Wincsor House 5'OVicloria Street LoncionSINIHONL
Telepncne071-22227979
Sir PaInck Sneetiv
C-an
8 A 7 2Sth July 1992
To: Mr. B.D. Bramley (BATCo.)
B.A.T Industries' Guidelines : Julv 1992
The atm,hed Guidelines outline the str=gic
priorities and financial objectives
which have been agreed for BATCo. and which should
be rcfected in your
plans for 1993-1997.
The guidelines are consistent with B.A.T
Industries' own objectives
to:
(a) Provide an above average return to
sharr~-ciders through
dividends and capital appreciation based on a
sustained
trend of above-average growth in Earnings Per
Share,
achieved by developing and expanding the Group's
activities in Tobacco and Financial Servic=
(b) Complete the rapid recovery in profits in
1992-1993.
2. Within the Tobacco sector, the aim will be to
maintain the Group as
a leading global player, with competitive str=gths
which provide the
ability to establish a leading position in
selected elm=ts of the
world market.
3. Key elements in the overall strategy are
programmes to increase
market share, maintain the growth in exports,
strerigthen the
competitive position of Intennational Brands,
invest for the medium
term in new markets, and improve intra-Group
cc~~ration in
marketing and product sourcing.
4. Priorities include an emphasis on increasing
productiviry, improving
profits in activities which are currently
operating at 'ow levels of
profitability and which are of a size to provide
signifl=t leverage,
the technical upgrading of products and processes,
and ouportunities
for expanding leaf exports.
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Recognising the critical importance of mxWement,
specific
attention should be given to ensuring that the
organisation and
quaLity of management in each business is such
that it both operates
effectively and has the management resource
necessary to realise the
potential for future development and expansion.
In the main, the guidelines restate the objectives
and priorities agreed previously
with the CPC. If clarification is required, Miss
Barton should be able to provide
this. If there am specific Guiddines which you
wish to discuss fin-ther. please
le: me know, preferably well ahead of the plan
previews due to be disatssed in
October.
Patrick Sheehv
Enclosure
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Guidelines for BATCo. :.Iulv 1992
General
L Ile for BATCo-, which should be reflected in the
performance
cri=m for the Number Ones in the operating
companies, should be to achieve
pm&-essive improvements in the results from the
existing Tobacco businesses,
concmtrating particularly on *
.~..,,J.u-rket~.t~-res-imd-volume
jXqs~h (especially in Exports and in International
Brands) while -also
2. isomfition to its direct role in the management
and development of its own
busi BATCo. will also berespwY
LJarands and, through the
Toba=o Strategy Group, for-
(a) 5ormulating and agreeing with the other
Tobacco companies, a
Zroupwide R&D programme;
(b) te preparation of compendiums on smoking
issues;
(c) midating and co-ordinating activities to
promote the Group's views on
tese issues-,
(d) ftzther developing brand valuation as a tool
for monitoring the
tff6ctiveness of the Group's strategies in
enhancing the value of its
orands to be implemented for 1993.
3. BA~,L_o. will work on projects as required by
the Tobacco Strategy Group and
it wi: ilso assist the New Business Development
Team of B.A.T Industries in
that ~_,Wy's evaluation of proposals to invest in
new markets and to make
acq=--dons or disposals.
4. Divcni:fication (e.g. into Agribusiness) should
be kept to a minimum, and
purs=d only where this is necessary to support the
Tobacco business.
Howv~w, BATCo. may be asked to co-operate in
developing financial
servi= businesses in selected territories as part
of the overall plan for
estabHshing a worldwide presence in this activity.
5. BATZo. is expected to participate in the
process of developing best
intermdonal practice in respect of its
environmental policies. 'Mere should be
spec~Ec plans to ensure compliance with these
policies for all BATCo.
corr--.;~es.
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Fir-ncial Guidelines
6. Trading Profit (including share of associates)
should grow atlz~ per
annum on the 1992 forec:ast base of f48-21 million
over the period 1993-1997.
7. Casb Flow is defined as rnanageable cash flow
in accordance with BATCo.'s
response to last year's guideline on developing a
method of managing and
presenting inforniation on a cash flow basis:-
Lal M IM L~24 IM 12% JM
Manageable Cash Flow 200 29r2 369 420 476 536
The above figures are based on a re-presentation.
of the BATCo. 1992-1996
pian data- Tbey are the minimum acceptable and
should be changed to reflect
the 12.5 % trading profit growth objective.
BATCo. should continue to seek opportunities to
maximise UK cash flow,
utilising local borrowings where necessary. With
the exception of measures to
meet this objective, it would be the expectation
that the debu'equity ratio
would decline.
The minimum dividends expected from BATCo. are:-
Ern 12g2 1993 1294 IM 1996 1997
Dividends 248 279 314 353 397 447
ne progression of 12.5 % is in line with the
growth of trading profit.
0 BATCo. should aim to achieve a historic cost
return of at least 40% for the
operating Group as a whole with each individual
business achie,,ing at least
25%.
SDecilic F'riorities
N[anagement : There should be
specifu~impLinmmu**pgrade-manqMn2cm
e*mdvenew and capability, tKrough improved
organisation structures, clearer
definitions of responsibility, rigorous appraisal
of the quality of existing
managers and enhanced development and recruitment.
Benchmarking should
be applied rigorously to raise standards of
recruitment and promotion, and
should include the general managers in each
territory.
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12. Quality : There should be continuing emphasis
on the need to achieve and
maintain smoking quality superior to competitors
and to maintain overall
quality at a level such that it constitutes a
competitive advantage. A-more
11 :-1' - . --- - ... developed
--"-& 4-fity and
progress measured against it. Where this requires
increased use of imported
leaf, action should be taken to negotiate any
necessary relaxation in import
regulations and to implement the required change.
3. Volume Growth : BATCo. should give priority to
developing plans for
accelerate volume growth, concentrating
particularly on UK International
Brands and licenced US brands in existing and new
markets, aiming to
achieve a minimum of voMfft
I Exports : There should be continuing pressure to
increase the penetration of
export markets, particularly those accessed by
FESU. New export markets in
Thailand, Korea, Central and Eastem Europe, and
South America, should also
be developed.
I International Brands : Ile marketing initiatives
and support for the key UK
and US International Brands should be co-ordinated
in order to accelerate their
growth to 17.5 % of world IFB (excluding domestic
markets) by 1997.
16. Alternative Brands : The vulnerability in
markets and market segments
which are dependent on one brand (for example,
China and State Express 555)
should be reduced by promoting an alternative
while still limiting the total
portfolio of brands to avoid dissipating effort.
17. Existing Markets : Emphasis should also be
given to the plans for regaining
market share where this has recently been lost,
particularly in Venezuela and
Argentina, and to increasing market share in
Europe, taldng full advantage of
opportunities arising from the European Single
Market. Twnnrvmx~~
pamladMityk should be achieved i- Nialay
-"ArgentiravAteneft-eft
; i ; 0 A - swhhica.
l& ProritabilityfLTK Income : There should be
continuing emphasis on the need
to improve profitability and to increase UK
income, considering opportunities
to increase cost-effectiveness by simplified
organisation structures; options for
changes in product sourcing; and the repatriation
of surplus funds held
overseas (being prepared to incur local borrowings
if the net effect can be
shown to be advantageous).
19. Production Costs : There should be specific
plans for each business to be the
lowest-cost producer of quality cigarettes for its
market.
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20. Assn Productivity : Tight controls on capital
expenditure and leaf durations
shocid be established, bearing in mind the need to
maintain Kigh standards of
mam-factu.ring efficiency and product quality.
21. Production C2pacity : BATCo. should also have
a plan to ensure that there is
suffizient production capacity in the right
locations to meet the sales forecasts
to 1-097. The plan for BATUKE must also take into
account the P4241&04
*#A&XkA-.L-&r
F,- I . I . ;e %b--6 43 - I --.Lth~ -1wfbreca3M in
the
plans- Factories should be closed in markets
served by more than one factory,
and investment should be made in existing
factories to achieve econwdes of
scaic-- modernisation, cost effectiveness and cost
reduction. Pbegularrupdatm
CC,.
.,4k]h-j~L4.Test-ShOW&be-made-igaingrpfL~-M-niiiem
nest
22. Leal' BATCo. will participate in the team to
be formed to plan and
imp;&ment the establishment of the Group as a
leading supplier of Leaf to the
worle market by the year 2000.
23. Divm-sified Activities : Except where
diversification is required to support the
Tot.-= business or where it is part of the plans
to establish financial services
activities in new territories, the aim should be
to reduce the level of non-
Tobacco activities.
24. Incfm : There should be a continuing objective
to exercise &-fL.,--4
--d equitriw- dzir--Tobaccabtisin~
HCB/djs
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BAT Industries document for Province of British
Columbia 26 October 1999