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Combined Code compliance

The board is pleased to report that throughout the year under review the company complied with the provisions and applied the principles of the Combined Code, except as set out below.

There are three respects in which the company did not, in the period under review, comply with the Combined Code:

  1. at least half the board, excluding the chairman, did not satisfy the requirements of the Combined Code regarding independence. With effect from the AGM in July 2005, changes to the company’s board of directors will mean that the board will satisfy the independence requirements of the Combined Code;
  2. the audit committee did not consist solely of independent directors, as the committee included Mr Levett (until the AGM in July 2004) and Ms De Lisi, who is an Altria nominee, and so not independent for the purposes of the Combined Code; and
  3. the remuneration committee did not consist entirely of independent directors. This committee has, however, since 1 April 2005 been comprised only of independent directors.

The size and certain aspects of the composition of the board and of the audit and nomination committees are determined primarily by the terms of the relationship agreement with Altria Group, Inc., which was approved by shareholders as part of the approval of the acquisition of Miller Brewing Company from Altria. This agreement limited the size of the board to a maximum of 13 directors, of whom no more than two could be executive directors and, of the remaining 11 non-executive directors, three were required to be directors nominated by Altria. The agreement also provided that, unless otherwise agreed with Altria, the number of directors on the board would be reduced to 11 within two years of completion of the Miller transaction (that is, by 9 July 2004). Altria also has the right under the agreement to appoint one member of the audit committee and of the nomination committee.

The board considers that its overall composition in the year under review continued to remain appropriate, having regard in particular to the independence of character and integrity of all of its directors and the experience and skills which they bring to their duties. The board also considers that the composition of the audit committee remains appropriate, given Altria’s interest as the company’s largest single shareholder, and is satisfied that, having regard to the terms of the relationship agreement between the company and Altria, and to the experience and background in financial matters of the director nominated by Altria as a member of the audit committee, the independence and effectiveness of the audit committee in discharging its functions in terms of the Combined Code is not compromised as a result.

During the year, a number of steps were taken to expand the independent constituents of the board and its committees. First, in order to assist the company to comply with the Combined Code, Altria has agreed that for the foreseeable future the size of the board need not be reduced to 11. Secondly, Altria agreed that it would not, for the time being, exercise its right to nominate a third director to the board following the retirement of Mr Camilleri from the board, which took place with effect from the AGM at the end of July 2004. Thirdly, Mr John Manzoni joined the board as a non-executive director on 1 August 2004. Mr Manzoni is an independent director, whose appointment followed the retirement from the board with effect from the 2004 AGM of Mr Michael Levett, a non-executive director who was not independent. These changes, and the support of Altria, enhance the balance of the board. In addition, as neither Lord Renwick nor Mr Kahn are considered independent for Combined Code purposes, in August of the year under review Mr Kahn stood down from the remuneration committee and Lord Renwick handed over the chairmanship of that committee to Mr Morland, an independent director.

With effect from 1 April 2005, Lord Renwick stepped down from the remuneration committee with Mr Manzoni joining the committee. The remuneration committee is now comprised entirely of independent directors, in compliance with the Combined Code.

Ms De Lisi, Altria’s nominated member of the audit committee, is the only non-independent director serving on that committee. Mr Levett, who was not independent, was a member of the committee until the end of July 2004.

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