Annual report 2010 - Imperial Tobacco Group

The Board recognises that we operate in an environmentwith some unavoidable risks (see pages 25 to 27) andensures these risks are properly understood and suitablymanaged, either directly or by exercising oversight of theinternal control framework detailed below. The analysis ofrisk and oversight of the resulting internal control measurestaken to mitigate the effects of such risks are essentialin enabling the Board to discharge its responsibilities tosafeguard shareholders’ investments, protect our assetsand provide reliable financial information. Given the sizeand complexity of the Group such systems can, however,provide only reasonable and not absolute assurance ofmeeting our internal control objectives, as they managerather than eliminate risk. They can, therefore, only providereasonable and not absolute assurance against materialmisstatement or loss.Control EnvironmentThe Board acknowledges that it is responsible for theGroup’s systems of internal control and for reviewing itseffectiveness and has established a robust controlenvironment, the key features of which are outlined in theabove chart and detailed below:– the terms of reference of the Board, including the matterson which only the Board can decide, and each of thecommittees it has established (see page 67);– establishing an appropriate organisational structure withclear, appropriate and documented delegation of authorityfrom the Board to the Chief Executive’s Committee (from1 October 2010 the Operating Executive) and executivemanagement, including the Group’s Treasury function (seepage 67);– bringing together our anti-illicit trade strategies, theprotection of our brands and the management and roll-outof our Code of Conduct into a single Commercial IntegrityDepartment (see page 67);– the Risk Co-ordination Committee and Risk AssessmentSummaries which detail the risks and risk mitigationidentified by each area of the business (see page 68);– our year end certification processes (see page 68);– Internal Control Questionnaires detailing the existingcontrol processes within each area of the business(see page 68);– Group Finance which sets financial policies and standardsand manages our financial reporting processes (see page 68);– the Disclosure Committee which reviews all our majorfinancial disclosures (see page 69);– Group Compliance which monitors and reviewsour internal controls (see page 69); and– remuneration linked to long-term performance todiscourage excessive risk taking.Taking each in turn:Terms of ReferenceThe Board, which operates within clearly defined terms ofreference, reserves certain matters for its own considerationand decision. It has established appropriate committees,which also operate within clearly defined terms of reference,to oversee our control activities. These committees includean Audit Committee, Disclosure Committee and RiskCo-ordination Committee. Our Board and Committeeprocesses, together with those embedded in the business,are fundamental to the effectiveness of our internal controlmeasures and the delivery of the appropriate degreeof control.Organisational StructureThe Board regularly reviews the Group’s organisationalstructure to seek to ensure that clearly defined lines ofresponsibility with appropriate delegation of authority andsegregation of duties exist, with personnel of the necessarycalibre in place to fulfil their roles. The aim of such delegatedauthority is that decisions, significant because of either theirvalue or impact on other parts of the Group, are taken atan appropriate level as defined within the Board’s termsof reference and our Corporate Documents.The Board regularly reviews the Group’s Treasury, Tax andOccupational, Health, Safety and Environmental policies.The Group’s Treasury function operates within a well definedpolicy and framework designed to manage the Group’sfinancing and liquidity arrangements and to manage itsexposure to, amongst other treasury risks, interest rate andforeign exchange risks. In addition, the Group operates welldefined procedures for appraisal, approval, control and reviewof capital and strategic expenditure, including acquisitions.Commercial IntegritySupporting the sustainable growth of our business byenhancing our anti-illicit trade activities, together with furtherembedding high standards of conduct across the Group, iscritical to our future success.During the year we brought together into a singleCommercial Integrity Department those activities withresponsibility for reviewing and managing the enhancementby the business of our anti-illicit trade strategies, theprotection of our brands and the driving of good corporateand individual conduct across the Group.Together with the Group Company Secretariat, ourCommercial Integrity Department supports our frameworkof policies and procedures, with which all employees areexpected to comply. These policies and procedurescover key issues such as acceptable business practices,ethical compliance matters and legislation, physical anddata security as well as regulatory, governance and health,safety and environmental issues.By the end of December 2010 the updated Code ofConduct, which sets out the standards of responsiblebehaviour that all our employees are expected to follow, willhave been rolled-out to our senior management populationin a series of face-to-face workshops and cascade to thewider organisation commenced. Initially available in eightlanguages, the Code of Conduct is published on our website(www.imperial-tobacco.com).67