Strategic Update

RNS Number:4711R
Imperial Chemical Industries PLC
30 October 2003

IMPERIAL CHEMICAL INDUSTRIES PLC

Strategic update and financial targets

ICI is today providing a strategic update following the Q3 analyst results
presentation in London. The full presentation is available on the ICI website. A
summary of the key points follows:

ICI believes it can deliver substantial performance improvement from its
existing business, focusing on performance transformation rather than portfolio
transformation. As previously stated, ICI believes that major divestments are
unattractive at present.

Underpinning ICI's strategy is a vision of a company built on leading edge
technology and outstanding knowledge of customer needs.

ICI Today

* A #6 billion specialty products and paints business, with a diverse
customer base, serving a wide variety of end-use markets, many of which are
close to the consumer and relatively non-cyclical.

* A business with broad geographic diversity, with Europe and US each
representing about one third of sales, and a strong and growing presence in
Asia.

* A business with significant raw-material diversity employing thousands
of petrochemical, natural and synthetic feedstocks.

* A business with strong positions in many of the markets in which it
operates, from decorative paints to modified food starch, from fragrances to
oleochemicals.

* A business that employs many very talented people, with significant
expertise in their fields.

* A substantial specialty business, where many products are differentiated
    and therefore not easy for the customer to replace.


ICI Vision

ICI's vision is to become a genuine leader in formulation science. It has, and
will continue to build, a portfolio of businesses that are leaders within their
respective industries, bringing together outstanding knowledge of customer needs
with leading edge technology platforms in order to develop products that provide
improved performance for customers.

   * Key products will include decorative paints, industrial adhesives,
    modified starches, fragrances and flavours.

   * Key markets will include architectural coatings, home and personal care,
    food, packaging, electronics and geographically, Asia.

Four technology platforms underpin this vision: materials technology, molecular
science, bioscience, and technology enablers.

Three capabilities are critical for value creation, namely consumer
understanding, customer process understanding, and customer product
understanding.

The combination of these technology and value creation capabilities is ICI's key
source of competitive advantage. ICI believes it has strong capabilities in
these areas today, and these will be sustained going forward, although there are
also emerging areas in which ICI will be investing.

Capturing value from the sale of products that have been developed based on this
combination of capabilities, also requires skills in the areas of brand
management, key account and distributor management, and pricing. ICI recognises
that a number of these capabilities need to be strengthened over the next few
years. ICI, however, believes that its overall level of investment in R&D and
marketing is appropriate.

Opportunity

ICI's recent strategic review confirmed that there are significant opportunities
for creating and capturing additional value. There are three principal
requirements:

1. Improved resource allocation. ICI will be more focused and directive in
ensuring that each strategic business unit ("SBU") is pursuing the right generic
strategy, and that the right level and type of resource is allocated to each of
the markets in which they operate. The SBU's will be segmented into four groups,
depending on their likelihood of delivering profitable growth. These groups
currently comprise:

---------   ---------      ---------------------------
Strategic   Strategic      Strategic Business Units *
stance      Approach
---------   ---------      ---------------------------
Grow        Aggressively   Fragrances, Flavours, Electronic materials, Starch
                           Asia, Adhesives Asia, Paints Asia
---------   ---------      ---------------------------
Grow        Selectively    Paints Europe, Paints Latin America, Pan-Atlantic
                           Food starch
---------   ---------      ---------------------------
Maintain    Aggressively   Paints North America, Pan-Atlantic Adhesives
---------   ---------      ---------------------------
Maintain    Selectively    Packaging Coatings, Emulsions, Industrial Starch,
                           Base Oleochemicals, Base Surfactants
---------   ---------      ---------------------------
* Major SBUs only

Resources will be allocated preferentially to those SBU's in the "Grow
Aggressively" category. In these SBU's, the principal aim will be to gain market
share, albeit to do so profitably.

ICI recognises that significant investment in technology and marketing is
unlikely to deliver a payback in every market in which it operates. In some
cases divestment of businesses will be considered but, where that is either not
practical or not value-adding, the generic strategy will focus more heavily on
cost and capital effectiveness than on product differentiation.

2. Greater emphasis on profit and cash generation. ICI believes it is unlikely
to reach its targets without a step change in cost and capital effectiveness.
ICI will seek to substantially improve effectiveness in fixed and variable cost
management, and in working capital and fixed capital efficiency. Progress
towards better utilisation in plants where operating efficiency is low, and
better mix in plants where it is high, should allow ICI to hold capital
expenditure to around #200m per annum for the next few years.

The restructuring programmes announced earlier this year are the cornerstone of
the drive for greater cost efficiency, with expected delivery of some #110
million of P&L benefit in 2005.

3. More effective execution. ICI believes it has both strong technology and
market capabilities, and the skills required to utilise these capabilities in
order to develop products that generate superior value for customers. ICI seeks
to deliver, however, improved and more consistent bottom-line performance. This
requires effective execution of the announced restructuring programmes, of
tailored business profitable growth strategies, and in increasing operational
effectiveness.

The organisation model going forward will be designed to facilitate this. ICI
will continue to be organised around today's International and Regional &
Industrial businesses.
Additionally, executive groups across ICI will be formed to drive operational
excellence, a vital part of which will relate to cost- and
capital-effectiveness. These groups will be established for Procurement, IT, HR,
Technology, Manufacturing and Finance as well as Safety, Health and the
Environment. ICI will also seek to behave in a sustainable and environmentally
responsible manner wherever it operates.

The leaders of the businesses will be held accountable for driving value through
profitable growth; and, together with the new executive groups, will take
co-ownership for driving value through operational effectiveness within their
own business and right across ICI.


Financial Targets

ICI will continue to measure its performance on the basis of total shareholder
return performance relative to its peers, recognising that delivery against its
targets is not independent of general economic and market conditions.
Internally, ICI's performance focus has been, and will continue to be, on
economic profit growth, and ICI today announces a number of targets which, if
delivered, will lead to growth in economic profit over time. These targets are
based around current UK accounting standards:

* Average sales growth at, or better than, the growth in real GDP over
the four year period 2004 to 2007. This target is expressed on a comparable
basis, excluding exchange rate translation impacts and the effects of
acquisitions and divestments.

* An increase in Group trading profit margins, before goodwill
amortisation and exceptional items, by an average of 1/2% per annum over the
next four years. If achieved, this will raise trading margins from around 7%, as
delivered in the first 9 months of this year, to about 9% in 2007.

* In addition, reflecting the importance of improving capital
effectiveness in enhancing economic profit, ICI also intends to improve after
tax return on capital employed by an average of 1% per annum to close to 10% in
2007.

If delivered, the combination of these targets will result in, on average,
double-digit growth in earnings per share, before goodwill amortisation and
exceptional items, each year from 2004 until 2007.

ICI's intent is to ensure that variable compensation plans are intimately
related to these targets.

ICI believes that its balance sheet provides sufficient scope to invest in the
capabilities needed for driving profitable growth. Investment in marketing
appropriation in Paints has consistently increased, and is now some 7% of sales.
Similarly, R&D spend across the other International Businesses is up to around
3.5% of sales.

Finally, ICI is committed to improving cash flow. Its target will be to generate
positive cash flow before acquisitions on a sustainable basis from 2005 onwards.

ICI's historic performance and the definitions upon which these targets are
based are contained in Appendix I and II respectively.



Further information:
Access will be available over the Internet to the results presentation to
investment analysts on 30 October on ICI's website, www.ici.com.


                                                                      APPENDIX I

                        IMPERIAL CHEMICAL INDUSTRIES PLC
                              GROUP RATIO HISTORY



                                 ------ ------ ------ ------ ------  -------
                                 1998   1999   2000   2001   2002   Q3 YTD
                                                                       2003
                                 ------ ------ ------ ------ ------   -------
Comparable Sales Growth (%)      n/a       2      4    -1       2         1

Trading Margin (%)                7.0    7.2    7.9    8.9    8.7       7.3

ROCE (%)                          7.4    7.1    7.8    7.2    7.0       5.3
                                                                      -------
Earnings per share (p)           26.1   28.7   32.7   29.8   23.7

Cashflow before acquistions (#m)  437   1666   -330   -43     366
                                 ------ ------ ------ ------ ------




Notes: All definitions are outlined in Appendix II

                                                                     APPENDIX II

                        IMPERIAL CHEMICAL INDUSTRIES PLC
Definitions:

                  COMPUTATION:

Group comparable  Group sales as reported, adjusted to exclude the effects of:
sales
                  Currency translation
                  Divestments
                  Acquisitions


Group trading     Group trading profit before goodwill amortisation and
margin            exceptional items
                  Divided by
                  Group sales as reported
                  Expressed as a percentage


Group Return on   Group trading profit (1) before exceptional items, after
Capital employed  restructuring amortisation (4) and after tax (2)
(ROCE)
                  Divided by
                  Average (net operating assets + net operating exceptional
                  items)
                  Expressed as a percentage


Net operating     Tangible fixed assets + goodwill on acquisitions (3) +
assets            operating working capital.


Net operating     For financial ratio calculation purposes only, this is defined
exceptional       as: Asset write downs arising on restructuring + cash cost of
items             restructuring before tax and after amortisation (4)


Group Earnings    Group profit after tax and minority interests (before goodwill
per Ordinary      amortisation and exceptional items)
Share
                  Divided by
                  Weighted average number of shares in issue (less weighted
                  average number of shares held by the Group's employee share
                  plans) during the period


Group Cash flow   Group Cash inflow (outflow) before use of liquid resources and
before            financing
acquisitions
                  Add back
                  Cash consideration for subsidiary undertakings and operations
                  acquired (5)


Notes:
(1) Including goodwill amortisation.

(2)     A tax charge is applied to the Group trading profit (before goodwill
amortisation and after restructuring amortisation) using the Group's effective
tax rate for the year (2002: 29%). The Group's effective tax rate is calculated
as taxation (excluding tax on exceptional items) divided by profit before tax,
before goodwill amortisation and exceptional items.

(3)     Goodwill on acquisitions relates to goodwill capitalised on the Group
balance sheet and, therefore, excludes goodwill arising prior to 31 December
1997 (largely that arising on the acquisition of the Unilever Specialty Chemical
businesses) which has been charged directly to reserves.

(4)     Restructuring cash spend is capitalised in each year spend occurs and
then amortised over 3 years starting on 1 January following the year of spend.

(5)     Excluding cash loans to associates and other investments (eg. loans to
Ineos Chlor).



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