Risk Review

The Board has two main responsibilities in relation to risk. One is to determine the risk appetite and communicate to the organisation what constitutes acceptable risk-taking. The second responsibility is to oversee the management process for the identification, assessment and mitigation of risk across the Group.

During the year, the Audit Committee approved a new Group Risk Policy to support the Board in fulfilling those responsibilities and to reinforce the continuing risk review processes embedded within the divisions.

The Board is of the view that a rigorous ongoing process for identifying, evaluating and managing significant risks faced by the Company was in place throughout 2009 and up to the date of approval of the Annual Report for 2009.

This process includes:

• Businesses are required to implement processes to formally identify risks, consider their financial and non-financial implications and, so far as possible, take action to reduce those risks. The process includes the maintenance of a register for identifying and evaluating significant risks and the related financial, operational and compliance controls to mitigate their impact.
• Divisional executives are required to include risk management on agendas for their regular management meetings and to report to the Risk Management Committee (‘RMC’) on actions taken to review the effectiveness of their controls.
• The submission by each division of quarterly risk profiles to the RMC for its review and reporting to the Audit Committee
• Each division presenting during the year to either the RMC or the Audit Committee on issues detailed within the quarterly risk profiles and matters such as business continuity planning and disaster recovery. This schedule of presentations was implemented in 2009 to further enhance the Board’s oversight and understanding of the key risks impacting on the conduct of the Group’s businesses and the actions taken to minimise their effect on the delivery of Filtrona’s strategic objectives
• Group manual detailing accounting requirments and establishing comprehensive policies in relation to matters which are regarded as prudent to ensure that appropriate controls are maintained across the Group, including in relation to business conduct, conflict of interests, health & safety and other corporate responsibility matters
• A comprehensive insurance program

The RMC is chaired by the Company Secretary & General Counsel, which ensures an appropriate separation of powers and division of responsibilities particularly in relation to financial matters. The other members are the Executive Directors, the Director of Group Human Resources, the Group Head of Audit and the Group Head of Tax and Treasury. The RMC met five times during the year.

The RMC enhances management’s ability to review and monitor the effectiveness of risk control on a regular basis. The terms of reference of the RMC include supporting corporate governance requirements, recommending business risk strategy and developing policies and procedures for risk management and internal controls. They also include the monitoring of the effectiveness of internal controls and the design of processes to test the effectiveness of controls.

During the year, the RMC gave particular attention to the risks associated with refinancing, disposal of businesses, acquisition activity, business performance and the transfer of business operations in response to customer needs and operational demands. The RMC review not only gives consideration to financial and operational matters but also has regard to non-financial matters such as health and safety, environmental, social and employee issues impacting the Group and reputational risk. Policies and processes are in place to ensure that the activities undertaken in relation to all such matters are designed to reduce the risk profile of the Company. During 2009, in addition to the Risk policy, the RMC continued to review the Group policies which are in place to support the corporate governance framework. This resulted in a revised Code of Business Ethics policy being approved by the Audit Committee. This review will continue into 2010 with particular emphasis on the introduction of an Anti-Corruption and Bribery policy to further strengthen the Company’s existing controls and additional measures will be established  to ensure that all Company policies are fully implemented, appropriately communicated and continually supported, with ongoing training and monitoring, throughout the various jurisdictions within which Filtrona operates.

Where appropriate the Company takes external expert advice when reviewing the Company’s exposure to risk.

The resources of the Company’s internal audit department are augmented with independent expert external resource wherever necessary to review risk and monitor compliance with the Company’s policies and procedures across its international operations. Accordingly the resources of the department, together with the additional available resources, are considered adequate.

Certain specific administrative functions are controlled centrally by the Company. Taxation, treasury and insurance functions report to the Board via the Group Finance Director. The legal and governance compliance functions report to the Board via the Company Secretary & General Counsel, whilst the Chief Executive, supported by the Director of Group Human Resources and the Company Secretary & General Counsel, reports to the Board on corporate responsibility issues.

The Company operates a comprehensive budgeting and financial reporting system. Annual budgets are reviewed and approved at both divisional and corporate level. This process includes the analysis of significant risks relating to market trends and operational performance. Monthly performance is reported against budget and the prior year and forecasts are updated as appropriate. Monthly management accounts analyse and explain variances and report on performance indicators, with detailed explanations for variances and movements on updated forecasts being reviewed by the Board.

The Audit Committee and the Remuneration Committee review the arrangements by which employees of the Company may, in confidence, raise concerns about financial reporting or other matters in accordance with the Company’s Whistleblowing policy.