RESTRICTED
TOBACCO DIVISION BOARD OF MANAGEMENT
Thursdav 2'~~-h :ulv 1976
Present: Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Dr.
Mr.
Mr.
F. Sheehy (Chairman)
C.H. Stewart Lockhart
I.B.D. Bluett
D.S. Dunbar
B.P. Garraway
';.W. Goddard
E.J. Green
R.St-C. Walmisley
=.'. Wriaht
In attendance: Mr. B.G. Pearson (Secretary)
Mr. H.A. Morini
Also attended: Mr. ':.j.H. Rackham
Absent: Mr. C.G. Bcwra
D.145 QUARTERLY PERFOR.'4ANCE REVIEW
Summary
Estimated s=les for the year are 1.2% below
%. 7 - -
budget and onl. . 2c, :,!2r, last year. Markets in
developing couni--rieS a=pear to be recovering
from
the recession faster -h an in developed countries.
The situation c:--,Id '--eccme difficult in many
countries unless mar'-:e'- share is increased.
Price increases Qenerally are being obtained
-hey n-
as planned but - =v become more difficult as
inflation decreases.
North America
U.S.A. B&W are 7:~z -='-aring in the growing
market
and market share is '..:eakening. Trading Profit
is
below both budae-- an--' last year owing to brand
launch expenses and ~.:nsatisfactory factory
yields
and productivity. 7z--- further details see else-
where in these m-nuzeS.
Canada. Market Share is up to 38% with new brands
based on develocing :rends. The situation is
reassuring alth=ugh 7ro-Fits are government
controlled.
Australasia
Australia. Ma~--:et S'n-are is down to 33% and
continuing
to slide eSpeC4='JV =~ the bottom oE the marke~-
7*
The other busir=_Sse_~ toqt_~ther show cont4nued
losses
whi,~
..bit_i.rs
especially in -"e mez-_ industry in
are being reduce,-4. Overall Pki' for the year is
fore,za_~t to be slial-lv above las- year but
there
is some doubt ='_-.Dut :his. L^1
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'Jew Zealand. PAT for the -..,ear will be over
both
budget and last year although there is a negative
czsh flow.
Eurooe
Germanv. Market share is uo to 29.5%. Marlboro
is up to 5.511. and rising. ~Irofits are well up
on
budget and last year althcugh direct comparisons
are invalid because of a s=ecial dividend declared
---I- tax reasons.
I.E.D. Volume is belo,../ i_-udget, largely owing
to
-educed transit trade to '1_-aeria but this is now
:mproving; ESAS sales were a1sc down but are
improving with the holide-! season. Trading Profit
15 a little below budget '_,ut above last year.
Benelux. Volume and market share are down in both
Belgium and Holland but the modest PAT for the
year
will be up in toth.
_-.-iLzerland. Volume and market share (17.4%) are
d n . Profits are also in local currency
although up in sterling.
7-inland. Volume and mar-=-: share (26.3,10) are
do-.,,n
largelv due to tjo price in=reases totalling 52%
and the continuing strenct.:-, of Marlboro.
C-iqar Grour). Volume is ;_--.57. over budget and
PAT
for the year shows a los_= c:)nverted into a good
profit.
Denmark. Volume is up 8%' a."d profits
embarrassing-ly
high.
7 a"In America
~.L
Arqentina. Freedom of pr1ces but not wages has
reduced inflation but 1e--; to recession. The
market
_'5 down 10% over six month's and down trading has
=_~fected most internations: brands. Forecasts of
=AT have shown violent the latest sho,.,is a
historical profit but a lcss after replacement
adjustment.
Bianchi has increa==-~ rrices, hence sales
s:a dot-in but profitabil'~. up.
SAPRA losses continue and the policy is still
sell when a buyer can be found.
;Bw-a=il. Inflation is ircreasing and the balance
of trade worsening. The latest market share is
under 82%. Marlbo-r--% iS making no progress,
t-jt Shelton HL is. HL rackings appear to be
'ncreasing. PAT for the year is expected to be
_--o%-i the original budget !:ut over last year.
Peg Pag margins are ':being squeezed and losses
Suvalan sales are d..:-`-r. and giving a loss- C)
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Chile.. Sales are down on both budzei, and last
year owing to heavy price increase-s. A profit
this year is unlikely.
The printing company will tur- A- loss into
a profit.
Venezuela. Because no price increa-Ze has been
allowed, volume is up but PAT for year will
be red. Latest market share is o-..*=-r- 22%, and
increasing slowly.
Mexico. Latest market share is u= :o 67.2%
Profi'F for the year is more than last: year.
Africa
South Africa. The economy is suf'Fering and
company
forecasts are consistently optimiS__:c. Overall
sales are depressed following the *---:dget.
Market
shareis down to 21%. Products are "--eing improved
but recovery will be slow. Profi--= m-re down cn
both budget and last year but the -,--:..iary aim
be to increase market share.
Willards has suffered from economy and a
price increase. PAT -aill convert =_ loss to a
profit
although below budget.
Phoenix losses continue. A d=_:_`sion on the
future will be recommended to TEC '---: October.
Niaeria. Volume is up on both buczs~ and last
year.
The market is still under supplied and market
share
is down accordinaly but this shoulf be rectified
shortly. Profits are down because a orice increase
was refused.
Mauritius. Market share is down -his is in the
lower grades and believed to be te7:crary. PAT for
the year will be over double last yes-r.
Caribbean.
Jamaica. Market share is down to :-6 and losses
are
forecast. The new brand has been _~=__'ayed by
government and the future is under fiscussion
-aith
Carreras.
Asia
Hona Konq. Market share is down to -`5% from 43+%
last
year, largely due to Winston. PAT ~zr the year is
down
on both budget and last year due tz exchange loss
on
shareholder's loans and U.S$ assetS. nigher
corporation tax.
lower investment income and inabil:-:- to increase
prices.
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Indonesia. Volume and market share (25% scain-z-
33.4% last year) are down drastically due r7o
redemption schemes and to excise concessicns 7:
foreign competition regarding which
reprs_sen:=_:_:ons
are being made. PAT for the year will be Some
65% below budget. There are excess leaf Stoc'<S
and leaf purchases will be reduced. The possil-cle
closure of one factory is being considerec'.
Malaysia. Market share is up to 71.8% ard PAT -or
the year will be almost double last year.
Sinqapcre. Volume is 14.511. below budget and El,
below last year and market share is down -ror,
3-5.5%
last year to 32.7"o. Trading Profit iS 32~~
be_-::--.
budget although higher than last year.
Banala_~esh. Latest market shareis 65.8%.
and pr:-its are both higher than budget and le-5-
year but there is a negativecash flow.
India. Volume and market share have incr=_z-_==-f-
Profits are also higher but insufficient f,~r
---.a
equity involved.
(Mr.
Mr.
:.'_46 U.S.A.
Mr. Sheehy reported on a visit.
Kc-ol is increasing marginally but c:-.-=--
'_--_-_nds
are wea:<ening. Raleigh is shol..!ing scme ..:ith
dcuble coupons in a test market. Fact iS 5M.-al-'
but
satisf-sctory in test markets and will be
national on a theme of both lo,...- tar and lz-.-i
ca-z but
with t-zste.
In order to improve market share.
in prcfits is expected next year through --au-z".
expenses, improvement of products and
replacement of machinery.
Rezent Vita sales are encouraging. 7he :-_:~sure
of one plant will benefit profits next year. .-*
plan
for the future is being prepared.
K-zhl profit is 50% over last year an~_ f:_-e:asts
are op:imistic for the next three years.
G-f-mbel sales are up and PAT should the
same aS last year. It will take three ye=rs -:
complete renovation of the stores. Atte-----*----
L'S
being given to internal controls.
Sa"-s are looking for opportunities 7:
increase profitability within the business =---- .
~o
expand the business, using their own case
re_z:..:ces.
Overall B&.,Yl profits next -:-ear s',,:,ulf
'Ile
s:z-e as this year, reduced tobacz-, --eing
bv other divisions.
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D. 147 Far East
Mr. Stewart Lockhart reported on a trip.
Jaoan-
B&H distribution is poor and sales of both
licenced manufacture and imports are small but
worth continuing. Discussions with Souza Cruz
continue.
Taiwan
It is expected that E-_T will be permitted t:
quote for supplies of leaf to the monopoly.
Philicoines
A government 50% surcharge on licenced branafZ
has reduced sales of Kool and other licenced
bra--Z
substantially. Technical assistance is being
gi-.-=--.
Some S500,000 in blocked royalties have come out
during the last 18 months and it is hoped the
balance of some $400,000 will come out gradually.
D.142 Zaire
Mr. Bluett reported on a visit.
The country is politically stable but the
economy is chaotic and declining.
The company has managed to continue with
reduced production leading to market shortages.
The competition is suffering more and may close
down.
In talks with government officials Mr. Blu=--:
sought 60% BAT holding (alth:)ugh some companies
have accepted 40%), guaranteed remittances of
p=--=--
and future dividends, repatriation of eventual
Zd~ois shareholding and a guarantee of foreign
exchange for the operations.
The future is unpredictable but the comparr.,-
is profitable and will be kept going until
reaction of Government to our proposals is
D.1-19 U.K. Market
It was reported that Imperial's informally
stated policy is to obtain 66% of the King Size
market and a price war is in progress to achieve
this aim.
A joint paper is being prepared with Imper-fal
on tax harmonisation in the EEC and this wf_ll be
discussed with our, European companies.
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D.150 Rothmans
Messrs. Stewart Lockhart, Bluett and Goddard
gather material and prepare a paper on all
c-,~tstsnding and anticipated problems connected
..?ith Rothmans companies. A meeting will then be
sought with Dr. Rupert, leading perhaps to a
regular review of such problems.
(Hr. Stewart Lockhart
Mr. Bluett
Mr. Goddard)
D.151 Medicines Act
It is understood that the Cabinet stopped the
Orde~ in its present form and it is unlikely to be
laid durina this session of parliament.
D.152 Planning
Arising out of the Planning Meeting on -25th
-.1ne. the following issues were identified and
ac-on
ag reed: -
ISSUE
Zhcr~ ter-n orofit v. loncer term
llarKet share. We mus-_ accept a
hiaher dearee of risk and level
OF investment, provided they are
properly planned, in selected
countries.
Positive acoroach to Smokinq and
Health. Previous policies have
no,..! been cnanced in that we shall
in future sta7-e, where and when
accroc.-iate (P.R., a-d'vertising
co py. et-c. cuf achievements in
reducina those constituents of
ciaarette smoke which others
be~leve tc be harmful. We shall
not. make pcsitive
health claims.
Social accectabilitv. We shall
accept the time, effort and cost
require:j in or'-er to provide a
basis for zuture decislons on
tactic_=/strate~:ies.
ACTIO.N
Territorial Directors to ident.*--...;
major companies or regions where
the strategy should be applied
and to present to the TDB their
recommendations for broad
investment/profit plans. by
years, for each. (Note. this
study will form part of the
Investment Strategy paper for the
November Planning Meeting and
should therefore be completed b,.-.
mid-October.)
Territorial Direc~-ors to advise
appropriate "S&H" ccmpanies that
advertising may now include
statements showing the content cf
smoke constituents which the
authorities have Identified as
being harm"ul. Also that them,
need to be more ccnscious of
product development opportunities.
(Note. This issue will be furt*ief
discussed at a Marl.' eting confer-
ence end IP76/early 1977).
(a) Tobacco Divisic-n P.R. Dept.
will make specifiz recommendatlons
to the Chairman by end :uly.
(b) R&D Director and Marketing
Research will ensure that we
continue to attempt to identif-..-
benefits in smokinc and to exc'---=
the effects of pas-zive smo,~ing--
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7
ISSUE
9
10
We
4. Im~-~ve,4 oroduct control :
nse: ::o do more wcrK on improving
of product quality. and
in =srticular control of smoke.
5. PC:- '::RT - orocess. We mus~-
de=_~~_e a policy to fcllow and
to 5--iooort with investment.
6. PC:-'~'=RT - blendinc. Companies
sho..-d treat PCL or PRT as a
llcr=.~ell for blending purposes,
so -:.-.z-t -an integra-ed' blenc' is
deS_'*=ned, rather than addino
X1, -_:1 an existina satisfactcry
b1 =_.-_.
7. Fl=_-.-::ur additives. These %..,-ill
be e 1, used and we must ensure
avm_;._abi1.4ty and ex-Dertise. The
TD_:- endorSed the -inveStment
de,z--'-z-ion taken at 'Hot Springs.
8. Cic_=ratte oaper oorositv. A
widef rarge of porcsities and
of 7:ros_:-_y distribuzion will
be -de~'
Ma--:-3 and cackina nrocess. We
nee't to change the existing
tre-_~ towards higher speed and
IeSS flexible machines and to
take advantage of cz,-portunities
for Significant im.z.-ovement in
prc't_~Ztivi~-V.
Cen:ral suooort: Mlllbank-o,~-'ned
exca:riates: the s~7aoe of Millbank
Adv_'_z:~rv Services. We need to be
cle-=:- as to the level and extent
of -which Szhcuid be
pr~;-.-_:,4ed: the imrlizations c' the
prc'=-:ted number of Millbark-owned
exci.:riates; and t~ie orgarisStion
of advisor-_.- Services.
ACTION
R&D and Production Directors t;:,
Present ideas for changing
emphasis from cost. reducrion in
production processes to improving
uniformity and consumer acceptanCe
of the product. These ideas will
then be communicated throughout
the Group.
A Study group will produce a plan
to resolve this issue by end 1'176.
The group will consist of
Stewart Lockhart (Chairman)
Dr. Green and Messrs. Bo,..;ra,
Wright and Short.
The Leaf Director will consult
aith Territorial Directors to
ensure implementation as and when
=--)propria-e, perhaps over an:
agreed percentage.
8&W and Interversa are looking.
Dr. Green will coordinate the
search by both com 'pa nja ( t h roug h
Territorial Directors) and will
present recommended findings to
the TDB- He will also ccnsider
the possiblity of buildirg up
our own expertise.
Production and R&D Directors
agree future specifications of
cigarette papers, will arrange
ror manufacturers to be briefed and
ill prepare a plan for developmerr
and supply, to meet our needs.
Production Director has formed a
study group to carry out a
thorough analysis and to make
recommendat ions for action by
end October 197r~.
A Study group consisting c"
Messrs. Bluett, Gcddard. Garra-.-.-ay
and Dunbar will conduct a further
analysis and make recommendations
bv end 1076.
Uhv Vvt4~ ~tW I ~ -to - 76 ad4ia
Aw tVIVIVII ~r_4 ct'a'~~af,
tqf,
kLa
7 4 T7).
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T33UE 3
11. Equitv =_~:=cuntinq. The
princ_ipl,~ of equity accounting
for the -aior associated
com.panieS -..;as agreed.
12. Diversif-fzation strateqy.
Substant-'al funds will be
available in addition to those
require-:. or which may be
requirec. -For the tobacco
The pre,.-:-::is ad hoc approach
has An integrated
approach- --'s needed.
(TDB Directors
Mr. Rackham
Mr. Short (para 2-3)
Mr. Haddcn (para 3)
AC-ION
Finance Director to discuss with
BAT Industries and report to the
TDB.
Chairman/Finance Director to
identify possibilities for a
third leg in Tobacco Division,
preferably in an industry which
overlaps both developing (raw
materials) and developed
(,orocessing/marketing) countries
and which -would enable technical
expertise to be provided from
the Centre on an economic basis.
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BATCo document for Province of British Columbia 28
October 1999