc
      Consolidated | 
|                                                    |  |                                               |           |                                               | 
|                                                    |  | For the year ended December
    31, 2004      |           | For the year ended December
    31, 2003      | 
|                                                    |  |                                               |           |                                               | 
|                                                    |  |                                               | £ million |                                               | 
|                                                    |  |                                               |           |                                               | 
|Change in projected benefit obligation              |  |                                               | 29        |                                               | 
|                                                    |  |                                               |           |                                               | 
|Projected benefit obligation at beginning of period |  |                                               | 292       |                                               | 
|Service cost                                        |  |                                               | 10        |                                               | 
|Interest cost                                       |  |                                               | 16        |                                               | 
|Participant contributions                           |  |                                               | 2         |                                               | 
|Plan amendments                                     |  |                                               | 4         |                                               | 
|Actuarial gain                                      |  |                                               | 14        |                                               | 
|Benefits paid                                       |  |                                               | (5        | )                                             | 
|Settlements/curtailments                            |  |                                               | (8        | )                                             | 
|Other movements including exchange                  |  |                                               | (4        | )                                             | 
|                                                    |  |                                               |           |                                               | 
|Projected benefit obligation at end of period       |  |                                               | 321       |                                               | 
|                                                    |  |                                               |           |                                               | 

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 123
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

26      Pension Scheme(continued)

|                                              |  | Pension Benefits                               |           | Other post-retirement
          benefits       | 
|--------------------------------------------- |  | ---------------------------------------------- | --------- | ---------------------------------------------- | 
|                                              |  | Avecia Group
          plc
      Consolidated  |           | Avecia Group
          plc
      Consolidated  | 
|                                              |  |                                                |           |                                                | 
|                                              |  | For the year
          ended December 31, 2004 |           | For the year
          ended December 31, 2003 | 
|                                              |  |                                                |           |                                                | 
|                                              |  |                                                | £ million |                                                | 
|                                              |  |                                                |           |                                                | 
|Change in plan assets                         |  |                                                | 35        |                                                | 
|                                              |  |                                                |           |                                                | 
|Fair value at beginning of period             |  |                                                | 186       |                                                | 
|Actual return on plan assets                  |  |                                                | 21        |                                                | 
|Group contribution                            |  |                                                | 21        |                                                | 
|Participant contributions                     |  |                                                | 2         |                                                | 
|Benefits paid                                 |  |                                                | (5        | )                                              | 
|Disposition                                   |  |                                                | (2        | )                                              | 
|Other movements including exchange            |  |                                                | (2        | )                                              | 
|                                              |  |                                                |           |                                                | 
|Fair value of plan assets at end of period    |  |                                                | 221       |                                                | 
|                                              |  |                                                |           |                                                | 
|Funded status of plans                        |  |                                                | (100      | )                                              | 
|Unrecognized net loss/(gain)                  |  |                                                | 86        |                                                | 
|Prior service cost not recognized             |  |                                                | (1        | )                                              | 
|Unrecognized net obligation on implementation |  |                                                |          |                                                | 
|                                              |  |                                                |           |                                                | 
|                                              |  |                                                | (15       | )                                              | 
|Adjustments to recognize minimum liability    |  |                                                |           |                                                | 
|Intangible assets                             |  |                                                | (3        | )                                              | 
|Other Comprehensive Income                    |  |                                                | 51        |                                                | 
|                                              |  |                                                |           |                                                | 
|                                              |  |                                                | (48       | )                                              | 
|                                              |  |                                                |           |                                                | 
|Accrued benefit liability                     |  |                                                | (63       | )                                              | 
|                                              |  |                                                |           |                                                | 

The Accumulated Benefit Obligation is £226m for the UK plan, £19.6m for the US plan and £38.0 for the Netherlands plan. There were no plan assets in respect of other post-retirement benefits.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 124
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

26      Pension Scheme(continued)

Assumed discount rates and rates of increase in remuneration used in calculating the projected benefit obligations, together with long-term rates of return on plan assets, vary according to the economic conditions of the country in which the retirement plans are situated.  The weighted average rates used for calculation of year end benefit obligations and forecast benefit cost in the main retirement plans and other benefit obligations for SFAS No 132 purposes were as follows:

|                                           |  |  | Pension benefits |  |  | Other post-retirement
          benefits | 
|------------------------------------------ |  |  | ---------------- |  |  | ---------------------------------------- | 
|                                           |  |  |                  |  |  |                                          | 
|                                           |  |  | 2004             |  |  | 2003                                     | 
|                                           |  |  | %                |  |  | %                                        | 
|                                           |  |  |                  |  |  |                                          | 
|Discount rate                              |  |  | 5.2              |  |  | 5.5                                      | 
|Long-term rate of increase in remuneration |  |  | 3.8              |  |  | 3.7                                      | 
|Expected long-term return on assets        |  |  | 6.9              |  |  | 6.7                                      | 

Avecia has assumed a long-term rate of increase in healthcare costs of 10% (2003: 8%).

|                                                                    |  |                                           | Pension benefits                       |                                           |  |                                           |  
|------------------------------------------------------------------- |  | ----------------------------------------- | -------------------------------------- | ----------------------------------------- |  | ----------------------------------------- | -
|                                                                    |  |                                           | Avecia Group
          plcConsolidated |                                           |  | Avecia Group
          plcConsolidated    |  
|                                                                    |  |                                           |                                        |                                           |  |                                           |  
|                                                                    |  | For the year
          ended December 31, |                                        | For the year
          ended December 31, |  | For the year
          ended December 31, |  
|                                                                    |  |                                           | 2004                                   |                                           |  | 2003                                      |  
|                                                                    |  |                                           |                                        |                                           |  |                                           |  
|                                                                    |  |                                           | £ million                              |                                           |  | £ million                                 |  
|Net periodic cost                                                   |  |                                           |                                        |                                           |  |                                           |  
|Service cost  present value of benefits accruing during the period |  |                                           | 10                                     |                                           |  | 13                                        |  
|Interest cost on projected benefit obligations                      |  |                                           | 16                                     |                                           |  | 13                                        |  
|Expected (return)/loss on assets                                    |  |                                           | (14                                    | )                                         |  | (11                                       | )
|Net amortization and deferral                                       |  |                                           | 6                                      |                                           |  | 5                                         |  
|Settlements & curtailments                                          |  |                                           | 2                                      |                                           |  | (2                                        | )
|                                                                    |  |                                           |                                        |                                           |  |                                           |  
|Net periodic cost for the period                                    |  |                                           | 20                                     |                                           |  | 18                                        |  
|                                                                    |  |                                           |                                        |                                           |  |                                           |  

It is estimated that a 1 percentage point change in the weighted average healthcare costs trend would have the following effects on the accumulated benefit obligation and net periodic cost at December 31, 2004 and December 31, 2003.

|                               |  |  | 1 percentage
          point   | 
|------------------------------ |  |  | ------------------------------ | 
|                               |  |  |                                | 
|                               |  |  | At December
          31, 2004 | 
|                               |  |  |                                | 
|                               |  |  | Increase                       | 
|                               |  |  |                                | 
|                               |  |  | £ million                      | 
|                               |  |  |                                | 
|Accumulated benefit obligation |  |  | 0.63                           | 
|Net periodic cost              |  |  | 0.09                           | 
|                               |  |  |                                | 

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 125
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

27      Net cash inflow from operating activities

|                                                                      |  |  | For the year ended December
          31, 2004 |   |  | For the year ended December
          31, 2003 |   |  | For the year ended December
          31, 2002 |  
|--------------------------------------------------------------------- |  |  | ---------------------------------------------- | - |  | ---------------------------------------------- | - |  | ---------------------------------------------- | -
|                                                                      |  |  |                                                |   |  |                                                |   |  | Restated                                       |  
|                                                                      |  |  |                                                |   |  |                                                |   |  |                                                |  
|                                                                      |  |  | £ million                                      |   |  | £ million                                      |   |  | £ million                                      |  
|                                                                      |  |  |                                                |   |  |                                                |   |  |                                                |  
|Operating loss                                                        |  |  | (50.4                                          | ) |  | (81.1                                          | ) |  | (17.2                                          | )
|Non cash items                                                        |  |  | (1.5                                           | ) |  | (1.7                                           | ) |  | 3.6                                            |  
|Depreciation, amortization and impairment charges                     |  |  | 73.0                                           |   |  | 135.2                                          |   |  | 101.8                                          |  
|(Decrease)/increase in provision for pensions and similar obligations |  |  | (1.1                                           | ) |  | 0.2                                            |   |  | 1.3                                            |  
|Decrease in environmental provision                                   |  |  |                                               |   |  | (0.1                                           | ) |  |                                               |  
|(Decrease)/increase in other provisions                               |  |  | 9.6                                            |   |  | (11.1                                          | ) |  | 10.7                                           |  
|Profit on sale of fixed assets                                        |  |  | (1.8                                           | ) |  | (0.2                                           | ) |  | (0.7                                           | )
|Decrease/(increase) in stocks                                         |  |  | 1.7                                            |   |  | (3.7                                           | ) |  | 8.7                                            |  
|(Increase)/decrease in debtors                                        |  |  | (16.8                                          | ) |  | 9.4                                            |   |  | 1.1                                            |  
|(Decrease)/increase in creditors                                      |  |  | (1.5                                           | ) |  | 0.4                                            |   |  | (1.5                                           | )
|                                                                      |  |  |                                                |   |  |                                                |   |  |                                                |  
|Net cash inflow from operating activities                             |  |  | 11.2                                           |   |  | 47.3                                           |   |  | 107.8                                          |  
|                                                                      |  |  |                                                |   |  |                                                |   |  |                                                |  

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 126
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

28      Analysis of cash flows

|                                                  |  |  | Avecia Group
          plc
    Consolidated |  
|------------------------------------------------- |  |  | ------------------------------------------- | -
|                                                  |  |  |                                             |  
|                                                  |  |  | For the year
    ended December 31,         |  
|                                                  |  |  |                                             |  
|                                                  |  |  | 2004                                        |  
|                                                  |  |  |                                             |  
|                                                  |  |  | £ million                                   |  
|Dividends from joint ventures and associates      |  |  |                                             |  
|Joint ventures                                    |  |  | 2.5                                         |  
|                                                  |  |  |                                             |  
|                                                  |  |  |                                             |  
|                                                  |  |  |                                             |  
|Returns on investment and servicing of finance    |  |  |                                             |  
|Interest received                                 |  |  | 1.1                                         |  
|Interest paid                                     |  |  | (39.2                                       | )
|Interest element of finance lease rental payments |  |  | (0.3                                        | )
|                                                  |  |  |                                             |  
|                                                  |  |  |                                             |  
|                                                  |  |  |                                             |  
|Capital expenditure and financial investment      |  |  |                                             |  
|Purchase of tangible fixed assets                 |  |  | (17.4                                       | )
|Purchase of intangible fixed assets               |  |  | (1.1                                        | )
|Sale of tangible fixed assets                     |  |  | 5.2                                         |  
|                                                  |  |  |                                             |  
|                                                  |  |  |                                             |  
|                                                  |  |  |                                             |  

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 127
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

28      Analysis of cash flows (continued)

|                                                 |      |  |       | For the year
          ended December 31, |   |  | For the year
          ended December 31, |   |      | For the year
          ended December 31, |  
|------------------------------------------------ | ---- |  | ----- | ----------------------------------------- | - |  | ----------------------------------------- | - | ---- | ----------------------------------------- | -
|                                                 |      |  |       |                                           |   |  |                                           |   |      |                                           |  
|                                                 |      |  |       | 2004                                      |   |  | 2004                                      |   |      | 2003                                      |  
|                                                 |      |  |       |                                           |   |  |                                           |   |      |                                           |  
|                                                 | Note |  |       | £ million                                 |   |  | £ million                                 |   |      | £ million                                 |  
|Acquisitions and disposals                       |      |  |       |                                           |   |  |                                           |   |      |                                           |  
|Purchase of subsidiary undertaking               | 21   |  |       |                                          |   |  |                                           |   |      | (1.9                                      | )
|Net cash disposed with subsidiary                |      |  |       | (0.2                                      | ) |  |                                           |   |      | (0.1                                      | )
|Disposal of subsidiary undertaking               |      |  |       | 187.1                                     |   |  |                                           |   |      | 78.6                                      |  
|                                                 |      |  |       |                                           |   |  |                                           |   |      |                                           |  
|                                                 |      |  |       |                                           |   |  | 186.9                                     |   |      |                                           |  
|                                                 |      |  |       |                                           |   |  |                                           |   |      |                                           |  
|Financing                                        |      |  |       |                                           |   |  |                                           |   |      |                                           |  
|Loans to related parties                         |      |  |       |                                          |   |  |                                           |   |      | 0.1                                       |  
|Debt due within one year:                        |      |  |       |                                           |   |  |                                           |   |      |                                           |  
|New loan repayable in current year               |      |  | 117.5 |                                           |   |  |                                           |   | 64.0 |                                           |  
|Loan repayments                                  |      |  |       | (250.5                                    | ) |  |                                           |   |      | (103.7                                    | )
|Capital element of finance lease rental payments |      |  | (0.8  | )                                         |   |  |                                           |   | (1.0 | )                                         |  
|                                                 |      |  |       |                                           |   |  |                                           |   |      |                                           |  
|                                                 |      |  |       |                                           |   |  | (133.8                                    | ) |      |                                           |  
|                                                 |      |  |       |                                           |   |  |                                           |   |      |                                           |  

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 128
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

29      Analysis
      of net debt

|                         |  |                                  | Avecia Group
          plc  Consolidated for the year ended December 31, 2004 |  
|------------------------ |  | -------------------------------- | ------------------------------------------------------------------------------ | -
|                         |  |                                  |                                                                                |  
|                         |  | At
          beginning of period |                                                                                |  
|                         |  |                                  |                                                                                |  
|                         |  |                                  | £ million                                                                      |  
|                         |  |                                  |                                                                                |  
|Cash at bank and in hand |  |                                  | 8.0                                                                            |  
|Revolver facility        |  |                                  | (44.0                                                                          | )
|Debt due after one year  |  |                                  | (431.1                                                                         | )
|Debt due within one year |  |                                  | (26.0                                                                          | )
|Finance leases           |  |                                  | (5.3                                                                           | )
|                         |  |                                  |                                                                                |  
|Total                    |  |                                  | (498.4                                                                         | )
|                         |  |                                  |                                                                                |  

|                         |  |                                  | Avecia Group
          plc  Consolidated for the year ended December 31, 2003 |  
|------------------------ |  | -------------------------------- | ------------------------------------------------------------------------------ | -
|                         |  |                                  |                                                                                |  
|                         |  | At beginning
          of period |                                                                                |  
|                         |  |                                  |                                                                                |  
|                         |  |                                  | £ million                                                                      |  
|                         |  |                                  |                                                                                |  
|Cash at bank and in hand |  |                                  | 16.2                                                                           |  
|Revolver facility        |  |                                  |                                                                               |  
|Debt due after one year  |  |                                  | (534.8                                                                         | )
|Debt due within one year |  |                                  | (26.4                                                                          | )
|Finance leases           |  |                                  | (6.3                                                                           | )
|                         |  |                                  |                                                                                |  
|Total                    |  |                                  | (551.3                                                                         | )
|                         |  |                                  |                                                                                |  

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 129
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

30      Post
      balance sheet events

On 2 February 2005 Avecia completed
    the sale of the NeoResins business to Royal DSM N.V. for a consideration
    of EUR 515m. The business’ principle manufacturing asset at Waalwijk
    (Netherlands), Parets des Villes (Spain), Willmington MA and Frankfort IN
    (United States) are included in the sale. Approximately 635 employees transferred
    to DSM N.V. upon completion.

Following this divestment, Avecia
    used the net proceeds to repay all outstanding Senior Bank Borrowings (£75
    million) together with accrued interest, and on 4 February 2005 to purchase
    77% ($415,912,000) of the aggregate principal amount of the High Yield Bonds
    in issue, at a total cost of $447.307 million.

On 28 February 2005 Avecia completed
    the sale of its OLED and Polymer Electronics units to Merck KgaA of Darmstadt
    for EUR 50million. The sale included Avecia’s displays business  Covion
    Organic Semiconductors GmbH and its polymer research and development activities
    based in Manchester, UK. Approximately 74 employees transferred to Merck
    KgaA upon completion.

On 5 April 2005, following a review
    of operations in Avecia’s DNA business, Avecia announced the closure
    of its UK DNA facility at Grangemouth, with consolidation of DNA Medicine
    operations and activities at Avecia’s site in Milford, MA. Approximately
    95 jobs will be at risk following the decision, and Avecia will be taking
    an appropriate charge to cover restructuring costs during 2005.

31      Related
      Party disclosures

In June 1999, Cinven and Investcorp
    S.A. jointly directed the formation of Avecia, and its acquisition of the
    Zeneca Specialties business. Cinven and Investcorp S.A. continue to provide
    consulting services to the Group, for which they may receive payments of
    up to £400,000 per annum. In January 2002 Avecia completed the sale
    of its Stahl business to Luxembourg 101 S.A. and its affiliates. The purchase
    of Stahl from Avecia was managed by Investcorp S.A. on behalf of Luxembourg
    101 SA and its affiliates, which under the terms of the Bond Indenture means
    that Luxembourg 101 SA is considered a related party. The sale of the Stahl
    business was therefore conducted under the terms of the bond indenture relating
    to related party transactions.

At December 31, 2004 debtors include £15.0
    million (2003: £17.2 million)owed to companies within the group
    by the parent companies of Avecia Group plc, Avecia Holdings plc and Avecia
    Finance plc. The £15.0million relates to acquisition fees This amount
    is interest free.

32      Ultimate
      parent company

The ultimate parent company is Avecia
    (Jersey) Limited, a company registered and incorporated in Jersey. The registered
    number is 74318. The external address of the ultimate parent company is:

Avecia (Jersey) LimitedMourant du Feu & Jeune22 Grenville StreetSt. HelierJerseyJE4 8PX.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 130
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

33      Difference
      between UK and US accounting principles

These consolidated financial statements
    are prepared in accordance with UK GAAP. Significant differences between
    UK GAAP and US GAAP which affect the net income and net assets of Avecia
    and Zeneca Specialties are set out below.

Reclassification of parent
        company debtors

Since the acquisition of the Specialty
    Chemicals business of AstraZeneca in 1999, certain amounts have been due
    from Avecia Holdings plc and Avecia Finance plc, the parent companies of
    Avecia Group plc on a long term basis (see note 16). Under US GAAP, such
    amounts are reflected as a reduction of shareholders’ funds. Net assets
    in accordance with US GAAP have been reduced by £15.0 million to reflect
    this reclassification at December 31, 2004 (December 31, 2003: £17.2
    million).

Capitalization of interest

There is no mandatory accounting
    standard in the United Kingdom regarding the capitalization of interest and,
    accordingly, the business does not capitalize interest as part of the cost
    of fixed assets in financial statements prepared under UK GAAP. US GAAP requires
    interest incurred and associated with the cost of constructing fixed assets
    to be capitalized and amortized over the life of the asset.

Revenue recognition

The company recognizes revenues on
    individual elements of multiple-element sales arrangements when sums are
    contractually due for work performed or services rendered during the year.
    Under US GAAP, such sums are deferred unless they are in exchange for products
    delivered or services performed which represent the culmination of a separate
    earnings process. Certain revenues recognized under UK GAAP on a multiple-element
    sales arrangement may not be recognized under US GAAP until the terms of
    additional elements of the arrangement have been completed or fulfilled and
    all contingencies resolved.

Deferred taxation

Following the implementation of FRS
    19 ‘Deferred tax’ both US GAAP and UK GAAP now provide for deferred
    taxation on a full liability basis. US GAAP, however, requires provision
    for revaluation gains, fair value adjustments similar to revaluations arising
    on the acquisition of a business, latent rolled over gains and the retained
    earnings of foreign subsidiaries that are not permanently reinvested. These
    are not normally provided for under UK GAAP.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 131
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

33      Difference
      between UK and US accounting principles(continued)

Pension Expense

There are various differences between
    UK GAAP and US GAAP in accounting for pension costs:

| | US GAAP requires measurement of plan assets
        and obligations to be made as at the date of the financial statements
        or a date not more than three months prior to that date. Under UK GAAP,
        calculations are made at the date of the financial statements;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                 

| | under US GAAP, a negative pension cost may
        arise where a significant unrecognized net asset or gain exists at the
        time of implementation. This is required to be amortized on a straight-line
        basis over the average remaining service period of employees. In accordance
        with UK GAAP, Avecia policy is not to recognize pension credits in its
        financial statements unless a refund of, or reduction in, contributions
        is likely.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| | under US GAAP, a minimum pension liability
        is recognized through other comprehensive income in certain circumstances
        when there is a deficit of plan assets relative to the accumulated benefits
        obligation. Under UK GAAP, there is no such requirement.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                  

| | Under US GAAP, pension prepayments and liabilities
        accrued are included in the balance sheet within debtors, creditors or
        provisions as appropriate. Under UK GAAP (FRS17), the whole net pensions
        asset or liability is recognized as a single item on the balance sheet.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Purchase accounting adjustments
        (goodwill and intangibles)

In the consolidated financial statements,
    goodwill arising on acquisitions made prior to January 1998 accounted for
    under the purchase method has been eliminated against shareholders’ equity,
    in accordance with UK GAAP. Under the requirements of UK Financial Reporting
    Standard 10 ‘Goodwill and intangible assets’, goodwill on acquisitions
    made after January 1, 1998 is capitalized and amortized over its estimated
    useful life, which is generally presumed not to exceed 20 years. UK GAAP
    requires that on subsequent disposal or termination of a previously acquired
    business, any goodwill previously taken directly to shareholders’ equity
    is charged in the income statement against the profit or loss on disposal
    or termination.

Under UK GAAP goodwill created outside
    the Avecia Group plc group of companies is not reported in the financial
    statements of Avecia Group plc. Under US GAAP this goodwill is pushed down
    into the net assets of the group as it is deemed to be attached to assets
    held by the Avecia Group plc group of companies.

Minority interests

Under UK GAAP, minority interests
    are included as part of ‘shareholders’ funds and minority interests’.
    Under US GAAP minority interests are classified outside of shareholders’ equity.

Pay-in-kind preference shares

Under UK GAAP, the pay-in-kind preference
    shares issued by the company form part of shareholders’ funds. Under
    US GAAP, due to the mandatory redemption requirements in place, this class
    of shares is classified as debt. Shares are currently classified as debt
    in 2004 as a result of the implementation of SFAS 150. In prior years they
    were classified as mezzanine. The dividend is classified as interest expense
    in 2004.

Disposal of Business

Under UK and US GAAP foreign exchange
    differences arising on the consolidation of overseas equity investments are
    taken to reserves. Under US GAAP, the accumulated translation component of
    equity attributable to investments that have been disposed of should be recognized
    in measuring the gain or loss on sale, under UK GAAP these exchange differences
    remain in reserves.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 132
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

33      Difference
      between UK and US accounting principles(continued)

Restructuring Costs

Under UK GAAP provisions for restructuring
    costs should be made when an entity has; a present obligation as a result
    of a past event; when it is probable that the transfer of economic benefit
    will be required to settle the obligation; and a reliable estimate can be
    made of the amount. Under US GAAP costs associated with exit or disposal
    activities should only be recognized a liability has been incurred.

Investments

Investments in entities over which
    Avecia do not exercise control, but exercise significant influence (associates
    and joint ventures), are accounted for by the equity method.

UK GAAP requires the consolidated
    financial statements to show separately the proportion of operating profit
    or loss, exceptional items, inventory holding gains or losses, interest expense
    and taxation of associated undertakings and joint ventures. In addition,
    the turnover of joint ventures should be disclosed.

For US GAAP, the after tax profits
    or losses (i.e. operating results after exceptional items, inventory holding
    gains or losses, interest expense and taxation) is included in the income
    statement as a single line item.

UK GAAP requires the group’s
    share of the gross assets and gross liabilities of joint ventures to be shown
    on the face of the balance sheet, whereas under US GAAP the net investment
    is included as a single line item.

Assets and liabilities

Under US GAAP fixed asset impairments
    have been calculated in accordance with SFAS 144; this approach differs from
    FRS11 in the determination of relevant asset groups and also in the determination
    of which asset groups are subject to an impairment calculation.

Current assets under UK GAAP include
    amounts which fall due after more than one year. Under US GAAP such assets
    would be reclassified as non-current assets. In addition, under UK GAAP unamortized
    debt issuance costs are netted against the associated debt, whereas under
    US GAAP such unamortized costs are included in other assets.

Provisions for liabilities and charges
    under UK GAAP include amounts due, or estimated to become payable, within
    one year which would be reclassified to current liabilities under US GAAP.
    In addition, under US GAAP, provisions not due or expected to be payable
    within one year would be shown as part of amounts payable and accrued liabilities
    due after one year.

Statement of cash flows: Basis
        of preparation

The statements of group cash flow
    for Avecia are prepared in accordance with UK Financial Reporting Standard
    1 ‘FRS 1 (Revised 1996)’, whose objective and principles are
    similar to those set out in SFAS No 95, ‘Statement of cash flows’.
    The principal differences between the standards relate to classification.
    Under FRS 1 (Revised 1996), Avecia and Zeneca Specialties present cash flows
    for (a) operating activities; (b) dividends received from joint ventures
    and associates; (c) returns on investments and servicing of finance; (d)
    tax paid; (e) capital expenditure and financial investment; (f) acquisitions
    and disposals; (g) dividends paid to shareholders; (h) management of liquid
    resources; and (i) financing. SFAS No 95 requires only three categories of
    cash flow activity being (a) operating; (b) investing; and (c) financing.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 133
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

33      Difference
      between UK and US accounting principles(continued)

Cash flows from taxation, returns
    on investments and servicing of finance and dividends received from joint
    ventures and associates under FRS 1 (Revised 1996) would be included as operating
    activities under SFAS No 95; capital expenditure and financial investment
    and acquisitions and disposals would be included as investing activities;
    and distributions or dividends would be included as a financing activity
    under SFAS No 95. Under FRS 1 (Revised 1996) cash comprises cash in hand
    and deposits repayable on demand, less overdrafts repayable on demand; and
    liquid resources comprise current asset investments held as readily disposable
    stores of value. Under SFAS No 95 cash equivalents, comprising short-term
    highly liquid investments, generally with original maturities of three months
    or less, are grouped together with cash; short-term borrowings repayable
    on demand would not be included within cash and cash equivalents and movements
    on those borrowings would be included in financing activities.

Derivative Instruments

SFAS 133 requires that all derivative
    instruments are recognized as assets or liabilities on the balance sheet
    and measured at fair value, regardless of the purpose or intent for holding
    them. Changes in the fair value of derivative instruments are recognized
    periodically either in earnings or stockholders’ equity (as a component
    of other comprehensive income), depending on whether the derivative is designated
    as a hedge of changes in fair value or cash flows. For derivatives designated
    as fair value hedges, changes in fair value of the hedged item and the derivative
    are recognized currently in earnings. For derivatives designated as cash
    flow hedges, fair value changes of the effective portion of the hedging instrument
    are recognized in accumulated other comprehensive income on the balance sheet
    until the hedged item is recognized in earnings.

The ineffective portion of the fair
    value changes are recognized in earnings immediately. SFAS 133 also requires
    that certain derivative instruments embedded in host contracts be accounted
    for separately as derivatives.

If a derivative instrument is not
    designated as a hedge, movements in the fair value of the instrument are
    recognized in earnings. The types of derivative that the company has identified
    are described in note 19.

The company has not elected to designate
    any derivative instruments as a hedge of exposures as at January 1, 2001.
    In accordance with SFAS 133, the derivative instruments are measured at fair
    value with future changes in the fair values of those contacts recorded through
    earnings.

Share Options

On December 31, 1999 certain employees
    of Avecia Group plc were given the opportunity to invest in the preference
    shares of Avecia Holdings plc, the parent company of Avecia Group plc. Attached
    to these preference shares were options to purchase 10.7 million ordinary
    shares in Avecia Holdings plc.

The preference shares were purchased
    at a price of £1.234 per share and, upon a change in control or public
    listing (‘Exit Event’), the preference shares will be redeemed
    at a price equal to or less than £1.234 per share. No dividends are
    payable in respect of these shares.

The share options, were granted with
    an exercise price of £0.02518 per ordinary share, and were only exercisable
    if an Exit Event occurs and expire 10 years from the date of grant.

During 2001, certain provisions relating
    to the share options were modified, and employees exchanged their options
    for 10.7 million restricted ordinary shares in Avecia Holdings plc. These
    shares are restricted because they are legally owned by an Employee Benefit
    Trust and, under the terms of the arrangement, employees can only realize
    their beneficial interest (i.e. transfer ownership of the shares) upon the
    occurrence of an Exit Event. In connection with this modification, Avecia
    Holdings plc redeemed a sufficient number of preference shares at a price
    of £1.234 per preference share to fund the acquisition of the ordinary
    shares at the original exercise price of £0.02518 per share.

No compensation expense has been
    recorded in the consolidated financial statements of Avecia Group plc during
    the periods presented herein because the number of shares, if any, that will
    ultimately vest with the employees is contingent upon the company achieving
    an Exit Event. Under US GAAP, in the period in which an Exit Event does occur,
    the company will record a compensation expense and a capital contribution,
    based on the intrinsic value of these awards at the date of the Exit Event.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 134
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

33      Difference
      between UK and US accounting principles(continued)

Reporting comprehensive income

SFAS No 130  ‘Reporting
    comprehensive income’ established requirements for the reporting and
    display of income and its components, including the reclassification of financial
    statements for earlier periods for comparative purposes. The information
    set out in the Statement of Total Recognized Gains and Losses, and below,
    is consistent with the requirements of SFAS No 130.

Goodwill

Under US GAAP, it is required to
    ascribe fair values to net assets acquired, including identifiable intangibles,
    and for goodwill to be capitalized in the balance sheet. Prior to January
    1, 2002 goodwill was amortized through the income statement over the estimated
    useful life of 15 years. SFAS No. 142 ‘Goodwill and Other Intangible
    Assets’ was adopted during the year ended December 31, 2002. The impairment
    loss identified on adoption of £34.8 million has been classified as
    a cumulative effect of a change in accounting principle in accordance with
    the standard. Goodwill is now tested annually for impairment in lieu of amortization.

Cumulative exchange gains and
        losses

The total recognized gains and losses
    of Avecia differ from the net income for the year (as set out in the consolidated
    profit and loss account) in respect of foreign currency translation adjustments
    amounting to an aggregate loss of £7.0 million for the year ended December
    31, 2004 (year ended December 31, 2003 £1.6 million gain, year ended
    December 31, 2002 £9.0 million loss). The foreign currency adjustments
    are set out in the Statement of total recognized gains and losses.

The cumulative exchange gains and
    losses on the translation of foreign currency financial statements into sterling
    under UK GAAP are set out in the following note.

|                               |  |  | Avecia Group
          plc Consolidated |  
|------------------------------ |  |  | --------------------------------------- | -
|                               |  |  |                                         |  
|                               |  |  | For the year endedDecember 31, 2004     |  
|                               |  |  |                                         |  
|                               |  |  | £ million                               |  
|                               |  |  |                                         |  
|Balance at beginning of period |  |  | (11.0                                   | )
|Movement in period             |  |  | (7.0                                    | )
|                               |  |  |                                         |  
|Balance at end of period       |  |  | (18.0                                   | )
|                               |  |  |                                         |  

Classification differences
        between UK and US GAAP:

Debt issuance costs

Issue costs of £10.6 million
    have been offset against the carrying amount of the debt under UK GAAP. Under
    US GAAP, the issue costs would be similarly deferred in the balance sheet
    but presented as other assets.

Discontinued operations

Under UK GAAP discontinued operations
    are presented within the financial statements by analyzing the relevant line
    items. US GAAP requires that net income/loss, net of tax, for a discontinued
    operation be presented on a single line in the income statement. Under US
    GAAP, discontinued operations include the gain on disposal of business of £100.9
    million (2003 : £15.4 million, 2002 : £9.4 million) and
    an allocation of the tax charge of £Nil million (2003 £nil
    million, 2002 £0.4 million).

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 135
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

33      Difference
      between UK and US accounting principles(continued)

Exceptional Items

Under UK GAAP certain amounts are
    separately identified on the face of the income statement as exceptional.
    These amounts relate primarily to impairments and restructuring costs. Under
    US GAAP these amounts would not be separately identified and would be included
    as part of operating costs.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 136
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

|33 | Difference between UK and US accounting
          principles(continued)
|-- | -----------------------------------------------------------------------

The following is a summary of the
    material adjustments to net profit/(loss) and net assets/(liabilities) which
    would have been required if US GAAP had been applied instead of UK GAAP.

|                                                                                            |  |  | Avecia Group
          plc Consolidated        |  
|------------------------------------------------------------------------------------------- |  |  | ---------------------------------------------- | -
|                                                                                            |  |  |                                                |  
|                                                                                            |  |  | For the year ended December
          31, 2004 |  
|                                                                                            |  |  |                                                |  
|                                                                                            |  |  | £ million                                      |  
|                                                                                            |  |  |                                                |  
|Net profit/(loss)
          before minority interest for the financial period under UK GAAP |  |  | 18.9                                           |  
|                                                                                            |  |  |                                                |  
|Adjustments to conform to
          US GAAP                                                 |  |  |                                                |  
|Capitalization
        of interest, less disposals and amortization                         |  |  | 0.6                                            |  
|Software costs capitalized under
        US GAAP                                            |  |  | 0.3                                            |  
|Income recognition
        deferral                                                         |  |  | (1.8                                           | )
|Pension expense                                                                             |  |  | (16.6                                          | )
|Post-retirement
        benefits (1)                                                        |  |  | 0.9                                            |  
|Differences on profit on disposal
        of business (2):                                  |  |  | (44.7                                          | )
|Goodwill amortization                                                                       |  |  | 28.1                                           |  
|Goodwill additional impairment
        under UK GAAP                                        |  |  |                                               |  
|Goodwill additional
        impairment under US GAAP                                        |  |  | (4.6                                           | )
|Fixed asset additional impairment
        under UK GAAP                                     |  |  | 4.9                                            |  
|Fixed asset
        additional impairment under US GAAP                                     |  |  |                                               |  
|Deferred tax asset recognized
        under US GAAP                                         |  |  |                                               |  
|Restructuring
        costs not recognized                                                  |  |  | 0.6                                            |  
|Onerous contract provision not
        recognized under US GAAP                             |  |  | 1.7                                            |  
|SFAS 133:
        Derivative instruments                                                    |  |  | (3.2                                           | )
|Deferred taxation on adjustments
        to conform to US GAAP                              |  |  | (0.7                                           | )
|Preference
        share dividend                                                           |  |  | (6.6                                           | )
|                                                                                            |  |  |                                                |  
|Net (loss)
          / income before cumulative effects of change in accounting policy      |  |  | (22.2                                          | )
|Cumulative effect of change
        in accounting policy on adoption of SFAS 142            |  |  |                                               |  
|                                                                                            |  |  |                                                |  
|Net loss
          in accordance with US GAAP                                               |  |  | (22.2                                          | )
|Preference share dividend                                                                   |  |  |                                               |  
|                                                                                            |  |  |                                                |  
|Net loss
          available to common shareholders in accordance with US GAAP              |  |  | (22.2                                          | )
|                                                                                            |  |  |                                                |  
|Loss before taxation in accordance
          with US GAAP from:                             |  |  |                                                |  
|continuing
        operations                                                               |  |  | 35.9                                           |  
|discontinued
        operations                                                             |  |  | (55.5                                          | )
|Taxation in accordance with
        US GAAP on:                                             |  |  |                                                |  
|continuing
        operations                                                               |  |  | (2.6                                           | )
|discontinued
        operations                                                             |  |  |                                               |  
|Net loss in accordance with
        US GAAP from:                                           |  |  |                                                |  
|continuing
        operations                                                               |  |  | 33.3                                           |  
|discontinued
        operations                                                             |  |  | (55.5                                          | )

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 137
|                           |    

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Avecia Group plc
  20-F
  Year ended December 31, 2004

Notes to the consolidated financial
      statements(continued)

33      Difference
      between UK and US accounting principles (continued)

(1) Under US GAAP, the amount charged
    to the profit and loss account for Post Retirement Benefits is the total
    net periodic benefit cost. Under UK GAAP only the service cost plus interest
    cost is charged.

(2) Under US GAAP, the elements of
    the purchase accounting adjustments, which related to the Additives, Biocides
    and SDP businesses are charged directly against the profit in the period
    on the disposal of the business; this accounts for £44.7 million loss
    of the GAAP difference shown. The impact of exchange losses previously taken
    to reserves was £0.3 million.

|                                                                    |  |                        | Avecia Group
          plc Consolidated |                       
|------------------------------------------------------------------- |  | ---------------------- | --------------------------------------- | ----------------------
|                                                                    |  |                        |                                         |                       
|                                                                    |  | As atDecember 31, 2004 |                                         | As atDecember 31, 2003
|                                                                    |  |                        |                                         |                       
|                                                                    |  |                        |                                         |                       
|                                                                    |  |                        | £ million                               |                       
|UK GAAP                                                             |  |                        |                                         |                       
|                                                                    |  |                        |                                         |                       
|Total shareholders
          funds as previously stated             |  |                        | 15.5                                    |                       
|Impact of adopting UITF38                                           |  |                        |                                        |                       
|                                                                    |  |                        |                                         |                       
|Total shareholders
          funds as restated                      |  |                        | 15.5                                    |                       
|                                                                    |  |                        |                                         |                       
|Adjustments to conform to
          US GAAP                         |  |                        |                                         |                       
|Reclassification
        of parent company debtors                  |  |                        | (15.0                                   | )                     
|Capitalization, less disposals
        and amortization of interest |  |                        | 11.2                                    |                       
|Software costs
        capitalized under US GAAP                    |  |                        | 0.5                                     |                       
|Income recognition deferral                                         |  |                        | (6.6                                    | )                     
|Pension liability                                                   |  |                        | 84.4                                    |                       
|Post-retirement benefits/plan
        amendment                     |  |                        | 1.9                                     |                       
|Additional
        minimum liability                                |  |                        | (54.0                                   | )                     
|Pensions intangible assets                                          |  |                        | 2.6                                     |                       
|Purchase accounting
        adjustments                             |  |                        | 41.3                                    |                       
|Additional Goodwill impairment
        under US GAAP                |  |                        | (29.6                                   | )                     
|Removal of
        goodwill amortization under UK GAAP              |  |                        | 88.4                                    |                       
|Additional fixed asset impairment                                   |  |                        | (14.1                                   | )                     
|Pay-in-kind
        preference shares                               |  |                        | (37.6                                   | )                     
|Tax on adjustments to conform
        to US GAAP                    |  |                        | (0.9                                    | )                     
|Derivative
        Instruments                                      |  |                        | 0.1                                     |                       
|Restructuring costs not recognized                                  |  |                        | 0.6                                     |                       
|Onerous contract
        provision not recognized under US GAAP     |  |                        | 1.7                                     |                       
|                                                                    |  |                        |                                         |                       
|Shareholders
          equity in accordance with US GAAP            |  |                        | 90.4                                    |                       
|                                                                    |  |                        |                                         |                       

Restatement of cash flows in
        accordance with US GAAP

|                                                        |  |                                                | Avecia Group
          plc Consolidated |                                               
|------------------------------------------------------- |  | ---------------------------------------------- | --------------------------------------- | ----------------------------------------------
|                                                        |  |                                                |                                         |                                               
|                                                        |  | For the year
          ended December 31, 2004 |                                         | For the year
          ended December 31, 2003
|                                                        |  |                                                |                                         |                                               
|                                                        |  |                                                | £ million                               |                                               
|                                                        |  |                                                |                                         |                                               
|Cash (outflow)/inflow from operating
        activities |  |                                                | (24.9                                   | )                                             
|Cash inflow from investing activities                   |  |                                                | 173.6                                   |                                               
|Cash outflow from financing
        activities          |  |                                                | (133.8                                  | )                                             
|                                                        |  |                                                |                                         |                                               
|Increase/(decrease) in cash
        in the period       |  |                                                | 14.9                                    |                                               
|                                                        |  |                                                |                                         |                                               

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 138
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

34      Condensed
financial statements

Avecia Corporation Limited is a wholly-owned subsidiary of Avecia Group plc.  Avecia Corporation Limited has guaranteed the US $540 million 11% notes issued by Avecia Group plc on an unconditional basis.  Avecia Corporation Limited is itself a holding company with no operations or assets, other than shares of Avecia Investments Limited and loans to Avecia Investments Limited and from Avecia Group plc.

For the purposes of Securities Act 1933, guarantees of securities are themselves securities.  As a result, the Securities Act requires both the issuer of the debt and guarantor to be either registered or exempt from registration.  However, Rule 3-10 of Regulation S-X has restated the general rule that all issuers or guarantors must include separate financial statements.  Paragraph (e) of Rule 3-10 provides that a subsidiary guarantor need not include separate financial statements if no other subsidiary of the company guarantees the securities, the guarantee is full and unconditional, the parent company’s financial statements are filed for the required periods and a note to the parent company’s financial statements includes condensed
consolidating financial information for the same periods.

Profit and loss account

|                                                           |  |                  | For the year
          ended December 31, 2004 |                           
|---------------------------------------------------------- |  | ---------------- | ---------------------------------------------- | --------------------------
|                                                           |  |                  |                                                |                           
|                                                           |  | Avecia Group plc |                                                | Avecia Corporation Limited
|                                                           |  |                  |                                                |                           
|                                                           |  |                  | £ million                                      |                           
|                                                           |  |                  |                                                |                           
|Turnover                                                   |  |                  |                                               |                           
|Net operating costs                                        |  |                  |                                               |                           
|Share of operating loss of joint venture                   |  |                  |                                               |                           
|Profit on disposal of business                             |  |                  |                                               |                           
|                                                           |  |                  |                                                |                           
|Profit on ordinary activities before interest and taxation |  |                  |                                               |                           
|Other interest receivable and
    similar income           |  |                  | 37.8                                           |                           
|Income from current asset investments                      |  |                  |                                               |                           
|Interest payable and similar charges                       |  |                  | (34.3                                          | )                         
|                                                           |  |                  |                                                |                           
|Profit on ordinary activities before taxation              |  |                  | 3.5                                            |                           
|Taxation on profit on ordinary activities                  |  |                  |                                               |                           
|                                                           |  |                  |                                                |                           
|Net income for the financial period                        |  |                  | 3.5                                            |                           
|                                                           |  |                  |                                                |                           
|US GAAP adjustments                                        |  |                  |                                               |                           
|                                                           |  |                  |                                                |                           
|US GAAP net income / (loss)                                |  |                  | 3.5                                            |                           
|                                                           |  |                  |                                                |                           

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 139
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

|34 | Condensed financial statements(continued)
|-- | -----------------------------------------

Profit and loss account (continued)

|                                                         |  |                  | For the year
          ended December 31, 2003 |                           
|-------------------------------------------------------- |  | ---------------- | ---------------------------------------------- | --------------------------
|                                                         |  |                  |                                                |                           
|                                                         |  | Avecia Group plc |                                                | Avecia Corporation Limited
|                                                         |  |                  |                                                |                           
|                                                         |  |                  | £ million                                      |                           
|                                                         |  |                  |                                                |                           
|Turnover                                                 |  |                  |                                               |                           
|Net operating costs                                      |  |                  |                                               |                           
|Share of operating profit of joint venture               |  |                  |                                               |                           
|Profit on disposal of business                           |  |                  |                                               |                           
|                                                         |  |                  |                                                |                           
|Loss on ordinary activities before interest and taxation |  |                  |                                               |                           
|Other interest receivable and similar income             |  |                  | 41.3                                           |                           
|Interest payable and similar charges                     |  |                  | (37.6                                          | )                         
|                                                         |  |                  |                                                |                           
|Profit /(loss) on ordinary activities before taxation    |  |                  | 3.7                                            |                           
|Taxation on profit on ordinary activities                |  |                  |                                               |                           
|                                                         |  |                  |                                                |                           
|Net income / (loss) for the financial period             |  |                  | 3.7                                            |                           
|                                                         |  |                  |                                                |                           
|US GAAP adjustments                                      |  |                  |                                               |                           
|                                                         |  |                  |                                                |                           
|US GAAP net income / (loss)                              |  |                  | 3.7                                            |                           
|                                                         |  |                  |                                                |                           

|                                                         |  |                  | For the year ended December 31, 2002 |                           
|-------------------------------------------------------- |  | ---------------- | ------------------------------------ | --------------------------
|                                                         |  |                  |                                      |                           
|                                                         |  | Avecia Group plc |                                      | Avecia Corporation Limited
|                                                         |  |                  |                                      |                           
|                                                         |  |                  | £ million                            |                           
|                                                         |  |                  |                                      |                           
|Turnover                                                 |  |                  |                                     |                           
|Net operating costs                                      |  |                  |                                     |                           
|Share of operating profit of joint venture               |  |                  |                                     |                           
|Profit on disposal of business                           |  |                  | (0.2                                 | )                         
|                                                         |  |                  |                                      |                           
|Loss on ordinary activities before interest and taxation |  |                  | (0.2                                 | )                         
|Other interest receivable and similar income             |  |                  | 44.2                                 |                           
|Interest payable and similar charges                     |  |                  | (40.7                                | )                         
|                                                         |  |                  |                                      |                           
|Profit/(loss) on ordinary activities before taxation     |  |                  | 3.3                                  |                           
|Taxation on profit on ordinary activities                |  |                  |                                     |                           
|                                                         |  |                  |                                      |                           
|Net income / (loss) for the financial period             |  |                  | 3.3                                  |                           
|                                                         |  |                  |                                      |                           
|US GAAP adjustments                                      |  |                  |                                     |                           
|                                                         |  |                  |                                      |                           
|US GAAP net income / (loss)                              |  |                  | 3.3                                  |                           
|                                                         |  |                  |                                      |                           

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 140
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

34      Condensed financial statements(continued)

Balance sheet

|                                                                   |  |                            | As at December
          31, 2004  |                                     
|------------------------------------------------------------------ |  | -------------------------- | ---------------------------------- | ------------------------------------
|                                                                   |  |                            |                                    |                                     
|                                                                   |  | Avecia Group
          plc |                                    | Avecia Corporation
          Limited
|                                                                   |  |                            |                                    |                                     
|                                                                   |  |                            | £ million                          |                                     
|                                                                   |  |                            |                                    |                                     
|Fixed assets                                                       |  |                            | 328.6                              |                                     
|Current assets                                                     |  |                            | 315.6                              |                                     
|Creditors: amounts falling due
    within one year                 |  |                            | (18.5                              | )                                   
|Debtors: amounts falling due after more than one year              |  |                            |                                   |                                     
|Creditors: amounts falling due after more than one year            |  |                            | (275.4                             | )                                   
|Provisions for liabilities and charges including pension liability |  |                            |                                   |                                     
|                                                                   |  |                            |                                    |                                     
|Net assets/(liabilities)                                           |  |                            | 350.3                              |                                     
|                                                                   |  |                            |                                    |                                     
|Share capital and reserves                                         |  |                            |                                    |                                     
|Share capital (including non-equity)                               |  |                            | 330.7                              |                                     
|Reserves                                                           |  |                            | 19.6                               |                                     
|                                                                   |  |                            |                                    |                                     
|                                                                   |  |                            | 350.3                              |                                     
|                                                                   |  |                            |                                    |                                     
|US GAAP adjustments                                                |  |                            | (0.9                               | )                                   
|                                                                   |  |                            |                                    |                                     
|US GAAP net assets                                                 |  |                            | 349.4                              |                                     
|                                                                   |  |                            |                                    |                                     
|                                                                   |  |                            |                                    |                                     
|                                                                   |  |                            | As at December 31, 2003 (restated) |                                     
|                                                                   |  |                            |                                    |                                     
|                                                                   |  | Avecia Group plc           |                                    | Avecia Corporation Limited          
|                                                                   |  |                            |                                    |                                     
|                                                                   |  |                            | £ million                          |                                     
|                                                                   |  |                            |                                    |                                     
|Fixed assets                                                       |  |                            | 328.6                              |                                     
|Current assets                                                     |  |                            | 342.3                              |                                     
|Creditors: amounts
    falling due within one year                 |  |                            | (15.2                              | )                                   
|Debtors: amounts falling due after more than one year              |  |                            |                                   |                                     
|Creditors: amounts falling due after more than one year            |  |                            | (302.1                             | )                                   
|Provisions for liabilities and charges including pension liability |  |                            |                                   |                                     
|                                                                   |  |                            |                                    |                                     
|Net assets/(liabilities)                                           |  |                            | 353.6                              |                                     
|                                                                   |  |                            |                                    |                                     
|Share capital and reserves                                         |  |                            |                                    |                                     
|Share capital (including non-equity)                               |  |                            | 330.6                              |                                     
|Reserves                                                           |  |                            | 23.0                               |                                     
|                                                                   |  |                            |                                    |                                     
|                                                                   |  |                            | 353.6                              |                                     
|                                                                   |  |                            |                                    |                                     
|US GAAP adjustments                                                |  |                            | (37.7                              | )                                   
|                                                                   |  |                            |                                    |                                     
|US GAAP net assets                                                 |  |                            | 315.9                              |                                     
|                                                                   |  |                            |                                    |                                     

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 141
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

34      Condensed financial statements(continued)

Cash flow statement

|                                                |  |  | For the year
          ended December 31, 2004 | 
|----------------------------------------------- |  |  | ---------------------------------------------- | 
|                                                |  |  |                                                | 
|                                                |  |  | Avecia Group plc                               | 
|                                                |  |  |                                                | 
|                                                |  |  | £ million                                      | 
|                                                |  |  |                                                | 
|Cash inflow from operating activities           |  |  |                                               | 
|Dividends from joint ventures                   |  |  |                                               | 
|Returns on investments and servicing of finance |  |  |                                               | 
|Taxation                                        |  |  |                                               | 
|Capital expenditure and financial investment    |  |  |                                               | 
|Acquisitions and disposals                      |  |  |                                               | 
|                                                |  |  |                                                | 
|Cash inflow before financing                    |  |  |                                               | 
|Financing                                       |  |  |                                               | 
|                                                |  |  |                                                | 
|Increase in cash in the period                  |  |  |                                               | 
|US GAAP adjustments                             |  |  |                                               | 
|                                                |  |  |                                                | 
|US GAAP increase in cash in the period          |  |  |                                               | 
|                                                |  |  |                                                | 
|                                                |  |  |                                                | 
|                                                |  |  | For the year
        ended December 31, 2003   | 
|                                                |  |  |                                                | 
|                                                |  |  | Avecia Group plc                               | 
|                                                |  |  |                                                | 
|                                                |  |  |                                                | 
|Cash inflow from operating activities           |  |  |                                               | 
|Dividends from joint ventures                   |  |  |                                               | 
|Returns on investments and servicing of finance |  |  |                                               | 
|Taxation                                        |  |  |                                               | 
|Capital expenditure and financial investment    |  |  |                                               | 
|Acquisitions and disposals                      |  |  |                                               | 
|                                                |  |  |                                                | 
|Cash inflow before financing                    |  |  |                                               | 
|Financing                                       |  |  |                                               | 
|                                                |  |  |                                                | 
|Decrease in cash in the period                  |  |  |                                               | 
|US GAAP adjustments                             |  |  |                                               | 
|                                                |  |  |                                                | 
|US GAAP increase in cash in the period          |  |  |                                               | 
|                                                |  |  |                                                | 

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 142
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Notes to the consolidated financial statements(continued)

34      Condensed financial statements(continued)

Cash flow statement(continued)

|                                                |  |  | For the year ended December 31, 2002 |  
|----------------------------------------------- |  |  | ------------------------------------ | -
|                                                |  |  |                                      |  
|                                                |  |  | Avecia Group plc                     |  
|                                                |  |  |                                      |  
|Cash inflow from operating activities           |  |  | 0.2                                  |  
|Dividends from joint ventures                   |  |  |                                     |  
|Returns on investments and servicing of finance |  |  |                                     |  
|Taxation                                        |  |  |                                     |  
|Capital expenditure and financial investment    |  |  |                                     |  
|Acquisitions and disposals                      |  |  | (0.2                                 | )
|                                                |  |  |                                      |  
|Cash outflow before financing                   |  |  |                                     |  
|Financing                                       |  |  |                                     |  
|                                                |  |  |                                      |  
|Increase in cash in the period                  |  |  |                                     |  
|US GAAP adjustments                             |  |  |                                     |  
|                                                |  |  |                                      |  
|US GAAP (decrease) in cash in the period        |  |  |                                     |  
|                                                |  |  |                                      |  

The other notes to these financial statements provide additional information relevant to this note.

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 143
|                           |    

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Avecia Group plc20-FYear ended December 31, 2004

Exhibit Index

|     |  | Description                                                                                                                                                                
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1  |  | Memorandum of Association                                                                                                                                                  
|1.2  |  | Articles of Association                                                                                                                                                    
|8    |  | List of significant subsidiaries                                                                                                                                           
|11   |  | Code of Ethics                                                                                                                                                             
|12.1 |  | Certification
          of Jeremy P. Scudamore, Chief Executive Officer of Avecia Group plc,
          pursuant to Section 302
        of the Sarbanes- Oxley Act of 2002. 
|12.2 |  | Certification
          of Derrick A. Nicholson, Chief Financial Officer of Avecia Group plc,
          pursuant to Section 302
        of the Sarbanes- Oxley Act of 2002.
|13   |  | Certification pursuant to 18
        U.S.C section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
        Act of 2002                                      

|                           |    
|-------------------------- | ---
|Registered number: 3768265 | 144
|                           |    

---