S EC R FT
The seventh meeting of the to= set up to reviev the S:-.ategies !ar ths
Croup's Tobacco activities was held on 22nd October 1986.
Present: Mr. P. Sheehy. Mr. I.P. Garraway, Mr. Z.A.A. Bruell,
Mr. ?.J. R-I=ketts, Mr. D.L. Slobom, Dr. 1. Sall-zor
(Sec:etarv).
Mr. A.L. Beard was I-= attendance for items I.-S.
Xr. G.L. Ds==is was unable to attend.
I. The minutes of the meeting held on 24th April were ag:eed.
2. It was uoted that further investigation of the opporvaniLy to buy tobac-.*
from the US stockpile had led to the conclusion that this would not s.-ov
significant advantages to 3AT and the opportunity had not been pursued.
3. Mr. Beard presented IL ?a or an the funding of R&D. It was uoced that the
ma@oritj of the R&D 4!!O!t (co
sting around L30m) was funded by the
company in which the work was done. There was a fret interchange of the
information arising from this work through a common database and it bad
been decided that it would kw inefficient to tr-y to make charges between
companies for this iz-fzrmatiou-
Rowever, there was about Mm of work in Southampton and M55a of work in
Souza Crux which v" classified as fundamental research of a type V'r-lzil
was essential but which was not carried out in the other W.)
denartzents.
It was agreed that the cost a! :he work in Souza Cruz should be carried
in that company but that the of expenditure in Southampton should be
covered by the other companies. It was agreed thac a roasamable
&'-location would be LO -5m each to be paid by 3ATCo - and U S, L'.. 4m each
from UTIG and Imasco but only 0.2a from Amatil (taking itto account
relatively low volumes of cigarette sales in AmLatil).
It was agreed that XCCo- should negotiate pavotants an this basis f r
1987.
It was also agreed tha: BATCo. should check back with the Strategy Team
in future years, to agree both the level of expenditure on !undsmatL-.&'-
work and also the allocation a! the charges.
4. It was agreed that the current level of R&D effort was generally ada;%:a-,a
to meet the requiremezu of the Tobacco activity.
Bowever, it was Suggested that Souza Cruz might give further
consideration to the possibi-14tv of commissioning work with NE--- on 1-he
application of biotechnology to developing specific characteristics iz
tobacco. Lr4
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BATCo document for Province of l3ritlSh Columbia 22 April 1999

5 It was noted :bat Imasco had questioned whether more effort should be
applied to attempting to develop a -safe- Cigarette and to investigating
or co--4ssioning outside work to investigate factors in!-luenciag the
susceptibility of individuals to cancar. In support of their argument,
they had suggested that competitors were undertaking this type of work.
!!r. lr4tll said that this subject had been debated at length and it had
been decided that It ws nor likely to be a rewarding line of
investigation. Tt was also noted that if a competitor did suetsed in
achieving a breakthrough cm classifying factors associated with the
susceptibility to cancer, this information would be freely, available to
everyone -
A Tbe Chairman asked Xr. Bruell to provide a brief note on this so that he
c-i-ir-a. could respond to Imasco.
6. It was agreed that Mr. Bruall would also provide 11r. GarawaT with a
breakdown of the total Group expend'-ture an Tobacco UD, for possible use
WJ
@thiz the Annual Report and Accouuts-
A,(.,A it was noted that AXP Inc., the company that had developed Favor was in
!-Inancilal difficulties and could fail. BATC*- bad a concilnuing Interest
in the possible use of their filter technology but k"- were not prepared
to sell or licauce their technology and bad offered Instead to undertake
a joint development.
A SATCo. had decided that it would be preferable to wait until the company
failed, at which time both tba technology and the relevant people could
become available.
'@%illa"it was agreed that it would be inappropriate to anzar in--z a joint
venture with AT11, it was suggested that an alternative course of action
6&-jtt-p@--ould be to acquire ATP outright.
1: was that Mr. Iruell should ask Mr. 14ng to evaluate this
,reed
possib ty , in conjunction with BAZUS.
It was noted that the engineering study to design the prototype plant for
A.OEX was due for completion by 4cb November. Present indications ware
that, because of additional safety features that bad needed to be
introduced, the cost would be L11-2z rather than the LO.7z originally
astilzated. Sowever, although there would also be au additional- cost an
he full size plant, the increase would not be pro rate.
@L-. Bruall reported that action was in hand to rationalist the DIT"I
tobacco expansion facilities in the UK and Germany 'out possibilities for
carrying out contract work for other Group companies was also being
investigated.
10. @Lr- Garraway reported that a first meatint, had been held of- the t"'a to
assess the potential for Surozean Xanufacturing Rationalisation. The
teas was due to met again an Ist December and was ai=zg to sake Q4
raco=endaticas by mid-January- C)
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BATCo document for Province of British Columbia 22 April 1999

L1. The Chal--man presented a paper su=urising the current position in the
USA all Barclay. Although the product now has the Actr,=-Pius filter azd
a rating of jag, progress Lu the market had been relat.-i'vely modest.
Bowever, it was fait chat there was considerable good-.;'.II in the Barcia7
new which would be used as the basis for a Barclay Lights product to
compare with Marlboro Lights. This product would have a conventional
filter.
Mr. Bruall said that the Urclay Lights product could also be of interest
in Europe as a potential competitor to Harlboro Lights.
Progress on the existing Barclay product had been limited in Europe. The
product was still based an the old Actron filter as research In
Switzerland had shown that, now that the harshness had been eliminated
from the product, cuscomers preferred it to products incorporating the
Actrone-Plus filter which had been considered too alld and too bard to
draw. Despite the limited progress, Barclay was still holding its own
and work was continuing to obtain agreamiant to reduced ratings an the
A, 4A. packs. In tarms of market share, the major disappoiazzent was in Germany
and ways to ova reone this would be considered further.
13. The Chairman was disappointed that there bad not been more progress in
introducing Actram-Plas technology into Europe and he will be discussing
this with Brown & Williacison.
T 57 mr. Brueu draw attention to problems being encountered in the Middle
East where a video attacking Barclay had bean circulated to Government
ministers. Although there was no firm evidence, it was suspected that
the video may have been originated and distributed by people acting on
behalf of Philip 4arris.
it was agreed that:-
(a) Pr - 3niell should ask Hr. Cardwell to obtain evidence (either
directly or through investigators) as to the source and
distribution of the video -
(b) Jr. Bruall would take legal advice and would then recommend what
action if" any should be taken against Philip Norris.
(c) a-he Chairman will see Mr. Pritchard when be is i2 London an
24:h October and will agree what action should be taken to restore
Barclay's position in the market (e.g. by launching products based
on Actron-Plus).
It was noted that the distribution of the video had occurred at a time
ED when there had been good industry co-operation In negotiations with
Governments and it was essential that strong action should be taken to
make it clear to Philip Morris that action of this type could be
4Aa potentially very damaging not only to the industry but also to Philip
Morris themselves.
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16 - Mr- R-'ckc:--s reported that an evaluation of Skatdi%avisk by Chase
Manhattan tad suggested that 4-1 S-A-T Industries -.r-saed to ac;u4--.e :.%I*
outstanding shareholdings, a reasonable price would be L1.70m,
represent'-=; a P/E a! 12-8. -1--Is compared with &Z asset value of around
Z200-2.
.It was agreed that further work should be carried to asta@-'ish
possible ways in which the Tobacco business of S'"adinavisk =eight be
acquired, possibly by acquiring the whole business and then civesting the
non-':obaccz activities. 'Ways for reducing any Sood-will write-off should
also be considered
Mr. Slobom was asked to prepare a paper for the Chairman out'Uning-
possible approaches that sigh: be taken.
17. The Cha:Lz--au presented a paper swmarlsiug, the curzrcut posit'-on regarding
exports from Brown & Williamou to the Japanese mar'fat. This showed that
sales were now running at 75alacorh. Pr. Bruell. also reported
encouraging results for an American type JPS brand, which was running
well ahead alf budget.
Following the announcements of further moves to reduce the tariffs
L4A-L a, imposed an iWrts, there could be an opportunity for a major increase in
the market shares for foreign brands, and Brown & Zilliamsou bad been
T L. '4e@ asked to c2usidec possible-=ys.for mountiug_a,3&4_Jq1 &-@;a4 on the
markAt, and to consider with Mr. Long bow the initial expend-turn ='.She
be capi:alisad rather than charged to revenue.
Although it was accepted that the initial opporzuz-1ty is likely to be for
marketing, it was suggested that the possibility of manuftctzring in
Ja?au shou-@d also be considered as a longer to= possibili=7-
!1r. Brut= reported that it had been decided not to proceed -4th the
investment which had previously been proposed in Vast Africa.
Ther* had beau a favourable reaction fro& Turkey where it ap;eared that
the Government were looking far & proposal whic@ would allow Takel to
have a 30: share in the business but where foraig: shareholders would be
&-',owed to have control. Current indications were that the initial
investment required from BA:rCo. would be of the arder of L13m with a
further Z4= required for the acquisition of a shoU factory. CO.
would be preparing a paper for the CPC within a week, asking for guidance
as to the acceptability of the approach which it %as proposed to take in
the negotiations.
it was noted that the quality of tobacco being obtained fr= China bad
i---proved considerably and more was being bought. 'Negatiatious were
proceeding on the project for South China.
B.;:-.-4G had not accepted the viev that there was a need for batter &gouty
revresenzation in Italy. It was agreed that this question should be
reconsidered with lTr@Eridbstu in Spring 1987, at which time there should
be a critical look at the comparisons with the pe:!ormance Of Philip
rorris and RJR in Italy.
1: was noted that Wca. We-.* continuing to evaluate Greece as a
potential now market. Portucal bad also been considered bur. was not
thought to have good prospects for Investment.
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BATCO document for Province of BritiSh Columbia 22 April 1999

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19. It was agreed that it would be *! advantage to IC, for !urther countries
co introduce a require-ut for warning no-.1-cus an ciSaretza packs. It
was also agreed that ast-mat stcouragesent in this direction might be
given to the Gave-ramanzs of MAMA, Honduras, Sierra Leone and Uganda.
Mr. Bruoll retorted that P were being experienced in setting
TOD
up a conference on epidemiology as a means for promoting the sucking
compendium. '.Mere were a number of similar meetings planned and the
putative sponsors (The iraunhofer Institute) wars not enthusiastic about
their ability to mount another one. Dr. Thorucon is continuing his
discussions with FrauzLhc!er bur is also considering an alternative
sponsoring body from Canada.
It was agreed that this venture should continue to be given a high
priority. There was mounting evidence of a groundswell of opinion
against excessive anti-smoking pressums and it would be helpful for the
Group to take advantage of this trend.
21@ It was agreed that Mr. 3ruall would arrange a mescint with the Chairman
and 11r. Baker to discuss other ways In which both BAT and the industry
as a whole might take a more positive stance against the anti-smoking
lob@z-
W A It was noted that the team set up to consider the stance which I.A.T
El Industries should take on tax harmanisation in Europe was due to neat
again an 22nd/23rd Oc: abor - The object of this team was to formulate a
form of proposal that would be actaptable both to the industry and to the
monopolies and which would assist in the further penetration of current
monopoly markets.
23. Mr. Bruall rumored t1hat WC: - wars creating a computer based system for
the Identi!ica-zion of Southam;:on R&D files which might be required in
future Litigation involving 10'6-.Co. This was to have been a relatively
modest tzarcilse but the possibility that these files could be called for
in US cases involving Brown G Williamson had resulted in a used to
increase the scale of the woft and this had led to a very significant
increase in costs. It was agreed that Mr. Baker should be asked to
justify the substantial costs (LO. 5z) involved in this work.
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IS/DJA
23rd February 1987
BATCo document for Province of British Columbia 22 April 1999
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