Guidelines for Imsco : July 1997
General
1. Imasco's central objective should be the achievement of returns and
sustained rates of growth in dividends and earnings per share which
compare favourably with other leading businesses in Canada.
2. To support this growth, It is suggested that, in addition to Tobacco,
I=sco should develop a portfolio of businesses in leadership
positions in growth markets or market segments capable of providing
sustained organic growth in sales and profits. B.A.T Industries would
prefer the main emphasis to be on developments in Canada rather than
cbe USA and for these to be ceutre-d on the Group's main activities of
Tobacco, Retailing, Financial Services and Pulp/Paper.
3. In evaluating imasco's strategies and plans, B.A.T Industries will
apply the same criteria as are applied to the other businesses within
the Group. La particular, it will be important to ensure that each of
the businesses within Imasco is operating efficiently and is producing
a cash flow which, after covering central overbeads, dividends and
interest payments, Ls sufficient either to fund sales growth at real
rates of at least 6 per cent per annum or to produce an equivalent
cash surplus for investment in other activities.
Financial Guidelines
4. Dividends : Based on the current B.A.T Industries Group shareholding,
the minimum dividends expected from Imasco (gross of Withholding Tax)
are as follows:-
'Years to 3 1 December
1987 1988 1989 1990 1991 1992
C$m 46 56 63 73 83 94
For 1989 onwards, the proposed dividends are based on a payout ratio
of 40 per cent which is considered an appropriate long-term payout
ratio for a company such as Imasco.
5. Returns : It is recommended that Imasco seek to achieve at historic -
cost return on net assets (an a B.A.T Industries' basis) of 26 per
cent for its commercial activities, with a priority being to produce a
satisfactory return for People's Drug. 7he target for Canada TrustCo.
should be to achieve a sustained increase in after-tax ;profits of 15%
per annum.
Specific Priorities
6. The first priority for Imasco should be to complete the programme to
re-build the strength of the balance sheet and to ensure that each of
the individual businesses makes an appropriate contribution to
Imasco's profits, cash flow and dividends.
7. For Tobacco, the priority should be to re-build and consolidate
profitability both through price increases and through further
improvements in efficiency which will ensure that the position of NJ
lowest-cost producer of quality cigarettes Is maintained. C',
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S. In addition, Imasco should continue to pursue improvements in market
share, both -In existing brands and by developing and marketing
innovative now products, making full use of developments available
from elsewhere within the B.A.T Industries Group.
9. Imasco should continue to support industry representations to both
Federal and State Governments on taxation and smoking issues and to
play an active role in opposing the anti-smoking lobby.
10. For Financial Services, the priorit should be to develop plans
.7
for the expansion of Canada TrustCo. In particular, consideration
should be given to ensuring that the projected short-term levels of
performance are met and to identifying how growth in after-tax
earnings of at least 15 per cent a year will be achieved over the
longer term.
11. Imasco should also develop plans for the addition of complementary
activities to extend the Group's operations in financial services in
Canada, taking into account the difficulties inherent in the
regulation of the market.
12. Imasco should continue to play an active part in influencing the
regulations covering financial services' activities in Canada
particularly in respect of the limitations applied to nonfinancial
parent companies.
13. In the meantime, plans should be established for the reduction of
Imasco's shareholding in Canada TrustCo. to 65 per cent.
14. For the Retailing businesses, the first priority must be to
improve the performance in People's Drug, after which It will. be
necessary to review all the retail operations to ensure that they meet
the Group's criteria for being self-supporting in terms of cash at
appropriate real rates of growth.
15. In addition to resolving the problems in those businesses which are
not performing satisfactorily at present, TA&sco should identify
opportunities for profitable growth once satisfactory bases have been
established.
16. For Rardea's, the primary emphasis should be on improving profit
growth and ensuring that the business makes a suitable contribution to
Imasco's shareholders before pursuing opportunities to-extend and
consolidate Hardee's geographic coverage and product range.
17. For People's Drug. the immediate priority should be to concentrate
an improving the performance of the core business.
18. Imasco should continue to seek opportunities for the development of
Sboppers Drug, both through organic growth and, where appropriate,
acquisition. The business should, however, aim to fund its ova
growth, after making an appropriate contribution to Imasco for
overheads, etc.
19. It is suggested that Imasco should consider the divestment of the rQ
UCS Group. N
R.S /DJA
29th July 1987
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BATCo document for Province of British Columbia 13 April 1999