Annual report 2010 - Imperial Tobacco Group

Competition LawOverviewWe take competition law and all regulatory compliance veryseriously. We have significant market positions in certaincountries. As a result, we may be subject to enhancedregulatory scrutiny in these countries, which could result ininvestigations and adverse regulatory action by relevantcompetition authorities, including the potential for monetaryfines and negative publicity. In April, the Office of FairTrading imposed a fine on Imperial Tobacco, and anumber of retailers for allegedly restricting competition.We strongly rejected this and have appealed the decisionto the Competition Appeal Tribunal. As part of our appeal,we are asking for the fine to be quashed in its entirety.MitigationThe Group’s policies and standards, including our Codeof Conduct, mandate that all employees must complywith competition laws in the countries in which we operate.We employ experienced internal and external lawyersspecialising in competition laws to provide advice andguidance regarding interpretation and compliance withcompetition laws. In addition we provide training andguidance to relevant employees detailing the obligationsand requirements of competition laws.Tobacco-Related LitigationOverviewTobacco-related litigation claims are pending against theGroup in a number of countries. More claims may bebrought in the future, including claims for personal injuryand claims to recover the alleged costs of providing medicalcare to individuals with diseases associated with smoking.To date, no tobacco litigation claim brought against theGroup has been successful and/or resulted in the recoveryof damages. However, if any claim were to be successful,it may result in a significant liability for damages, and maylead to further claims against us. Regardless of the outcomeof pending litigation, the costs of defending such claimscan be substantial and may not be fully recoverable.Further details of market specific litigation claims againstGroup companies are outlined on page 76.MitigationWe employ internal and external lawyers specialising in thedefence of product liability litigation to provide advice andguidance on defence strategies and to direct and managelitigation risk and monitor potential claims around the Group.FinancingOverviewThe Group has significant borrowings which may impairoperational and financial flexibility and performance.This could potentially cause us to dedicate a substantialportion of cash flow from operations to service thisindebtedness depending on the level of borrowings,prevailing interest rates, our hedging strategy andexchange rate fluctuations. This would then reduce thefunds available to the Group for operations, working capital,capital expenditure, acquisitions, dividends and for otherpurposes. It could also limit the Group’s ability to borrowadditional funds and reduce flexibility in planning for, orreacting to, competitive and industry pressures.This could leave the Group at a competitive disadvantageand increase our vulnerability to both general market andindustry pressures. This may impact our credit ratings,which may result in higher financing costs and moredifficultly obtaining financing in the future especially ifmarket conditions are weak.MitigationThe Group has established a centralised treasury function,which is responsible for the management of the financialrisks of the Group, together with its financing and liquidityrequirements. The Group Treasury Committee oversees theoperation of Group Treasury in accordance with terms ofreference set out by the Board. The Board reviews all majortreasury decisions and receives regular reports from theGroup Treasurer.The Group regularly forecasts its cash flows and financingrequirements, and monitors developments in the capitalmarkets, in order to ensure that it is well placed to meetthe financing needs of the business.Further details of the Group’s treasury operations and theapproach to managing its financing risks can be found inNote 16 to the Financial Statements on pages 123.27