Annual report 2010 - Imperial Tobacco Group

Directors’ Report: Other Information continuedStrategy Performance Governance Financialscontain certain forward-looking statements with respect tothe operations, performance and financial condition of theCompany and the Group as a whole. By their nature, thesestatements involve uncertainties since future events andcircumstances can cause actual results to differ materiallyfrom those anticipated and no reliance should be placed onthem. The forward-looking statements reflect knowledge andinformation available at the date of preparation of this AnnualReport and Accounts and the Company undertakes noobligation to update these forward-looking statements.Nothing in this Annual Report and Accounts should beconstrued as a profit forecast.The principal operating subsidiaries within the Group areshown on pages 157 and 158.InsuranceWe have purchased and, throughout the year, maintainedappropriate insurance cover in respect of Directors’ andOfficers’ liabilities. The Company has also entered intoqualifying third party indemnity arrangements for the benefitof all its Directors, in a form and scope which comply withthe requirements of the Act. These indemnities were in forcethroughout the year and up to the date of this Report.Update on Ongoing EnquiriesGerman InvestigationsCertain investigations were initiated by German authoritiesin January 2003 into alleged foreign trading and relatedviolations by a number of people, including Reemtsmaemployees, during a period prior to its acquisition byImperial Tobacco Group in May 2002. A Board Committeeestablished in 2003 remains in place to monitor the progressof the investigations and the Group’s responses on behalfof the Board.Between 2005 and 2007, the investigations against all butfive of the individuals were terminated, either for lack ofevidence or on terms agreed by the individuals with theauthorities. Settlement was made at no cost to the ImperialTobacco Group of any duty payable as a result of certain ofthe activities being investigated.In September 2006, charges relating to smuggling werebrought in connection with one of the investigations against18 individuals, one of whom is a former Reemtsmaemployee. In October 2008, the German court agreed toopen trial in relation to these charges, but no hearing hasyet been held.In November 2006, in connection with a separateinvestigation, charges relating to violations of the Germanforeign trade act were brought against four other formerReemtsma employees. In March 2010, in accordance withan agreement with the authorities, the individuals pleadedguilty and financial penalties were ordered against themand Reemtsma. These were paid at no cost to the ImperialTobacco Group.Office of Fair TradingAs previously reported, in October 2003 the UK Office ofFair Trading (OFT) commenced an investigation under theCompetition Act 1998 into the operation of the UK tobaccosupply chain.On 24 April 2008, the OFT issued a Statement of Objections(SO) which set out the OFT’s allegations against ImperialTobacco Group, Gallaher, and a number of retailers. Thesealleged infringements relate to the period prior to 2004.On 15 April 2010, the OFT reached a Decision. Althoughthe OFT dropped a number of the allegations made in theSO, it found that Imperial Tobacco Group and Gallaher hadseparately engaged in unlawful practices with ten tobaccoretailers in breach of Chapter I of the Competition Act 1998.The OFT imposed total fines of £225m on the parties involved,including a fine of £112.3m on Imperial Tobacco Group.Under the Competition Act 1998, parties have the right toappeal OFT decisions to the Competition Appeal Tribunal(CAT), and ultimately, on a point of law to the Court ofAppeal. The CAT has jurisdiction to conduct a full rehearingof the facts and has the power to uphold, vary or quash theDecision and the fine imposed.Imperial Tobacco Group does not accept the findings in theOFT’s Decision. Accordingly, Imperial Tobacco Groupsubmitted an appeal to the CAT on 15 June 2010 againstthe OFT’s findings of infringement and the level of the fine.Five retailers (Asda, the Co-operative Group, Morrisons(together with Safeway) and Shell) have also appealedagainst the Decision and the fines imposed on them bythe OFT.The CAT is in the process of establishing the timetable forthese appeals, although it is unlikely that the CAT will deliverjudgment on liability before the fourth quarter of 2011, whileany subsequent appeal to the Court of Appeal that may benecessary is unlikely to be determined before the thirdquarter of 2012.Update on Tobacco-Related LitigationWe are not facing any tobacco-related litigation in the UK.In the Republic of Ireland, the number of tobacco-relatedclaims has fallen from 307 in 1997, to 11. Ten of theseclaims are subject to dismissal motions. The other claim isinactive. The dismissal motion in respect of one claimantwas heard by the Dublin High Court in 2006. In April 2007,the court ruled that this claim should be dismissed. Thisdecision has been appealed and the dismissal motionsin respect of the nine other active claims have beenstayed pending the appeal. No date has been set forthe appeal hearing.Following our acquisition of Altadis in January 2008, we arecurrently facing a claim in Spain brought in the AdministrativeCourt on behalf of the Regional Government of Andalucia forreimbursement of hospitalisation expenses allegedly incurredin treating smokers. The claim was served on Altadis in July2009 and preliminary objections were filed by Altadis and theother tobacco company defendants in September 2009. Theproceedings are stayed until the Administrative Court ruleson these objections.We are not facing any claims in France. Following ouracquisition of Logista in May 2008, we are currently facingtwo claims in Italy. One is at an initial stage and the other hasbeen dismissed but appealed.76