~5
Tobacco Strategy Review
Funding of R&D
Situation preceding decentralisation
Until 1985, the Group had a central research
establishment
engaged on fundamental research based in
Southampton and five
other laboratories in the CAC countries, each
concentrating on
applied research and technology. The CAC countries
funded the
central R&D programme at Southampton on a
turnover-related
formula.
Decentralisation Plan
The concept agreed in March 1985 was that
Southampton should
become integrated with BATUKE (with a
responsibility also for
BATCo companies) and that the six laboratories on
an equal footing
would carry that part of the Group programme for
which they bad
particular need and expertise. Any projects not
picked up by the
CAC laboratories and not specifically relevant to
BATUXE/BATCo
would be terminated. The Research Co-ordinator
would ensure that
in this process any research activity that in his
view should be
pursued for Group benefit would be identified and
justified for
retention at Southampton.
Current position
We are now 18 months into the new arrangements
with the
following results:-
1. The Southampton laboratory in fully integrated
with BATUXE.
2. Projects from the former Group programme have
been retained,
transferred to CAC's or terminated.
3. There has been practically no increase in R&D
staff at the CAC
laboratories despite the fact that Southampton
lost 120 staff
(it bad been the intention of the Laboratories to
increase
resources but local economic pressures have so far
prevented
this).
4. Each RLD Centre has projects which are
identified as Group-
relevant and each pools its findings. However,
these
activities respond to the perceived needs of its
parent
coupany; practically none of this work is done for
Group
reasons or benefit.
5. Southampton and Brazil represent exceptions in
that they each
retain a proportion of fundamental research
projects (and
appropriate staff) that are more clearly defined
as Group
strategic rather than company strategic.
Group Strategic Projects
The work in Brazil in focussed on tobacco
processing science
and is beginning to generate ideas that have
practical
application, typical of which Is the work on
tobacco leaf quality
improvement by processing treatments.
BATCo document for Province of BritiSh Columbia 28
October 1999


- 2 -
The Southampton programme of fundamental research
is long tern
but is directed at business goals. Important
topics include the
formation and control of Individual smoke
components which we
anticipate becoming a subject of regulatory
intervention, the
formation, and composition and control of
sidestreau/ambient
smoke, again increasingly the subject of
regulatory interest, and
enhancement of smoke sensory attributes by
modifications to
aerosol formation. The latterl which relates to
nicotine release
from smoke, is considered a key approach to
product taste and
flavour improvement and will be particularly
relevant as
regulatory authorities create consumer interest in
low tar/regular
nicotine products.
Following the closure of the main biological
activity at
Southampton, a responsibility remains to monitor
external
developments in biological testing and this Is
part of the
Fundamental Research activity. Finally, the kind
of basic
research on process science that produced both
APEX, our own
expansion process, and DEER, our new tobacco
extrusion/expansion
process, lie within this activity.
The activities have been scrutinised by CAC
experts since
Project Styx and the specific programmes for the
most part
re-directed.
Options for Funding
We have looked at the concept of pooling the total
costs of
Group projects (both those described as
Group-relevant, but
carried out solely for the parent company's needs,
and those
termed Group strategic) across the six centres and
redistributing
on a turnover basis. This would call for strong
accounting
control and would generate debate over proportions
of work truly
defined as Group relevant. Our intention in
identifying Group
projects is to ensure maximum communication of
information and
this would be 'distorted' if financial
considerations were to be
linked. This 'cross-charging' approach was
therefore not pursued.
The second option was simply to let 'costs lie
where they
fall'; this has considerable merit in view of the
fact that
currently, Group relevant projects are simply
those responding to
a coupany's specific interests but of broad value
to the Group.
Recognising the special situation at Southampton
and Brazil,
we should consider a refinement to the costs 'lie
where they fall'
concept. The cost of the Brazilian Group programme
is LO.55 a
p.a. The costs anounting to approximately 12 a
p.a. associated
with the Group fundamental research work at
Southampton should be
isolated since they are not simply attributable to
BATUKE or
BATCo. In terms of funding this activity, we have
the following
options:
(Z)
11 C
CX:)
BATCo document for Province of British Columbia 28
October 1999


- 3 -
To stop this work and dispose of the facility.
The high calibre of the team at Southampton,
coupled with
its flexibility in responding to fundamental and
challenging research needs, suggests that this
team
should be retained. It amounts to 6% of total
Group R&D
spend and Is still the strongest fundamental
research
resource we have.
2. Disperse the activity to other R&D Centres.
This was examined in April 1985 and, whilst it
may, over
many years, be possible to build up this
capability In
the other R&D Centres, this is not possible in the
short
term. It was recognised that this is the core work
for
which Southampton is beat equipped.
3. Seek funding from CAC companies.
With the exception of B&W, who are yet to reply,
all CAC
countries give full support to the Southampton
fundamental research programme and are prepared to
assist
in its funding.
4. Seek BAT Industries (or BATCo funding on behalf
of BAT
Industries).
If this were agreed, the responsibility would lie
with
the Research Co-ordinator to ensure that the work
programme is focussed and that findings are
applied.
Recommendation
1. With one exception (see 3), no cross-charging
between R&D
Centres should be considered.
2. The Group Strategic Projects in Brazil valued
at LO.55
p.a. should continue to be funded by Souza Cruz.
3. The Group Strategic Projects at Southampton,
valued at
92 m p.a., should be retained, and these costs
should be
met by CAC countries on an appropriate formula
(see
attached) and the projects monitored by a small
CAC
Steering Group.
CU',L- L
A. L. Heard
ALH/DET
10 th October 1986
CX:)
BATCo document for Province of BritiSh Columbia 28
October 1999


Appendix
The sisplest formula for deriving the
contributions from the
CAC countries (excluding Brazil) is to divide the
L2 a into 5
equal shares of L0.4 a, i.e.
BATco 0.4 a (0.7 a)
USA 0.4 m (0.4 a)
Germany 0.4 a (0.4 a)
Canada 0.4 a (0.3 a)
Australia 0.4 u (0.2 u)
In practice, ve may anticipate a settlement from
Canada at
0.3 m and Australia at 0.2 a. It is proposed that
the shortfall
is reflected in an increased contribution from
BATCo.
ALH/DET
10 th Octooer 1986
C:>
110
00
-Cth.
Xlh.
4-1:..
BATCo document for Province of British Columbia 28
October 1999