~B A T,)
QUARTERLY COMPETITOR ACTIVITY
REPORT
QUARTER ONE 1993
C)
r1 j
U-1
c0
CD
BATCo document for Province of British Columbia 26
October 1999


1. PHIMP MORJRTS
(a) Financial
Philip Morris Companies Inc. results for 1992 were
published in January. Profits
after tax, at USS4939 mns, were 17.5% up on the
comparable result for 1992. The
20.0% growth expectation was achieved at earnings
per share level, because of the
share re-purchasc scheme. (Earnings per share for
1992 were $5.45, against the
comparable 1991 figure of S4.54).
Other Kev Results (USS Mns)
Operating Revenues (Estd NTO) 1991 1992 :E%
Domestic Tobacco 9384 9869 5.2
International Tobacco 6836 7527 10.1
Total Tobacco 16220 17396 7.3
Total Operating Revenues 48067 50095 4.2
Operating Income 1991 1992 -+ %
Domestic Tobacco 4774 5185 8.6
International Tobacco 1694 2018 19.1
Total Tobacco 6468 7203 11.4
Total Operating Income 9910 10960 10.6
Dernestic tobacco continues to generate slightly
under half of all corporate profit.
Despite the good results, PM's share price has
fallen acutely since the start of 1993,
largely because of analyst concern about
downtrading, the increase of Federal Excise
Tax by $2 to S12/M in January 1993, and
speculation about further and radical
increases following the inauguration of President
Clinton.
Fir-st quarter 1993 results were published on 20th
April.
(USS Mns.)
Operating Revenues (GTO) 1 Q92 IQ93 %
Dcmestic Tobacco 2440 2543 4.2
International Tobacco 3540 4153 17-3
Total Tobacco 5980 6696 12.0
Total Operating Revenues 14051 15189 8.1
Operating Income I Q92 IQ93 %
Domestic Tobacco 1027 1016 -LI
International Tobacco 572 675 18.0
Total Tobacco 1599 1691 5.8
Total Operating Income 2486 2700 8.6
2
Lrl
CD
r1 i
Lrl
c0
-~D
-10
CD
BATCo document for Province of BritiSh Columbia 26
October 1999


(b) Diversified Activities
PM did not make any major acquisitions in the
first quarter, despite rumours in late
1992 of a bid for either Heineken or Fosters
brewing interests. Smaller acquisitions
were:
Terry's (M
Kraft General Foods International through its
Jacobs Suchard subsidiary, announced
it would acquire the upmarket UK chocolate company
from United Biscuits for E220
mns. Terry's UK market share is under 5%. PM
spokesmen told the press that the
Company aimed to be number one in the European
chocolate market.
Cesmep-e
A Hungarian chocolate company, also acquired by
Suchard, from Stollwerck.
rvtarS2 Margarine Sanayi
In April, Jacobs Suchard announced the acquisition
of a 50% share in Turkey's largest
edible oil company. The price has not been
disclosed but Marsa's 1992 sales were
S171 mn. Marsa is a subsidiary of Sabanci
Holdings, which is PM's partner in the
recently inaugurated cigarette joint venture.
FENTS
(Late 1992) Philip Morris Inc. bought a 7.9% stake
in Fomentos Economicos
Mexicanos S.A., a Mexican conglomerate with
significant brewing interests,
including the brand Dos Equis. The holding was
acquired from Citibank for USS 150
mn.
Molsons
(January 1993) Nlillcr announced its intention of
taking a 20% holding in Canada's
Molson breweries, as well as all of the brewery's
US based import operations (Molson
Breweries U.S.A. Inc.). "e deal is worth US$270
mn, and was completed in April.
Others
Suchard is cur-rently negotiating to acquire the
Hag coffee label from Crippa &
Berger (in Raly).
There are continued trade rumours of a Kraft
General Foods International takeover of
United Biscuits, whose name has also been linked
with Cadbury.
(c) jobacco Acquisitions
PMI's tobacco acquisition activities continue to
focus on Eastern Europe.
3
(-n
CD
ri
Ul
CO
,,D
U-1
BATCO document for Province of British Columbia 26
October 1999


Russia
PMI announced in April 1993 the acquisition of a
47% interest in a joint venture with
the Krasnodarsk cigarette factory (planned
capacity 25 b.p.a.). This is PMI's third
Russian venture: the Samara joint venture is
already producing Marlboro and a deal
has been made with a plant in St Petersburg
(December 1992). Later, Izvestia
reported that production in Samara had stopped due
to low market demand because of
high prices.
T.ithuanla
PM1 announced a joint venture with the Klaipeda
Tobacco Company, one of two in
Lithuania. PMI will have 65% of Klaipcda, for
USS40 mn. The plant will produce
Marlboro and Bond Street and L & M brands, amongst
others.
Lat-0a
PMI made an offer for the Riga factory, but STK
won the tender.
Czechoslovakia
PM1 increased its share holding in Tabak Kutna
Hora (T'he Czech monopoly) to
77.1% in March 1993, bringing their overall
investment to a rumoured S420 mn,
inclusive ofacqusition and refurbishment.
Turke
Philsa (Turkey) the Philip Morris - Sabanci
Holding joint venture had the First stage
of Its plant formally opened by Prime Minister
Demirel.
(d) 13rand Marketing
The major focus in the quarter was PM (USA)'s
defence of its Marlboro brand in the
USA, culminating in an announcement on 2/4/93 that
its would reduce the price of
Marlboro, by couponing/money back offers and
similar promotions (but not by list
price reduction). 'niis is said to be a result of
readings of a test market of such
schemes in Portland, Or. The announcement had
further negative affects on PNI's
share price, as it also accompanied a forecast
that PM Inc. would not achieve 20%
growth in 1993.
Price reductions by PM were also noted in Brazil
and Costa Rica, where the PM
subsidiary initiated a price war by reducing the
price of its leading brand, DERBY, by
37% and the price of Marlboro by a similar
percentage.
PM introduced L & M at very low price in Spain in
the wake of an price increase in
January. L&M was launched at a 'price of Ptas 160
per oack. in two versions (Lights
and Full Flavour), undercutting the previous best
value USIB's (Lucky
S tri ke/Chester Field) by 30 Ptas, at a price
only Ptas 10 above Fortuna.
CD
rli
V1
CD
I'D
I'D
CD
C711
BATCO document for Province of British Columbia 26
October 1999


In terms of product innovation. PM have recently
been trying an oval HL pack
(*pocket pack") (4-6-6-4 formation) for Philip
Morris Superlights, in France. (nis
will now be extended to Switzerland). In March a
new version of L & M, Artgerecht,
was launched in Germany: in limited distribution,
the brand features a leopard design
filter. Market impact has been minimal.
PM appear to have been relaxing Marlboro
communication guidelines both in the new
BST UK Campaign, and in the Dutch "Name of
flavour/colour of flavour" campaign.
(e) Trade Marketine
PM (USA) are giving heavy emphasis to their Retail
Masters key retailer programme.
In Latin Axnerica, BATCo. companies are reporting
increased PMI - KGFI co-
operation on distribution.
People
Mr. Geoffrey Bible, VP of PM International, was
appointed executive VP worldwide
tobacco. This unifies PM's tobacco operations, US
domestic and inter-national, under
a single executive.
Mr. James Morgan was promoted to Senior Vice
President of Marketing; all brand
groups will report to him.
CD
N)
Ul
CO
CD
BATCo document for Province of BritiSh Columbia 26
October 1999


2. RJRFYNOT.DS
(a) Financial
R:R published their 1992 results. Profits after
tax were USS 753 mn, up by over
29,'% from 1991's comparable result ofS195 mn.
Other Key Results (US$ Mns)
Operating Revenues (Estd NTO) 1991 1992 %
Dcmestic Tobacco 5861 6165 5.2
In---mational Tobacco 2679 2862 6.8
Tcial Tobacco 8540 9027 5.7
TcW Operating Revenues 14984 15734 5.0
Operating Income 1991 1992 %
D=estic Tobacco 2226 2112 -5.1
Init-nationall Tobacco 500 575 15.0
Tc,-al Tobacco 2726 2687 -1.4
T--tal Operating Income 3646 3634 -0.3
R-7R tobacco operating income declined, and the
RJR share price declined.
main focus of interest in RJR's activities during
the first quarter was the
pcssibility of a scheme to float off a part of
RJR's non tobacco interests. The motive
of ihis seems to be stockholder (especially KKR)
dissatisfaction with RJR's progress,
and a wish to find a mechanism to raise further
funds pay down the debt mountain
(c-~;r-rently about USS14 bn) that resulted from
the 1989 LBO. The scheme would
1 T-.;-.:aily have sold shares equal to 25% of
Nabisco section of RJR, and this would
hz-.e raised about US$ 1.5 bn. In a second phase,
further separation of food and
tc' acco interests would have proceeded.
77 c creation of a new stock, "RN - Nabisco",
would have freed the share price to
sc-,e degree from "the taint of tobacco". It seems
unlikely the scheme will proceed
In -.he wake of (a) personnel changes at RJR and
(b) the PM announcements. It is
pcss--
'ble that PM's price reduction announcement was
timed to damage the scheme: it
als-a coincided with RJR's AGM on 2nd April.
Ex-ra Note: RJR announced on 13th April that the
scheme would proceed but would
be limited to 25% of RN Nabisco, with the balance
of RN Nabisco shares (75%)
bt-ing held by RN Reynolds. RJR Nabisco stock will
become RN Reynolds stock. A
tc't!acco dividend of 32 c per share - the first
dividend since the LBO in 1989 - was
c.;-:icelled.
R:-R's first quaricr 1993 profits after tax were
USS 164 mn. compared to a loss of
USS 15 mn. in the same period last year
6
CD
111.)
U-1
0 D
CD
CC)
BATCo document for Province of British Columbia 26
October 1999


Operating Profits (US$mn.) IQ92 IQ93 I %
Domestic Tobacco 512 500 -2.3
International Tobacco 139 159 +14.4
Total Tobacco 651 659 +1.2
(b) Diversified Activities
RJR are said to be interested in acquiring a
holding in Royal Brands SA. This is
(what used to be) the Nabisco business in Spain
and Portugal, acquired to Tabacalera
SA in 1987 and 1989. RJR are said to have bid E95
mn for 50% of RB, but
Tabacalera aim to sell the company entirely.
(Initial agreement on a E190 mn. bid
was announced by Tabacalera on 28th April: the
deal is subject to Spanish
government approval).
(c) Tobacco Acquisition
No new acquisitions were reported.
RJR Espana, a joint venture modelled on BAT EspAna
and PM Espdna, became
operational, with a 50% holding by RJR.
RJR announced that they planned to enter the
Indian market. ITC report that
goverment approval, denied in 1992, has now been
granted.
They are also lobbying for the abolition of the
Czech monopoly, so that they can
compete with Philip Morris.
(d) Brand Marketing
RJR were active in the Middle East: Agreement has
been reached with Iran to
produce Winston under the Bistoon name.
RJR are being aggressive with price in Europe:
Winston was dropped in price in
Finland, being deployed as a "value-priced" brand,
and in France its price was
reduced to the 10 FF level in January. This
realignment of Winston at non-premium
price level is not universal: in Spain, RJR will
be using Gold Coast and Magna as its
low price brands.
RJ`R have introduced a new advertising campaign
for Winston in the USA. In
Europe, they introduced a new Taste of Adventure
campaign for Came], based on
adventure cinema themes. The campaign has a 1940's
feel.
On 26th April, RJR announced its response to the
USA PM price reduction plans: it
will discount Winston, temporarily, until end June
1993 and conduct 'increased
promotionli activity' for Came!.
(e) Trade 'Marketinz
NTR
7
CD
C3
CD
-10
BATCo document for Province of BritiSh Columbia 26
October 1999


(f) Peoll]
RJR's Chairman and CEO, Mr Louis V Gerstner Jr,
resigned in March, to take over at
IBM following the departure of Mr. John Akers.
Mr Karl von der Heyden (Finance Director) and Mr
Laurence Riccclardi (General
Counsel) were appointed co-chairman and co-Ceos.
'nis has every appearance of an
interim solution, not least because both men
retain all their existing functional
responsibilities.
At RJR Germany, Mr Hans Joachim Weder replaced Mr
Peter Barton as Chairman in
December 1992. Mr Barton is being transferred to
be VP sales for Europe, Africa
and the Middle East.
CD
r1 i
U-1
CC)
C:)
BATCo document for Province of British Columbia 26
October 1999


3. IROTHMANS[RENMRANDT
Financlals
Rothmans financial year crids 3 1 st March.
Results for 1992 should be available in the
second quarter 1993.
Non Tobacco Activities
NTR
Tobacco Acquisitions
Rothmans announced a joint venture with the Nevo
Tobacco Factory in St Petersburg,
Rothmans have a holding of 75%, and are paying US$
55 mn. A new plant should
come on stream in 1995, with a capacity of 20 bn.
This is Rothmans first direct
investment in the former Soviet bloc.
There was no further news of Rothmans' reported
20% interest in the Zagreb factory
in Croatia.
In the Far East, a Joint venture is planned with
the Ban Thanh Cigarette factory in Ho
Chi Minh City, Vietnam.
Onaoin2 Tobacco Activities
The major event of the quarter was Rothmans'
announcement of a restructuring of its
Far East operations.
The new company - Rothmans of Pall Mall Ltd - will
be incorporated in Bermuda and
run from I-Iong Kong. It will hold the interests
currently in:-
Rothmans of Pall Mall (Malaysia) Berhad.
Rothmans Industries (Singapore).
Both of these are 50% publicly owned. In addition,
it will hold smaller Rothmans
subsidiaries in Japan, China, Hong Kong, South
Korea and Taiwan.
Rothmans Intemational will own 50% of the shares
in the new company - the balance
will be beld by Malaysia shareholders (39%) and
Singapore shareholders (10%).
The reorganisation is being sold to shareholders
by Rothmans as "constructive
reconstruction", to enable it to attack Far
Eastern opportunity markets in a more
coherent way. It is looked at by analysts as a way
of unlocking the cash in the
existing public companies. The reorganisation is
also consistent with Rothmans
International's ongoing restructuring of the group
around four regional Chief
executives - in this case, the Asia Pacific
region.
9
CD
N-)
~_-l
co
BATCo document for Province of British Columbia 26
October 1999


ne Australian and Philippines interests are not
being included. Both are problematic
at present. Rothman's Australian subsidiary gave a
profit waming of a 15% decline
for 1992, in February; Alhambra Industries
(Philippines) is being closed this year,
and Sterling Tobacco, the second Rothmans
operation in the Philippines, is being
"reviewed".
In Europe, Rothmans consolidating its operations,
closing the Turnhout and Liege
plants in Belgium, and restructuring Brinkmann
Tabaks Vertrieb, its Germany RYO
subsidiary.
Rothmans has set up a new subsidiary, Rothmans
International Tobacco Products
(RITP), to be responsible for production, sales
and marketing of non cigarette brands.
One main task is to attack the UK shag market;
R_ITP's first launch is Cutter's Choice.
The company is based in Amsterdam.
Rothmans' planned plant in Nigeria seems unlikely
to be finished this year: Mr C
Murphy has been appointed Marketing Director.
REENISTNIIA
NTR
JTI
JTI appears to be headed for priva(isation.
Two-thirds of a million shares will be
released to the market by the Ministry of Finance
in Financial year 1993-4. (The
Japanese financial year is April-March). This
flotation is the maximum legally
permitted, without changing the law. The
floatation had been planned earlier for
financial 199 1-2, but was postponed because of
the Tokyo stock market's poor
performance. A listing on the Tokyo Stock Exchange
is expected in 1993, with an
auction to establish the actual price (probably
after JTI's 1992-3 results are available).
ITI continues to attempt to expand exports
aggressively: they announced plans to sell
5 bn to [ran in 1993, announced plans to set up in
India as an offshore base for export
manufacture, and are increasing the number of
export markets. (33 in 1991, 42 in
1992). Hitherto JTI's presence in India has been
limited to a technical services
agreement with the Philip Morris associated
company.
SEITA
Financial
Scita announced its 1992 results with profits of
FF 341 mn (E40 mn), up by 122% on
1991's comparable result. Seita had, however,
predicted a FF 590 mn profit at the
half year, announced in November 1992.
Privatisation
The run-up to the victory by the RPR/UDF in the
French elections, increased
speculation that Seita might be privatised: a
formal denial was issued by Mr. M
Nlalvy, the Budget Minister in January 1993.
10
C-D
N.)
U"I
00
BATCo document for Province of BritiSh Columbia 26
October 1999


7. TARACAT-FRA S.A.
Financial
Tabacalera S.A. reported consolidated group
results of Ptas 18998 Mn (EI05.9 mn),
13.4% down on 1991.
The tobacco business profits actually rose by 3.5%
but increased losses by diversified
businesses, particularly Elosua S.A., reduced
these.
Tabacalera board is expected to approve the
disposal of the largest diversified
business (Royal Brands).
8. MONOPOY-I DI STATO
NTR
Li'l
CD
rIj
BATCo document for Province of British Columbia 26
October 1999