d65 Co·ordinstlon of Group RgO ~~go r t on vi altl o So ula C ru1 2 I t h 1 30 t~~BUdt,! 9~1 I, to Heard Review of Group Research Projects Conducted b_y Souza Cruz (C~ P, Or Siqueira, I. T~ Caruso at all As a consequence of the decentralisation of RLD in 1985 the role of Souza Cruz RiO in the Group has increased in importance, particularly in Leaf, Tobacco Processing and ~lavour Rescarch~ The main business objectives underlying the individual projects are Smoke Subjective quality Improvement and control of smoke chemicals from a regulatory standpoint elglnierosaminesl Projects recently (or soon to be) completed in leaf show the Influence of luminosltg, temperature end general veather effects on Burleg tobacco n:;tate~ Additionally, this group has shoun how chemical components of one tobacco vithin a blend can react with those In another tobacco to form nierosamines~ Future leaf projects will aim to develop Brazilian analogues of Halawi Burley and the 'Red Side' flue cured tobaccos that currently are important to B~V blends~ The project virl not be simply product development - chemical features responsible for their key characteristics will be researched~ In a separate meeting, rear progress was made in identifying an appropriate commercial target for a radical biotechnology project to be conducted vith Tvyford Advanced Technology Centee to Cambridge, U.K~ This project vill jim at a new oriental flavoured virginia variety, This will call for a systematic breeding and segregation programme by Souta Crut BLD, as the first step~ h detailed proposal uill have to be produced by G~ i. Rend~ In Group terms it is Important that Souza Cruz leaf research look to this and similar projects which vilt contribute to significant Group fnnavations~ The Tobacco Processing projects in which chemical changes in tobacco through curing, CIT, ageing and processing were systematically monitored have thrown up some basic principles which are nov being tested as a prelude to wider Group appllcation~ One important project just completed explored the effect of CID drying profile on Burle? tobacco and smoke. This has shovn that high feed moisture leads to bitterness and irritation in smoke; Bau are nov exploring this effect with their blends. Another project in this category has investigated how alternative processing can upgrade virginia tobacco in organoleptic terms~ Both higher temperature and the use of taled leaf dryer proved beneficial, and Soura CrU2 have made significant use of these findings in processing last year's poor virginia which orhervlse shoved high 'frritation' In smoke quality termsl These findings were communicated to the Group at this year's Product Development conference in Hamburg~ Subjective and chemical results from an ageing study with Virginia tobacco ate nov avallablel finally, basic research has shown that a combination of more drastic thermal treatment of uncased tobacco followed by preheated casing addition in primary can obviate use of elD~ A proving trial is now in progtesa~ Butlet grades of varying quality, having received different leaf redrier treatments, are being processed In primary withlvithour CtD and, where used, with a number of different casings. Results are nov being gathered, Clit; PDF -!::!!::!!::!.f3 StlC.i: Dill -2· Dlacusslona vith CAC companies are currently taking piece to determine the direction of future work, Detailed understanding of 'casing reactions', including vfth tobacco, eeems Inportant~ The fiavout projects divide into those related to tobacco natural compounds and those derived from fruit extractel both Ire important, since they pay have Group applicability and may be produced commercially by Suvalan vlth whom the Souza Ctut RLD team are closely involvcd~ The fruit extract projects Item from an interest by Souta Cruz several years ago in the possibility of using extracts of Brazilian fruits to create 1 novel tastelaroPa dimension to tobacco. Research gave some ~rcmiJing leads and also ahoved tvo additional benefits - fruit extracts fan 'reduce' or ameliorate sidestream and burt odour. The Influence of fruit extract on mainstream character Is a function both of fruit type and level · for a positive effect passion fruit and tutti fruitti cased cigarettes ate good, Banana Is less obtrusive, simply smoothing tobacco tastel Consumer research vill start in September, folloving a good response to concept Lesting~ For butt odour amelioration lower levels of extract are uied~ Again the passion fruit and rutii frui(ti left a more marked fruity odour and flue-cured butt odour was more easily masked than ai:-curcd~ The sidestream amelioration project focuses on different fruits - pineapple, tamarlnd, guava and casheu, Pineapple, at the l-2f level, seems particularly effective for Virginial BLW and Chile have requested samples for their search for less irritant sidas;raam produces. The more conventional flavour research is based on tobacco natural compounds~ For instance in one project Amarerinho and Comum tobaccos uith their special flavour notes are being extracted tin dust form)l Experience has shovn that cured or aged tobacco must be used rather than green Icaf~ Effectiveness is being measured on poot quality Virginia tobacco at the 5X ~evcl~ if good results are obtained, the [lavour compounds may be produced commercially by extracting the dust from these tobaccos or by Jyn~hesis~ Souza Crui are investigating systematically the ability of various sugar·esters to function as precursors of oriental notes, and a number are proving vorthy of further evaluation~ work by Bau has identified the importance of pyrazines in smoke from Philip Morris products and both 8&U and Souza Cruz are seeking means of producing these eo~pounds~ Souza Cruz ate exploring the interaction of ammonia compounds vith various sugars (fros various fruits), and have promising leads from cashev and prune. This type of reaction flavout night urtlmarly be manufacturad at Suvalanl Among ideas for nev fravour projects, Sou~e Cruz are proposing to simultaneously degrade (c~g~ uith acids) and extract tobaeco~ They also propose to produce mixed flavours - one compound is produced that on pytolysis produces two or more different and desirable flavour characters; this vould be pstticularlf important uhete the product of this reaction vould, of itself, be unsuitable for adding to tobacco due to volatility, rtc· Clit; PDF -!::!!::!!::!.f3 StlC.i: Dill · -3- Finally, within the Group Research programme, Souls Crur are ~e~ulrlog equipment and developing skills for the highly sophisticated type of chemical analysis required by these progrimmesl Several examples were illustrated where such techniquea are throwing new insight Into, for instance, augar-amino acid reactions in procciifng, RbD Reaources Currently Souts Crur R~D has 259 (1987) staff of whom 30 are engaged in Group Research PFojrct~~ Total revenue costs are $2l12 mn~ for 1987, of which $0.7 ~n~ is attributed to the Group Research Prograame~ interestingly the revenue costs for Group research have fallen by 50X since 1984 tin dollar terms) due largely to government policy on salaries end weakening of local currency~ In contrast, cost of speeia~ised equipment imported into Brazil Is practically threefold the U~S, price~ Souza Cruz RID have faired to recruit their agreed target over several years and they still need 5 graduates for 1988. They have several sophisticated instruments on order which call for speciallsts~ Additional justification for this recruitment lies in the broadening remit of Souza Cruz RLD, encompassing a significant agribuslness uarkload, This is leading to an overburdening of the technical specialists that Souls Cruz already has. Technology Transfer from Souza Ctuz R6D Centre to BhrCo Companies in Lati_?_America (C.J~P, de Sigueirall.~~ Caruso/R~ Binns) After two years the re-organised programme of fundamental tobacco research within BAT has otabirised. During this time greater emphasis has been placed on the transfer of technology and know-how from RLO Southampton to most BATCo companies, with recognisabla bene[itil Now, extension of the decentralisation concept should be considered in relation to the provision of technical support from other major BAT laboratories. The purpose of this Peering was to discuss the re-organisation of such technical support, with particular reference to Sours Cruz RID and BbTCo companies in latin Ametica~ The laboratories at Souza Crul have, to date, been heavily orientated towards that company's operational needs, but have also developed skills through their Group research projects in flavour, leaf and processing~ As a result, they have special expertise on various topics and are in a good position to provide technical advice in these areas, as well as more routine vork~ Similarly, RID Southampton has certain areas of specific expertise which would be retained and used as nov, Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 -4- Areal of recogniaed special expertise available within Soura Crui are: i) Analysis of pesticldea and pesticide reslduea Agranomy: all aapects, Including soil science and design of field experiments iii) Crop management: field pests, dlseasea and their control iv) Process sciencei especially relating to leaf improvement by processing modifications and flavouring v) Stored product pest control vi) Flavour development and supply pip Southampton will continue to maintain central responsibility for: 1) Laboratory audits and routine methodology ii) Product development audits iii) Productlproeess ~novladge Eeifnats~ Occasional involvement of Sours Cruz start in the above will be encouraged for awareness purposes~ both RiD centres have certain common facilities, e~g~ for chemical analysis, which will be used in either laboratory, when appropriate, depending on available cap~eity~ It was agreed that for appropriate projects or enquiries, facilities and expertise at Souta Cruz could be made more widely available to BATCo companies within Latin America. AL the same rime, it was recognlsed that some companies in latin America already have existing, strong contacts with Sauthamptonl In view of this, and because of the extensive communication from Southampton on technical support to companies, it was considered essential to introduce the regionalisation approach eifefullg~ To avoid confusion amongst Operating Companies, and recognislng that any regionallsatfon will involve a learning period for all parties, It was also agreed that administration of Soura Crut involvement would be through nillbank andlor Soulhampton~ In this way also Territorial Department will remain aware of enqutries at special problems from the ~eg~oa~ Essentially, any request for advice from an Operating Company would, as at present, stilt come either to Territorial Department ~illb~o~ then to Southampton, or to Southampton dirccl~ The request could then be passed to Souza Crul for action, subject to the agreed principles~ Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 ·_ -I- AtH will discuss in nlllbank financial aspects of the change as proposed here~ Basic points to be made to Operating Companiss are: i) Companies which, in the Palt have made general enquiriea or asked for technical support advice direct from Soura Cruz will continue to do io~ ii) Any project wort requiring significant resource, in terms of materials, equipment or effort, will be referred to Millbank or Southampton. The project then to be passed to Sours Cruz, if special expertise available there is appropriatel iii) Financial details will be clarified after bt8 has had discussions on this aspectl Ofscussions on areas of special expertise within Sours Cru2 raised the partlculsr issue of flavcur supply to Operating Coopanles In viev of the current development of Suvalao~ This had traditionally been a source of income to Southampton RbS, It was agreed chat: i) New engulries on flavour development and supply from the latin American region could be forwarded to Souza eru2~ ii) The possibility of supplies currently formulated in Southaipton being shipped from Brazil will be investigatcd· This will depend on: a) the availability of ingredients (Centil to check formulations during next visit to Southappton): b) need to maintain secrecy of flavour Fake-up: c) preferred recipient of revenue from flavour sales: d) Operating Companies' acceptance of an alternative source of flavour. Suvalan Tobacco FravDurs (D~ Laux, CI pi de Siqueira) In line with the agreed business plan for Suvalan, they are now ready to begin external sales of their tobacco flavour iaterialJ~ These are already being successfully used by Souza Crut~ The materials, mainly fruit extracts, have been cleared by the Bit Additives Guidance Panel and are all substitute materials for those currently being offered by the established Flavour Houses. (later, Suvalan will Include new concepts derived from Souza Crur R~D, to be cleared by hCP, bur these will be offered only to Group companies in the first instance)~ Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 -6- This whole area could be highly profitable for Suvalan and they are anxious to approach Group companies alongst other commercial outlets - Initially Suvalan will use .a two-man (commercial and technical) team~ AU was asked to establish whether SuvalPn representatives can call on our Group companies without gaining specific approval from Territorial Directors for each viiit~ If not, they are restricted relative to their competition, Our recommendation is that Suvalsn informs RLD Go-ordinator of the countries (fn blocks) that it wishes to visit, Once and for all agreeoonr Ir iough~ Iron the Terrfeorlal OLrector for these Eompanler and a letter of introduction to Suvalan's business is sent from the Territorial Department to the companies concerned~ Sauta Cruz RLD will be responsible for ensuring that all tobacco fravour materials from Suvalan to be used commercially have ~CP clearance, in the ease of BAT use, and meet local regulatory requirements for other eompaoies~ Polypropglece riieers (J~ lord, C, P~ de sirloelrl, iabille) following the termination of the collaboration with Sercules (at Hereules' instigation), Souta Cruz have pursued the feasibility of developing their own process for producing polypropyleie tow, working with the German machinery producer, Barmag. The ease [or pursuing this prefect rests on the monopoly supply position for cellulose acetate held by Rhodia and the high premium charged relative to world prices (some 80 centslt(g). Trials at Barmae using all Brazilian materials (pcl?oer, delustrant, spin-finish) have confirmed Souia eruz' ability to replicate the Hercules' product of 1982; the only difference found was a higher pressure drop variation in filter plugs and this has been attributed to defects in the ageing pilot Plant at Barmag. Hercules have re·approached Souza Cruz during the pas; year clai3lng that theY have achieved a new tow of commercial standard fta~ their pilot plant in USA and that they wish to consider a joint venture with Souta Cruz in Brazll~ A very unclear picture exists of what the commercial base would be~ It is plain that Berculcs International would not invest dollars in the venture · purely their rechnologr~ Bercures do Brasil may wish to participate and even a third party was mooted If Souia Crut did not want to Invest~ what is clear is that Hercules want to gain access to the expanding Brarilian market where Souia Cruz have demonstrated the acfe~tabilit~ of polypropylene in all but the high quality brandsl At this stage Souls Crui have just completed I comparison of tow from the latest Hereules production with their own product produced in the Barmag piler ptant~ Differences are slight, clearly indicating that fierculea have made practically no improvement over 5 gears. Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 ·7- Souta erui' ~oird will nov consider the tuo options of building a polypropylene tow Pilot plant (500 tonnes p,l~ equivalent to 10 billion aelmont cigatrttes, end costing either $8l5 mn~ in Uberlandla or S10 mn~ in Rla) or negotiating a venture vlth Bareulea· in my view direusslons with Xsrculea Ire unlikely to produce a formula Iccr~rible to 50U1a CrUL and, in any event, their teehnologieai position seens no different from that seen I years a8D (vhlch Sou~i CIUI CBn match)~ The key ~uiitlone far Souza Crui relate to their ability to manage this new technology and to exploit it more widely at some later etage~ In terms of technical expertise, taey have tuo fibre eiperts and plan !a re-inforee this if the project goes aheedl Regrettably, I can sec no benefits for other Group companies from this project, The ~neenrive for CAC companies to switch our of cellulose aci:ate is negligible· Of the BATCo co~panies, these vlrh foreign exch;sge problems sri relevant, and their ability to set up this highly technological business (of which I have 16 years' experience) is remote~ Bioplanta (5~ Cil, C~ PI de Siqueira) Roblnson eil 3utlined the principles of the proposed new agreement between Souta Cruz and NPI, Essentially this gives Souza Cruz management e!:rrol of Blcplanra. it Is proposed that SP! would reduce equity to 201 and at any time up to April 1989 Souta Cruz would gu~raa:ce purchase of their equity at face value plus ponetsry correction plus 10X interest~ Up to or after this date NPI may dilute If lhc7 do not wish to inject capital when callcd~ Souza Crut insist that ~!~ has no option to return to 45X. bccotdlngly:le eoPpany vould assume Sociedad AnoRina status and NPI would receive Preference Shares and participation in a proposed Advisory C~u~c!l~ These princf:!es were nor rejected by NPr, but they are considering the terms -.'ey are particularly keen to agree those management rights that :~eg retain, e~g~ agreement on acquisitions, disposals, etc~ and to secure, as far as possible, an option to increase their equity porticz albeit with a time limltation~ In terms of :~e Technical Agreement, Souza Cruz are proposing changes to their sub-licence which lead to a Pore effective technology transfat~ the basis of their proposal is that Souta Crut will pay $80,000 net per annum to NPT for: i The NPl Director of Biotechnology Research (Dr~ Ransen) plus one scientist will visit Bioplanta for five working da99~ 2~ Blophnta scientists will spend 30 man-days at NPI labs. 3~ NPf will provide hi-monthly reports on world technical developments in plant bi~technolagy, Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 -8- in tersa of future technology, Souza Cruz wants Bloplanta to be free to seek developments fro~ any soutce~ If NPI is to be the aource, It will be funded epproprfately by Souta Crut. Since the Haster ~greeoen~ between NPI and B11 is still operatfve, Biopl~ati aust nlleu rhilr neu technology oLtilned only on commcrclsl terse, gained from wherever, to flow beclt to NPT, NPI have eaid that they are prepared to Eonalder these proposals. They should prove acceptable since baafcally Sdura Cruz ate paying a TLAlservice fee that compensates NPI for nPn-payPent of royalty fees normally provided for under the terms of the Master Asrcementl O~stributlon: Messrs· P· Sheehv E.A~A~ B;uell P~J~ Rombaut, Siuza Crut L. Sabc~a, Souta Cruz IOth September 198l Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111