~,, i, ~r~ bn i~l THEVlDUSTBY (SLIDE II) 1989 rs eOrle TO PROVIDE PIVOTAL CHAlLENGES FOR IIPERIAl AMD THE CANADIAH TOBACCO IIDUSTRY, CANADA HA8 ALWAYS BEEN AT tHE FOREFROIT OF THE IWTERWAtIOMAL AITI·SnOIIIB EFFORTI HEALTH GROUPS AID 80CIll ACTIVISTS HAVE EFFECTIVELY COMBIIB TO PLACE TOBACCO USE gM~HERE HEAP THE fOP OF THE 'PROBIM' AGEMDA, kEWn YEIIS AFTER BE QYBI1I VERSION OF THE SURGEOI 8EIER~1'9 REPORf, THE 'AVERAGE CdNODIANUI BELIEVES TOBACCO USE WILL HAVE 1 PEAL IMPACT OM H18 PERSOPAI HEALTH, SEES TOBACCO AS IIC1~1161r SOCIALLY UNACCEPTABLEl BELIEVES THAT AMBIENT SMOKE MAr HARM THE IOM-SMOKER AID SHOUU) BE lE6ISLATIVElV CONSTRAINU), THE EffEeT OF ~HESE BE1~EFS HAS BEEN TEll~#61 ClibPDF - v~~~astio.soni -2· IN 1972 ME RATE OF STARTING ION~15j19 YEAR OLDS IH CANADA WAS 511, By THIS PAST YEAR IT HAS DECL~ED TO 331, QUITTERS REPRESENT A GROWING 21X OF CANADIANS, TODAY jsX Of ALI ME CANADIANS WHO HAVE EVER SMOKED HAVE QUITI THIS LEVEL IS INCREASING Af ~X PER YEAR, AS A RESULT, INCIDENCE HAS DECLINED To 3YX of THE ADULT POPULATION1 LEGISLATION CURTAILING 'IHE USE OF TOBACCO IN PUBLIC HAS INCREASED, BY-LAWS AND COURTESY HAVE GIVEN WAY 10 BANS ON AIRLINESI BANS IN MOST GOVERNMENT OFFICES AND WIDESPREAD PRIVATE SECTOR APPLICATION OF POLICIES THAT RESTRICT OR ELIMINATE SMOKING IN THE WORK PLACE, AS A RESULT DAILY USAGE RATES HAVE DECLINED, IHE CLAIMED NUMBER OF CIGARETTES SMOKED PER DAY NOW STANDS AT 21 VERSUS THE 1982 HIGH OF 22,3, LESS SMOKERS, SMOKING LESS HAS INEVITABLY Lm TO INDUSTRY DECLINES, (SLIDE i 2) TAILORMADE SALES FOR THE INDUSTRY HAVE DROPPED TO 50,6 BLN, IN THE 12 MONTH PERIOD ENDING MARCH 1989 Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 -3· A YEAR TO YEAR DECLINE OF 3X, THIS IS THE LARGEST RATE OF LOSS OF ANY OF'THE TOP 20 INTERNATIONAL MARKETS1 THE DECLINE HOWEVER, CANNOT BE ATTRIBUTED PRIMARILY TO 'FHE SMOKING AND HEALTH ISSUE, CANADIAN GOVERNMENTS HAVE SEIZE) ON THE PERCEPTION OF TOBACCO USE fO JUSTIFY TAX INCREASES THAT WOULD BE CLEARLY UNACCEPTABLE ON MOST OTHER PRODUCTS, TEN YEARS AGO TOTAL GOVERNMENT REVENUES FROM TOBACCO PRODUCTS STOOD AT $1,4 BLN, WITH TME RECENT ROUND OF INCREASES IT IS ESTIMATE) THAT THIS STREAM OF REVENUE WILL. SWELL 10 APPROXIMATELY $6 BILLION, (SLIDE f 31 GOVERNMENT STATISTICS ON TOBACCO PRICES VERSUS OVERALL CONSUMER PRICES fNDU(ED TO 1980 PROVIDE A GRAPHIC ILLUSTRATION Of'lHE ENVIRONMENT1 AS OF MARCHI THE TOBACCO PRICE INDEX STOOD AT 254 CDMPARU) fO 148 FOR IHE OVERALL BUNDLE OF CONSUMER GOODS AND SERVICES, THE SO1E CULPRIT HAS BEEN TAXATION I ON APRIL 27TH THE FEDERAL GOVERNMENT INCREASED TAXES BY WHAT wru AMOUNT TO OVER $5100 PER CARTON OF 200 CIGARETTES ' THE BreeESt SINGLE TAX HIKE fN THE HISTORY OF THE CANADIAN n, INDUSTRY, WHILE WE WILL HAVE TO WAIT FOR 'THE ACTUAL FIGURES TO Clit; PDF;!::!!::!!::!.f3 StlC.i: 0111 ,q. COME INI WE ESTIMATE'THAT THIS INCREASE ALONE WII PUSH THE TOBACCO PRICE INDEX ON THIS CHART OYER THE jOO MARK, WITH BUDGEtS YET TO CONE TN OUR TWO MAJOR PROVINCIAL MARKETSI WE FACE THE DAUNtl:NG PROSPECT 'MA'T'THIS WI11 GO EVEN HIGHER, WE MUST ANTfCIPA'fE THAT THIS SPIRAL1ING Of TAXES WILL CON'I~NUE AS DEFICIT REDUCTION POTS FORMER PRESSURE ON GOVERNMENT REVENUE NEU)S AND AS PRICE rNWITABLY BECOMES AN INSTRUMENT OF SOCIAL AND HEALTH POLICY, (SLIDE a 4) 1988 BROUGHT ANOTHER MAJOR CHALLENGE WlTN ME FEDERAL GOVERNMENT'S PASSING OF THE TOBACCO PRODUCTS CONTROL Acr, SINCE 1971 THE INDUSTRY HAD BEEN GOVERNm BY A VOLUNTARY CODE WHICH HAD ELIMfNArm E1E~F~RONIC MEOIAI LIMITU) MARKETING SPENOING'IO A GRADUALLY DECREASING FI~XED'TOTALI AND P1ACU) TAR NUMBERS AS WELL AS GENERAL HEA1'M WARNING ON PACKAGES AND ADVERT ISING, THE NEW ACT GOES FAR BEYOND THIS, FIRST OF ALLI WE HAVE LOST WHAT WE VIEWED AS A DESIRABLE SITUATION IN THAT PREVIOUSLY VOLUNTARY RESTRICTIONS ARE NOW LEG~SLATEDI THERE ARE SEVERE PENALTIES FOR VIOIATfONS, EHERE IS Clit; PDF -!::!!::!!::!.f3 StlC.i: Dill ·5- I LOT I111R·l Pm 11131L 11U UI ROOM FOR IEGOTIATIOM AMD IMTERPRETATIOH, (SLIPE 8) he Mllxarrs AREAS ME UY WOY REBUUTEI ARE: i, I11 PRINT ADVERTISING IS BANNu), THIS IS I)T A REMEIDOVS 1088, THE IAW HAS FROSABLY SERVE ONLY TO ADVANeE ME ~M~f~BLEI A8 AM IMeR~SI16 MUMBER OF PUBLI~TIOMS, 18 BY THE OAfLY MEYSPAPEISI HAVE BEER HUQIMG TOWAROS VOLUMTARY SUSPE#SIO# OF 'lOBACCO ADVERTISIMGI OM THIS rsSUE 'lHE Brit 18 LARGEIY A GESTURE SIICE AROUMD 2/3 of PRIMT MPOSURES TO CANADIANS ARE AOMALLY FOR ~ERIe~l PRbDOCTS IM U,S, PUBLIC~TIOYS, THE GOVERNMENT HAS CHOSE# IOT TO ACT 01 THrS EXPOSURE AMD ~fs FACTI ~M CO#CERf WITH FREE TRADE MAY HAVE SIGMIFIeA~T EFFECTS O# OUR HISTORICALLY 'QIMIAI' IOadLEWDm MARKET OVER ME MID TERM, 21 OUDOOR ADVE~~SIMB 18 PROORES81VElr UIIB, 11 1989, WE IRE ALIOWB 21J OF OUR 1988 MPEIDITUIES II MIS MmIA, By 1990 1/3 ~wo sv 1991 - NONE, SINCE OOTOOOR Sr6#S USE tM THE TRAMSITiOR MOST CARRY WHAT WE SEE AS AM UMACeEPMBIE HEALTH WARMIMG WE HAVE VOLUMTARfLY WrTHDRAWM FROM OUnDOR AS OF MOY, 3, By 1992, sIswAsE oR PROMOTIONAL MATERIALS ARE B~118 RoMsrcnEJ, hnlale an sloE oF rRaoucr n PERM I~m, ClibPDF - v~~f~stio.soni ·61 4, SAMPLING IS BANNUI, 5, SPONSORSHIPS CAN ON1Y BE CARRIED OUT UNDER CORPORATE NAMES,' THIS CONCESSION WAS LEFT TD SILENCE OPPOSITION '10 THE BILL FROM SPORTS AND CULTURAL GROUPS IN CANADA, MANY OF WHOM RELY ON SPONSORSHIP REVENUE FOR THEIR EXISTENCE1 Ii IS REALISTIC TO CONSIDER THIS A NIIINDOW" AS OPPOSED'TO A LONG TERM GUARAN'TEEI 61 (StIDE # 6) PACKAGING MUST CARRY II ROTATING HEALTH WARNINGS THAT HAVE rO BE CLEARLY LEGIBLE ON 20X OF MAJOR PACKAGE AND CARTON PANE1SI ALREADY THERE AAE STRONG INDICATIONS THAT THE GI)VERNMENT PLANS TO eo FROM 4 TO 8 MESSAGES IN THE NEAR FUTURE AND THERE IS SOME TALK OF AN INFORMA'I1~ON 1EAF1E~ fN AL1 PRODUCTS, (SLIDE %7) 71 THE PRESENT STANDARD FOR TAR MEASUREMENT HAS CHANGED, WHAT USED TO BE A 30lMM BUTT LENGTH TN ME SMOKING MACHINES HAS BEEN A1TERU) TO ISO STANDARDS, THIS WILL MEAN A GENERAL INCREASE IN DECLARED TAR LEVELS, IN OUR MARKET, STRUCTURED LARGELY ON DELIVERY LEVELS, IT MAY CAUSE SOME CHANGES IN BRAND PERCEPTION, IN ADDITION TO THIS CARBON'r(lONOXIDE NUMBERS WILL HAVE TO BE REPORTED ON ALI PRODUCTS FOR ME FIRST TIME,- A STEP THAT COULD HAVE A SIMILAR LEVEL OF IMPACT TO THE EARLY 70'S ADVENT OF TAA DELIVERY NUMBERS, FINE CUT ru TOBACCOS, FOR ME FIRST TIME WILL HAVE TO REPORT DELIVERY LEVELS, h\ Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 8, THERE ARE A FEW GENERAL CATCH AL1SI IHE INFORMATION THE INDUSTRY MUST REPORT TO GOVERNMENT ON SALES9 PRODUCTION AND PRODUCT CHARACTERISTICS HAYE SEEN SUBSTANTIALLY fNCREASEDI THE USE OF TOBACCO TRADEMARKS ON NON-TOBACCO ITEMS IS PROHIBITUDI AND SO ON, FROM THE PERSPECTIVE OF ffS INTENT, IT IS A COMPREHENSIVE AND WELL WRITTEN BIIL'IHAT WILL SUBSTANTIALLY CHANGE THE MARKETING OF TOBACCO PRODUCTS IN CANADAI ON THE OTHER HAND, If IS NOT LIKELY tO HAVE A MAJOR COMPETITIVE ~MPAC~I BY ITSE1FI IT IS UNLIKELY TO ACHIEVE ITS STATED OBJEC~IVESI IMPERIAL ANTlCIPATu) THIS LEGISLATION fOR SOME TIME NOW AND HAS BEEN QUIETLY GETTING ItS MOOSE IN ORDER, IT'S KEY TRADEMARKS ARE PROGRESSIVE AND WELL POSrfIONU]I MANY OF ME REMAINING AVENUES OF CONS1IMER INFORMATION . PACKAGING, PRODUCT SENSORY CHARACTERI SYMBOLS, MERCHANDISING ARE ALREADY ACTIVE COMPONENTS OF'IHE COMPANY'S STRATEGIC PLAN, 6·" · I·rL (SLIOE a 8) WE KNOW, FROM OBSERVATION OF OTHER HIGHLY ra"ICfED MARKETS LIKE FIN1AND AND NORWAY8 THAT IF ME CRITERIA OF tHE BILL'S SUCCESS IS VOLUME PERFORMANCE, THE BAN WILL BE Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 ·8· JUDGED A FAILURE, LOGICALLY, GIVEN THE INTENT OF THE SOCIAL PLANNERS WE HAVE tO EXPECT THAT THIS WILL STIMULATE NEW INITIATIVES IN THE FORM OF MORE RESTRICTIONS, MUCH SUGGESTS THAT OUR DISTRIBUTION NETWORK MAY BE NE(TI PHARMACIES ANO DRUGSTORES ARE INCREASINGLY TALKING ABOUT NPl STOCKIN6 OR PROMOTING TOBACCO PROWCTSI THE UNWFORCEABILITY OF THE UAGE OF PURCHASE" LAWS WITHIN OUR PRESENT RETAIL ENVIRONMENT IS COMING UNDER PUBLIC SCRUTINY, AT LEAST ONE POSSIBLE OUTCOME IN THE LONGER TERM IS A CONTROLLED DISTRIBUTION NETWORK, SUCH AS THAT USED FOR ALCOHOLIC BEVERAGES IN MUCH OF OUR COUNTRY, PRICE AND TAXATION WHICH HAVE ALREADY CHALLENGED ME INDUSTRY IN ME PAST YEAR1 ARE LIKELY TO CONTINUE TO DO SO, TWO ELEMENTS OF GOVERNMENT TAX POLICY NILL SIGNIFICANTLY CHANGE THE FUTURE, ISLIDE # 9) THE FIRST HAS fO DO WITH THE OVERALL RATE AND STRUCTURE OF CANADIAN TOBACCO TAX, TODAY TAX IS COLLECTED AT Two LEVELS OF GOVERNMENT AND REPRESENTS A TOTAL OF ?oY(I OF THE FINAL CONSUmR PRICE, ON AN ABSOLUTE BASIS, MESE PRICES HAVE MADE SMUGGLING A VIABLE CANADIAN INDUSTRY, TODAY THE PRIMARY PROBLEM IS CANADIAN DUTY FREE PRODUCTS REENTERING THE MARKET TAX FREE, THE CONCERN THAT THIS HAS CAUSED THE. Clit; PDF -!:!!:!!::!.f3 StlC.i: 0111 -9- FEDERAL GOVERNMENT IS MATCHED ONLY BY THAT OF IHE PROVINCES WHO EXERCISE A RIGHT TO TAX TOBACCO PRODUCTS WITHIN THEIR OtlN GEOGRAPHIC AREAf~ DIFFERENCES IN TAX RATESI BETWEEN PROVINCES MAKE EASY PICKINGS FOR SMUGGLERS SINCE THERE ARE CURREN1Y NO REAL MARKINGS ON CANADIAN PRODUCTS TO INDICATE THE MARKET DESTINAfIONI THIS IS LIKELY iO CHANGE, PRWINCES ARE ACTIVELY PRESSING FOR UNIOUE MARKINGS AND WHEN THESE COME TO PASS THM CAH BE EXPECTE) TO INCREASE THE COMPLICATIONS OF OUR OPERATING SYSTEMS ANO STYLES I THE CANADIAN MARKET WILL IN EFFECT BECOME TWELVE CANADIAN MARKETS I FROM A CONSUMER IERSPEC[IVE ME HIGH COST OF TOBACCO HAS CREATED A HUGE NEED FOR LOWER PRICE ALTERNAIIVES~ (SLIDE f 10) THE GROWTH OF FINE CUT USAGE FROM 15X OF SMOKERS TO OVER 251 Is AN EXPRESSION OF THIS AS WAS THE RAPID GROWTH OF DISCOUNT BRANDS DURING fHE 1986187 PRICE WAR, TO DATE THE COST STRUCTURE OF CIGARETTES HAS LED TO PRICE BEING USED pROMOTrONALLY, TAX IS SUCH A 81G PIECE Of THE FINAL ~ CONSUMER PRICE THAT IN ORDER TO GET MEANINGFUL LNELS OF ~u CONSUMER DISCOUNT A MANUFACTURER MUST TAKE UNACCEPTABLE CUTS IN O HIS MARGINS, TV -10- THE F1Y IN ME OINTMENT fS ME RELATIVELY LAX DEFINITION OF TOBACCO PRODUCTS WITHIN THE TAX ACTS, THESE HAVE BEEN PRIED OPEN BY ROTHMP~SI BENSON AND HU)GES~ WHO HAVE RECENTLY INTRODUCED THIS PATENTED PRODUCT1 (SLIDE II II) THE TOBACCO STICK EFFECTIVELY SIMPLIFIES THE PROCESS OF RO1LrNG YOUR OWN CIGARETTE, ELIMINATES THE MESS AND INCONSISTENCY ASSOCIATED WITH THE PROCESS AND DOES SO At A TAX RATE EQUIVALENT TO THE FAVORED LEVEL GIVEN TO FINE CUT TOBACCOS IN SPITE OF THE FACT THAT THE PRODUCT, IN EFFECTI 1S A HIGHLY KNTILATED PLAIN END, IT IS A SIGNIFICANT THREAT, IT fS ONE WE ARE PRESSING GOVERNMENTS TO DEAL WITH BY CLOSING THE LOOPHOLES THAT CREATE ITS ADVANTAGEI THEY TOO STAND TO LOSE A LOT OF THEIR CURRENT REVENUE TO IT, HOWEVER QUITE CLEARLY, EVEN IF THE GOVERNMENT DOES ACT ON THIS ONE EXPRESSION THE DAYS OF A WELL ORDERED AND PREDICTABLE PRICE ENVIRONMENT ARE COMING TO A CLOSE, IMPERIAL WILL HAVE TO AND IS LEARNING WHAT IT NEEDS TO KNOW fO NAVIGATE SUCCESSFULLY TN THESE NEW WATERSI (SLIDE 112) ALI IN A1L tT IS OBVIOUSLY AN INDUSTRY MAT IS BECOMING INCREASINGLY CHALLENGING; If fS ONE THAT CLEARLY IS CHARACTERItED BY EXTERNAL PRESSURES, UNLIKE MANY TOBACCO Iri . Cc~ N Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 ·111 MARKETS INTERNATIONALLY THE GROUND RULES ARE CHANGING RAPIDLY AND SIGNIFICANTLY AND THE KEV AREA OF eOMPETITION WILI LIE IN 'IHE ABILITY 'TO RAPIDLY AND EFFECTIVELY EXF1OIf NEW OPPORTUNrTrES AS THEY EMERGE, THE COMPANY ON ~ME OTHER HAND9 THE COMPANY rS UP TO iTI (S1IDE #13) IMPERIAL'S SHARE OF THE TAILORMADE MARKET ~2 MONTHS TO MARCH 1989 STANDS As 56,33 up 1,1 SHARE POINTS OVER THE PREVIOUS TWELVE MONTH PERIODI THIS REPRESENTS THE UTH CONSECUTIVE YEAR OF SHARECiArNS, IN SPITE OF THE ADVERSE INDUSTRY CLIMATE AND THE INDUSTRY VOLUME DECLINES, IMPERIAL'S MARKEtING EFFORTS ALLOWED THEM TO ACHIEVE VOLUME GROWTH IN EACH OF THE PAST THREE YEARS, THE COMPANY'S TRADEMARKS CONTINUE TO OOM~NATE THE TOP ~RADBIARK LIST lN CANADA WITH PLAYER'S ANO DU MAUR~EA NOW REPRESENTING ALMOST 46X OF ALI THE CIGARETTES SOLD IN CANADA, MA'TINEEI A RECENT ADDITION TO THE STRATEGIC PRIORITY LIST OF THE COMPANY IS SHOWING ENCOURAGING PROGRESS, IMPERIAL ALSO DOMINATES THE LIST OF THE TOP 10 BRANDS IN CANADA WITH SIX ON THIS LIST, Clit; PDF -!::!!::!!::!.f3 Stl.C.i: Dill -12- PERHAPS MORE INDICATIVE OF~ME FUTURE OF fHE COMPANY IS THIS PERSPECTIVE ON HOW THEIR BUSINESS IS CONSTRUCTU)I (SLIDE # Ilf,ll HAS ALWAYS FOCUSED ITS EFFORTS ON NEW SMOKERS BELIEVING THAT EARLY PERCEPTIONS TEND TO STAY WITH THEM 'THROUOHOUT THEIR LIVES, IIT,LI CLEARLY DOMINATES THE YOUNG ADULT MARKET TODAY AND STANDS TO PROSPER AS THESE SMOKERS GGE AND AS If MAINTAINS ITS HIGHLY FAVORABLE YOU'THFU1 PREFERENCE( INNOVATIONSI LIKE ME ROTHMANS BENSON AND HEDGES CUSTOM COT WILL COME AND GO BUT THEY WILL INEVITABLY SUCCUMB TO TRADEMARK Eau In, IN A VERY REAL SENSE C-51 PROVIDES A MAJOR ADVANTAGE 'fO A COMPANY LIKE IMPERIAL THAT HAS ITS TRADEMARK HOUSE IN ORDER1 IN TEAMS OF DEVELOPMENT PLANS AND ACTIVITIES, THE COMBINATION OF THE COMPANY'S TWO BASIC CREDOS .TRADEMARK VALUE AND CONSUMER RESEARCH HAVE PRODUCED SOME FAIRLY EXCITING PROSPECTSI ALTHOUGH (EX PRICE) THERE IS A BASIC LACK OF DYNAMISM IN THE MARKET IMPERIAL HAS CONTINUED 10 INTRODUCE A SERIES OF SUCCESSFUL NEW ENTRfESI (SLIDE #15) ov MAURIER EXTRA LIGHT9 CAMEO SPECIAL, PLAYER'S MEDIUM AND LTINEE SPECIAL MILD HAVE ALL SUCCESSFULLY SUPPORTED THE DRIVE FOR "NEW PRODUCT" BUSINESSI Q Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 ·13~ AT THE CORE OF THIS PORTFOLIO, CONSUMER INFORMATION ON EMERGING PERCEPTIONS HAS ALLOWED IMPERIAL TO MAKE SOME FAIRLY BOLD MODIFICATIONS TO EXISTING FAMILIES IN ORDER TO PREPARE THEM FOR ME FU~ORE, DU MAURIER IS THE NUMBER TJO CANADIAN TRADEMARK AFTER PLAYER'S, IT IS STRATEGICALLY POSITIONED fO REFLECT "CONfEMPORARY CLASS" AND QUALITI, (SLIDE f 16) NOTWITHSTANDING A GROWING FAMILY SHARE OF 211 AND A CONTRIBUTION OF j7X TO OUR SALES VOLUME9 WE WERE ABLE TO ISOLATE THE NEED FOR SOME SIGNIFICANT UPDATING IN BOTH PACK AnD COMMUNICATIONS POSITIONING, THE INITIAL RESULTS FROM TEST MARKET SUGGEST THAT BEYOND CONSOLIDATING OVR FUTURE PERFORMANCE WE ARE LIKELY LOOKING AT IMMEDIATE SHARE IMPROVEMENT IN THE 1·2X RANGES, fHE CONSISTENCY OF ME OVERALL DESIGN WAS STRUCTURED IN SUCH A WAY THAT IT WOULD FACILITATE ME LEAST INTRUSIVE APPLICATION OF C-lil WARNINGS AND PERMIT THE GREATEST POSSIBLE DEGREE OF TRADEMARK CONSISTENCY WITHIN THE COMING MARKETING RESTRICTIONS, THE MATINEE FAMILY HAS ALSO BEEN MODIFIED, (S1IOE #17) HISTORICALLY MATINEE HAS BEEN ONE OF THOSE BRANDS KNOWN PRIMARILY FOR PRODUCT CHARACTERISTICS · IN THIS CASEI MILDNESS, Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 -14- THE MARKETING EFFORT AIMED PRIMARILY AT CREATING POSITIVE AND APPROPRIATE FEMALE IMAGES AROUND tHE BRAND HAS LED TO THIS NEW PRESENTATION , ON MANY BRANDSI IITILI HAS TAKEN ADVANTAGE OF'THE CHANGES NECESSITATED BY ME PACKAGING COMPONENT OF THE BILL TO MAKE SMALL BUT NECESSARY GRAPHIC COURSE CORRECTIONS, THE PLAYER'S FAMILY (SLIDE # its) · SOME - rlglX OF OUR BUSINESS HRS IEIN AILIUSTUI SLICHTCI, THE CAHEO FRIIICI,L~~ICH IN THL WRIIRL COUISE ii NMPr H3UUI bOT IVIL3 ii NT ~t~ IISOUIC~IS BENEFITTED THROUGH A MUCH'NEEDED FACE LIFT, THESE CHANGES IN CONJUNCTION WITH ONGOING MARKETING EFFORTS ARE EXPEC'TU) tO PROVIDE FOR CONTINUU) SHARE GROWTH, (S1IDE a 19) THE I,j,l, FORECAST SEES MARKET SHARE EXPANDING TO 5818X BY 19931 THE COMPANY OBJECTIVE rS SET AT 62% AND DEVELOPMENT PROJECTS HAVE BEEN fSOLATED TO PILL THIS GAP, INDUSTRY VOLUME IS EXPECTED fO CONTINUE ITS DECLINE WITH TAXATION LEVELS CONTINUING TO PLAY IHE MAJOR ROLE, -1S- THE COMBINED EFFECT OF THIS WI11 BE MARGINAL ANNUAL VOLUME LOSSES FOR THE COMPANY, (S1IDE # 20) THERE IS AN EXTENT tO WHICH THESE PLANS SEEM TO IGNORE THE REALITY OF THE LAWS THAT HAVE RECENTLY BEEN IMPOSED ON'IHE COMPANY, THIS IS ONLY APPEARANCE, IN A VERY REAL SENSE THE COMPANY1S EXPECTATIONS ARE THAT C.51 WILLNOt END tOBACCO MARKETING, BUT ~IU BRING ABOUT VERY MAJOR CHANGES IN NOW THAT EXERCISE IS CONDUCTED, IN ME SHORT TERM, WE DO NOT EXPECT THAT MUCH WILL HAPPEN: WITH THE SINGLE EXCEPTION THAT CD WILL INCREASE IN VISIBILITY AND LIKELY BRING ABOUT AN OPPORTUNITY FOR CO REDUCED PRODUCTS, THE COMPANY'S SHORT'TERM PRIORITY WILL BE ON REORIENTING RESOURCES TO BE EFFECTIVE 1N THE CONVENTIONAl AVENUES THAT ARE LEFT OPEN TO US, THERE IS A PRIORITY ON EFFECTIVE PACK DESIGN INCLUDING THE EXTERIOR CARTON OVERWRAP WHICH WILL BE RECONFIGURED To PROVIDE MORE IMPACT, IMPERIAL'S EXTENSIVE SPONSORSHIP PORTFOLIO IS BEING RESTAGUI UNDER NEW CORPORATE NAMES THAT WILL ALLOW THEM TO CONTINUE, EXPLOITING ME HUGE EQUITY TN THEIR INVESTMENTS TN THIS AREA, Clit; PDF -!::!!::!!::!.f3 StlC: i: 0111 -16- THE RETAIL ENVIRONMENT WILL CONTINUE TO BE U(PLOITU], WE HAVE INMSTEO HEAVILY rN DEVELOPING 78E E(POSURE OF OUR BRANDS AND WILL AGGRESSIVELY DEFEND WHAT WE HAM 60T, WHERE NEW BRANDS ARE REQUIRED, THEY'WILL CONTINUE TO BE INTRODUCED, CONSUMER RESPONSE IS U(PECTED TO EMERGE IN THE MID TERM, C·51 IS EXPECTED TO REDUCE THE'INDUSTRIES ABILITY TO CREATE FINE POINTS OF IMAGE DIFFERENTIATION, THERE WILL STILL BE BRANDS FOR MEN AND BRANDS FOR WOMENI BUT WE WILL LOSE THE ABILITY TO ARTICULATE THE SMALL IMAGE DIFFERENCES MAT SEPARATE, FOR EXAMPLE CAMEL AND MARLBORO I# MOST INTERNATIONAL MARKETS, To FILL THIS VOID we EXPECT NEW POINTS OF EMPHASIS WILL EMERGE, eBPPUt~B~SE~SQB~U;t~~ HILL HAVE TO BE MUCH MORE FULLY EXPLOITED, THERE IS A LOf OF WORK PROCEEDING TO BETTER UNDERSTAND HOW CONSUMERS SEGMENT TASTES AND FOAM PREFERENCES, PUBUII WILL BECOME R KEY ISSUE - NOT OUALIIY IS WE INTERPAETU) IT AS THE ABSENCE OF DEFECTS, BUT QUALITY ARTICULATED IN CONSUMER TERMS · TERMS WE ARE BEGINNING TO INVESTIGATE WITH SMOKERS IN ANTIC1FAIION OF THIS, eBL~S WILL INEVITABLY BE AN ISSUE, RS WILL U,S, BRANDS AND TRADEMARKS IN PARTICULAR AND INTERNATIONAL CREDENTIALS IN 117· ~ENEAAI , ALI OF THESE ARE CURRENTLY UNDER ACTIVE INVESTIGATION IT THE CONSUMER LEVEL IN ORDER TO PROVIDE A WELL ORDERED, CONSUMER DRIVEN FRAMEWOAX'INTO WHICH WE CAN FIT OOR TRADEMARKS, iN THE LONGER TERM IT iS OUR FIRE1 BELIEF THAT C·51 WILL BRING ABOUT REAL TECHNICAL INNOVATION, IT I$ NOTEWORTHY THAT THE BILL ACTUALLY HAS A PROVISION FOR APPROVAL OF ADVERTISING OF PRODUCTS THAT AAE SAFER, IN SPITE OF TrlE FAILURE OF PREMIER AND PASSPORT AND LIKELY VANTAGE EXCELL AND (CHELSEA), THESE PRODUCTS pp REPRESENT REAL TECHNICAL INNOVATIONS THAT ARE ~t~ AND WANTED BADCI BY MOST OF OUR CUSTOMERS, TO ASSUME THAT BECAUSE THESE U(AMPLES HAVE FAILED, THAT FAILURE IS INEVITABLE WOULD HAVE BEEN EQUIVALENT TO ASSUMING THAT LIGHT PRODUCTS WOULD NEVER BE COIEACIALCI VIABLE BECAUSE THE MRIORITY OF EARLY ENTRIES DIDN'T GET IT RIGHT, THE TECHNICAL ANO CONSUMER RESEARCH CHALLENGES THAT PRODUCTS, AIMED AT PERSONAL HEALTH RND SOCIAL ACCEPTABILITY WILL POSE ARE FORMIDABLE, ON THE OTHER HAND, THE RMARDS THEY HILL BRING WITH C: I i I; P D F - !::!!::!!::!.f3 St I C.i: D lil J~ i ~FQ~PI~ ~~ *Y*I~L~$ ~ ~r·l ~on~ SUCeESSI ARE HUGEI THE PUNISHMENT THEY WILL IMFLICT OM THE VMPREPARB WILL BE PA~MFULI THETA D~E1OPMEMT HAS BEEM GIVEr A S~BMfFIeAM~ LEVEL OF RESOURCES IH BOTH OUR R 8 D AHD MARKETfMG DEPAR~EMTS, UITIMATELY, IM SPITE OF OUR eHAI1EHGES nE REMArH OPTfMISTIC ABOUT THE FUTURE OF TOBACCO, ACTUAL PERFORMANCE IS REMARKABLE FROM A#Y POIMT OF VIM AMO P1~1#8 FERFORMAMCE BUILDS OM THIS STRONG BASE, [SLIDE f 21), nE SEE 1988 OPERATI#( PROF~~ OF $308 MILLION BEFORE IRTEREST AHD TAXES 6ROn~M6 AT A COMPOU#D #TE OF 71 To $1131 MI1LIOM fH 19931 CASH FLOW W~11 GROW 8X PER YEAR FROM 5211 TO 530~ MILLIOM, (S1IDE 22), To ACHIWE THESE RESULTS NET TRADING ASSETS WILL IMca~sE FROM $503 MILLIOM IH 1988 To $645 MILLION IN 1993, RETURN OR NET ASSETS W111 IMCREASE FROM 61,2X !M 1988 To 66191 IM 1993, WE LOOK TO IMPERIAL MOT 0#1Y FOR FUNDS TODAY BUT ALSO TO ENSURE THAT YE ACCESS THE MARKET POTENTIAL THAT ~S LAfEHT IM THE FUTURE, ~rR Ihut~i~ j~~c~dcu~ E 4 -e ClibPDF - v~~fastio.soni N a co N vl a '119 111· O P r~·IBI ,, P n ,, 'b i~r ··· ~Pkr ·' ~%~CY M J··lls i :I n " Li:S , xa3F;Ir · ,~!p~u~tj cdl!P1 ,, 4' r "~r~'" te C~CD jl ''·~~~C n ~r ~~ Ji~:l N :91~~ 1 II O N O U ClibPDF - v~~fastio.soni fi(d~ ~c~ie~ax 11111 LLY.Y;I ~~LI·C~I ·II ~ s-~~ Y_ O V fi(~' F? i4 M m C "Ilrll~lL~L -Y d~ II M Irl ~I CI c! :~8s~e~s~~Dli~~ I r, ~1B%Ogl~l~Bt~B~BIB~ In ·t~ $ IhJ I pnll· ~p~e~~ 1 r~ N O CD '·'I~I~ ~I~EL~RI~RP~P~ II ~· ) I N U1 O n Idas4 ff I ~I~"I"""-+1(~"I~"B~P~EE~~;~(~I~~ ·) ii O $I ~B~B~i~11~ i II ca ~b~i ~rl~rl~~l~~l~~ IIIIIII)II r I ail 01 'd rE~nl~L~RPlrl~ll r O 2~11 I I C t~l I I YI I O Y ~111~~111 t I Illu~-~J~t~ II! 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