July 1221
1. It is suggested that the . pri mary objective fbr Imasco should be to provide
shareholders with an above-avenge remm on their Investment in the Company
dwough dividends and capital appreciation measured in terms of the movement
of die share price relative to die TSE 3W Index.
2. In line with die Group's overall dev;9opment, B.A.T Industries would prefer
Imasco to achieve these objectives through a strategy based mainly on
maintaining Imperial Tobacco in a leadership position in its market and on
developing the Company's Financial Services activities.
3. In evaluating Imasco's strategies and plans, B.A.T Industries will apply
criteria similar to those applied to the other businesses within the Group. In
particular, it Is expected that them will be an aim for each business within
Imasco either to be a leader or to be seeking to achieve leadership in markets
where it is possible to cam rates of mum which will generate sufficient cash
both to pay a dividend and either support self-hinded growth at above-average
rates or provide surplus cash for investment elsewhere.
4. Profits should grow at the following average saw over the five years 1992-
1996, in each case measured from a 1991 base:-
Earnings from Operations (full consolidation) I 1 (7)
Earnings Before Tax 16 (9)
Earnings for Common Shares 17 (10)
(Figures in brackets relate to the seven year growth rate from a IM base).
5. CT Financial Services should achieve growth of at km 15 % per annum in
earnings from operations from a 1991 base.
6. Imasco should adhere to a target for operating cash flow each year to show a
substantial surplus aft payment of taxes and dividends: this target should be
expressed as a percentage of the cost of common dividends.
7. Imam shoulil aim to pay common dividends equivalent to at least 40% of
current year earnings per share; and tbr the rate of increase to accelerate as
earnings recover. The minimum percentage distribution should be reviewed
with a view to Increasing it when there are major asset disposals.
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S. imasw should continue to give priority to strengthening its be'-am sheet.
reducing the level of borrovnngs through generation of cash surpluses after
payment of tax dividends and disposal of Hardees as mm as practicable.
9. A target should be finalised fbr. an above-average shareholder return
pelfolISMIRM The measureamat should be primarily by reference to the
performance of the TSE 300 Index.
Sodfic Priorities
10. bnpwW Tobacco : Priority should continue to be given to the further
development of the Tobacco business and to achieving the forecast
improvements in market share.
11. Them should be continuing strong pressure to obtain amendments or revisions
of the Tobacco Products Control Act and opposition to any further increases
in the level of taxation on cipma.
12. That should a1so be specific strategies for counteracting stick sales by
competitors.
13. CT Financial -. Them should be a defined plan to optimise the method and
timing for the reduction in the WwdxAding in Canada Trust, uquired under
the Financial Services legislation, bearing in mind alm B.A.T Industries' wish
to retain as large an interest as possible in Canada Trust. An agreement needs
to be re-ached between Imasco and B.A.T Industries on how the proceeds from
the sale of 35 % of CT Financial will be utiUsed.
14. Lnasco should continue to strengthen the links with Canada Trust in order to
exercise as much influence as possible on the strategic direction and rate of
development in this businm.
15. Particular emphasis should be placed on the need to develop (or acquire)
Investment skills to complement their expertise in attracting deposits.
16. There should also be a plan to strengthen CTs marketing to Improve further
the ability to compete with the banks for retail deposits.
17. Hardee's : Plans should be developed for the divestment of Hardee's, and an
agreement needs to be reached on how the proceeds from the ale of Hardee's
will be UtMed.
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I& Shoppers Dmg : 1U plans fbr the drugsitore business should Mude qncific
pmg=mes, for pnxkwwiity improvements dffough the hiftoduction of
imraved rystem Them should. also be codingency plus to nact to
ponible testictions on do sale of Tobacco productL
19. UCS : While it is recopised dat'UCS ha value to Imasco in supporting die
developn=t of Tdxkcco =its, dwe must also be a rigorou application of the
mitenon that each budnesa widdn the Group must qwM at accquble rates
of ntum, producinS cash flow sufficift to pay a dividerkd and to vipport self-
fimded Vowth at above-average rateL
HCB/djs
16th July IM
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BAT Industries document for Province of British Columbia 12 April 1999