[GRAPHIC OMITTED]
Avecia Group plc
PO Box 42 Hexagon House
Blackley Manchester M9 8ZS
Tel : +44 (0)161 740 1460
Fax : +44 (0)161 795 6005
www.avecia.com
Mr Rufus Decker
Accounting Branch Chief
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0303
Our Ref: Direct Line: Direct Fax: E-mail: Date:
0161 721 2396 0161 721 5220 derrick.nicholson@avecia.com 30 August 2005
Dear Mr Decker
Avecia Group plc
Form 20-F for the fiscal year ended December 31, 2004 (File No. 333-11268)
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We refer to the Staff's comment letter dated August 16, 2005, relating
to the Form 20-F for the fiscal year ended December 31, 2004 (the "Form 20-F")
of Avecia Group plc ("Avecia"). Set forth below in detail are the responses to
the Staff's comments, which have been provided in each case following the text
of the comment in the Staff's letter of August 16, 2005.
All references to page numbers in this letter refer to the page numbers
of the Form 20-F as filed with the Commission on May 18, 2005.
Form 20-F for the fiscal year ended December 31, 2004
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General
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1. Where a comment below requests additional disclosures or other revisions,
please show us in your response what the revisions will look like. These
revisions may be included in your future filings. Some of our comments
refer to US GAAP literature. If your accounting under IFRS differs from
your accounting under US GAAP, please also show us the additional
disclosures that will be included in your US GAAP reconciliation note.
Response
Avecia appreciates the Staff's comment and will include the revisions set
forth in this letter in future filings.
Aggregate Contractual Arrangements, page 35
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2. We have read your response to comment three from our letter dated July 5,
2005. Please revise your table of contractual cash obligations to include
estimated variable interest obligations in addition to fixed interest
obligations. Because the table is aimed at increasing transparency of cash
flow, we believe these payments should be included in the table. Please
also disclose any assumptions you made to derive these amounts. Please
refer to note 46 of SEC Release 33-850.
Avecia Group plc. Registered in England No 3768265.
Registered Office: PO Box 42, Hexagon House, Blackley, Manchester M9 8ZS.
2 30 August 2005
Response
For future filings, Avecia will amend its disclosure in the manner set
forth in Annex A to this letter (additional disclosure underlined), which
has been amended to include variable interest obligations.
Financial Statements
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Note 24 - Contingent Liabilities and Contingent Assets, page 114
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Environmental, page 114
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3. We have read your response to comment 10 from our letter dated July 5,
2005. Please confirm that additional losses related to environmental
matters, in total and for each site individually, are not reasonably
possible. If not, please revise your discussion to include each of the
disclosures required by paragraph 10 of SFAS 5 and question 2 in SAB Topic
5:Y.
Response
Additional environmental losses are reasonably possible, and Avecia
proposes to include in its amended disclosure those determining factors
from SFAS 5 and Q2 of Topic 5:Y that are applicable to it. For future
filings, Avecia will amend its disclosure in the manner set forth in Annex
B to this letter (additional disclosure underlined), which has been amended
to further clarify the position.
* * * * *
As requested in your letter, the company acknowledges that :
|_| The company is responsible for the adequacy and accuracy of the
disclosure in their filings;
|_| Staff comments or changes in disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect to
the filing;
|_| The company may not assert staff comments as a defence in any
proceeding initiated by the Commission or any person under federal
securities laws of the United States.
Should the Staff have any questions or require any additional
information, please do not hesitate to contact me.
Very truly yours,
Derrick A. Nicholson
Chief Financial Officer
cc: Ernest Greene, Staff Accountant
Scott Watkinson, Staff Accountant
3 30 August 2005
- United States Securities and Exchange Commission, Washington D.C.
Duncan McLellan
Andrew Cree
- Avecia Group plc, Manchester, England
David Bills
Chris Martin
- KPMG Audit Plc, Manchester, England
David Beveridge
Peter Young
- Shearman & Sterling (London) LLP, London
Annex B
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 Less than 1 1-3 years 3-5 years More than 5
year years
Long term debt obligations 353.8 75.0 - 278.8 -
Interest obligations on 5.8 5.8 - - -
variable rate debt
-------- -------- -------- -------- --------
Fixed Interest obligations 73.8 13.5 27.0 27.0 6.3
Pension Obligations 49.7 5.0 10.4 10.9 23.4
Capital lease obligations 4.3 0.7 1.2 1.4 1.0
Operating lease obligations 2.7 0.7 0.8 0.8 0.4
Purchase obligations 5.3 5.3 - - -
-------- -------- -------- -------- --------
Hedging Payments 24.8 24.8
-------- -------- -------- -------- --------
Total 520.2 130.8 39.4 318.9 31.1
Purchase obligations represent purchase commitments in respect of capital
expenditure.
Debt and interest obligations are based on debt finance in place as at 31
December 2004. Repayment of debt obligations is based on the fixed repayment
terms included in the terms of that debt, while interest obligations have been
calculated using interest rates specified within the terms of the debt, or where
variable, using rates prevailing at 31 December 2004. Pension Obligations
represents additional funding agreed with the UK Scheme Actuary to reduce the
current deficit of the UK Scheme over the next nine years. This level of
contributions may vary depending on the investment performance of the Fund. In
addition the Group is likely to contribute approximately (pound)9 million per
annum to its UK and US pension schemes to cover each year's service cost,
assuming that the active membership of these Schemes continues as at present.
These outflows are not included in the above table. Liabilities relating to
pensions and post-retirement benefits are set out in Note 26 to the financial
statements. Hedging payments represents obligations under outstanding foreign
currency contracts. In addition the group has (pound)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.
Annex F
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, cash flows, or results of operations as shown in these
consolidated financial statements.
However additional losses relating to environmental matters, in total and for
each site individually. are possible, although the ultimate requirement for any
remediation work and its cost are difficult to estimate, due to such factors as
the unknown extent and nature of possible contamination, the timing and extent
of any corrective actions which might be required in respect of such
contamination, the determination of the Group's liability in proportion to other
responsible third parties, the extent to which any costs are recoverable under
insurance or from third parties, changing governmental regulations and legal
standards regarding liability, and evolving technologies for handling site
remediation and restoration. 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 reasonably estimable, provision has been made
in the financial statements.
In August 2001 the FASB issued Statement of Financial Accounting Standard no.
143 "Accounting For Asset Retirement Obligations" (SFAS 143). SFAS143 addresses
the financial reporting and obligations associated with the retirement of
tangible long-term assets and associated retirement costs. Adoption of SFAS 143
has had no material impact on the Group's financial statements.
Litigation and other claims
Annex F
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, cash flows, or
results of operations as shown in these consolidated financial statements.