Overview by the Corporate Development Director

Conducting our business responsibly is fundamental to our future success and the sustainability of our business – including managing social, environmental and economic risks and opportunities, and responding to external developments and stakeholder issues. In addition, our responsible approach enhances our credibility with stakeholders and supports our international development.

The Board of Imperial Tobacco Group PLC remains committed to high standards of corporate governance and business conduct and this will continue to be emphasised in the enlarged Group, following the acquisition of Altadis in January 2008.

Integration

In preparation for the integration of Imperial Tobacco and Altadis, I have sponsored specific projects aimed at further strengthening our approach to corporate governance and the Board has agreed to the appointment of a specific Risk Co-ordination Committee under the chairmanship of the Company Secretary.

In the last few months of the financial year, we have completed a project to help improve the clarity of our corporate documents and how they are interconnected. These documents include our Business Principles, Code of Conduct and Group policies, which set out the corporate standards we strive to achieve regardless of the requirements of local regulations. An example of this is our International Marketing Standard (IMS), which sets out our principles and rules for the marketing and promotion of our products. The next phase is the roll-out of guidance and training on this revised document framework to further educate our employees regarding the behaviour that is expected of them in their work for Imperial Tobacco, and particularly in respect of their business decisions.

Imperial Tobacco and Altadis have taken similar approaches to corporate responsibility (CR). Both Boards have committed to responsible business conduct, to high standards of occupational health, safety and environmental management, and to responsible employment practices and community investment. This close alignment has enabled us to swiftly and effectively plan implementation of our CR systems and processes across the enlarged Group. This will include a Group-wide communication of our CR approach, a series of social assessments and review activities, implementation of the non-financial reporting system, alignment of suppliers to the Social Responsibility in Tobacco Production programme and the extension of our community investment programme.

However, the roll-out of the CR systems and processes is only a small aspect of the integration of Altadis into our approach to responsible business. Our CR agenda also covers the important areas of product stewardship, responsible sales and marketing, responsible employment practices, occupational health and safety, environmental management and social accountability.

Risk management

A great deal of evaluation and planning has taken place in preparation for the communication and integration of the risk management systems and processes specific to each area. For example, programmes are underway assessing the products and ingredients new to our portfolio to ensure they meet our high standards, and bringing the new operations into our security and risk management procedures, including our product supply compliance processes. We are also embarking on a considerable communication and compliance monitoring programme to further raise understanding of the updated IMS in each of the markets of the enlarged Group.

Our people

A key corporate responsibility is to our people, treating them with fairness and respect, and providing them with a safe working environment in which they can develop both personally and professionally. Our central and local training programmes continue, based on business and individual development needs. The Board has reiterated its commitment to continuous improvement in occupational health and safety (OHS) by leading a new initiative to further enhance our procedures. A phased implementation programme has commenced to bring new operations into our OHS management programmes.

The integration of Imperial Tobacco and Altadis remains a priority and during this important time of organisational change we aim to provide employees with the information and support they need. Employees, works councils and trade unions have been informed of the restructuring projects and the consultation process is ongoing. A comprehensive range of employee support measures are being discussed as part of the consultation process and reflected in social plans including, wherever possible, internal redeployment, early retirement and voluntary redundancy.

CR strategy

Our Five-for-Five CR focus for the five years up to 2012, will continue to progress within the enlarged Group, where we believe it is still applicable sitting alongside the integration agenda.

The five priorities remain as follows:

• Further increasing our transparency in how we adhere to Group policies;
• Empowering our local management to better address issues of corporate responsibility;
• Product portfolio balance;
• Better carbon management; and
• Supplier sustainability.

Overall, I am pleased with our first year’s progress against the Five-for-Five, particularly in light of the integration activities. We achieved nine of the 13 objectives we set ourselves for the first year, with only four objectives needing more pre-planning. As expected, we need to make slight adjustments to our programme to accommodate integration activities, prevent overlap of deliverables and bring projects into alignment. For example, the need to communicate our revised corporate documentation framework to the enlarged Group has enabled us to accelerate the delivery of the policy evidence supporting the Five-for- Five to our employees. In addition, we have re-scoped the local management accountabilities project so that we can deliver a communication strategy that aims to increase awareness and employee involvement in CR.

I am also pleased to note that our CR progress continues to be recognised in our participation in the Carbon Disclosure Project and our maintenance of Gold standard with the Business in the Community CR Index.

Outlook

Over the coming year, as we integrate Altadis into our systems and processes, we will be working hard to maintain the high standards of conduct and performance expected of an international tobacco company, both at the corporate and at the operational level.

We have set some challenging targets. By exchanging new ideas and best practices within the enlarged Group, and by listening to and understanding the needs and concerns of our stakeholders, we aim for continuous improvement in our CR performance.

I hope you will find the information you require in this Review and recognise the progress we continue to make. We are committed to engagement and rely on feedback from our stakeholders, so please send your comments to our central CR team or complete the feedback form on our website www.imperial-tobacco.com

Yours sincerely,

Alison Cooper
Corporate Development Director