BATCO. PISM 1991-1995
A CPC meeting to discuss the BATCO - ?!an for 1991-1995 was held on 23rd
January 1991.
?resent: Sir Patrick Sheehy, Mr. B.?. Garraway, Mr. M. F. Broughton,
Mr. B.D. Braoley. 4r. M.A. Butt was unable to be present.
Dr. R. Salter was in attendance.
1. 1990 : Reviewing the results for 1990, Mr. Bram ley said that the
latest estimates showed trading profits of E341.4 million,
Z23.6 million below budget but E135 million ahead of 1989. This had been
achieved despite C29 million of adverse exchange adjustments.
Achievements in 1990 had included 20.3 billion export sales to China, an
increase of 7Z in UKIB sales and an overall volume increase of 5.4Z,
excluding the additional boost from a full year la Australia and from
the newly established company in Spain. 'JK sales of Henri Wintermans
had increased by 61% and further progress was anticipated in 1991.
3. Sales per employee had been improved by 15.9% and total numbers reduced
by 5.4%. Although there had been a delay in closing the Amsterdam
factory, the closure of the Liverpool factory had been completed. The
reorganisation of RSD had also been completed successfully.
other achievements had been capital reductions and the repatriation of
funds from Australia 'and Singapore. The shareholding in the Danish
company had also been re-organised and BAT's interests concentrated in
the tobacco business.
5. Substaotial progress had been made towards the negotiation of an
iavestmenc in a tobacco factory at Pecs in Hungary. The outline
proposal had gained the approval of the Pecsis management and of the SPA
and it ;as hoped to sign a firm agreement early in 1991. Since the
I ldavia,
Hungarians have a project in the main tobacco growing area in 1.40
the investment could also provide an indirect entry, to the USSR.
Major problems outstanding at the end of 1990 included a serious
financial situation in Argentina due to a failure to negotiate price
increases, a competitive disadvantage on excise credits and a dispute
regarding the validity of tax credits purchased by the company. Other
problems included reduced profits in Venezuela, continuing poor
performance in Australia and market shares still under pressure in the
Far East. It was also noted that JT1 had increased exports to the
region from 0.7 billion in 1986 to 4.8 billion in 1989.
As regards pricing in Argentina, it was noted that the attitude of
the local Philip Morris management may differ from that of their
management in Now York. It was suggested that BATCo. needed to be
determined both in the pursuit of higher prices and also in negotiating
the elimination of the excise concessions through which Philip Morris
gained a competitive advantage. It was noted that BATCo - had specific
objectives to improve the performance of the Argentinian company in 1991
and that profit improvement in Venezuela was also a key objective
for the year.
a. Another key objective would be to improve the performance in
Australia through increasing the market share, improving
productivity and achieving greater efficiency at lower cost by
transferring the Read Office to the Pagewood factory site.
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8. Productivity/Cosc Deduction it was noted that there are objectives
co improve the output measured in Cigarettes per MAn Hour (C M.) by 277-
by 1993. 3uilding on the success achieved in Kenya, companies which are
not achieving a minimum C?MH of 5,000 -,till be studied by an audit team
and appropriate action plans agreed. 'Jaste is targetted to be reduced
'3y over 121 over the period and there are also initiatives to reduce
Leaf costs.
!9. Leaf : --he CPC suggested tnat 3ATCo. mignc consider whether there
should be more emphasis on che -teed for aggressive expert management of
the Group's lea-f interests. it was bellaved that there could be further
opportunit;.es to improve z1he productivicy of the leaf operations and it
Was suggested :'Vac 3ATCo. should look at the report produced for Souza
Cruz bv 3ooz Allen & Hamilton. -.t was also suggested that BATCo. should
,:onsider whether the ocices -)aid to fat-mars might be too high in some
countries.
20. Leaf Exports : -.he CPC noted the encouraging increase in leaf
exports in 1990 and suggested that, taking into account the expected
tignt supply position worldwide, 3ATCo. should consider the potential
@:or a @urther expansion of this acttvic7.
21. Manufacturing Facilities : 'he C?C qoced the plans to moderaise and
exuand :he -)lants in Southampton, Australia, Hong Kong, Singapore,
1.enezuela and SDaia and also that there -4-11 be continuing emphasis on
rat-'onalisac-on and closure in Amsterdam, Karachi, Chittagong and
7':)adan. 7-'n planning fucure expansion, 3ATCo. were asked to bear in mind
the need t:: source frow the most cost-effective and cax-effective
1,)cat-ons. :n addition, the miaor4_r,! position ir. Singapore and the need
develoo alternatives tD :long Kong ahead of 1997 should also be taken
nco accourc.
'-2. Management Organixation : :t %as noted that there had been an
inorovemen: Ln tne rualit7 of the younger managers recruited to the
business. a order to obtain the full benefit from this, the C?C
;)elieved that further consideration needed to be given to ways in which
)ure3ucracv could be reduced and planning systems simplified; to avoid
stitling the talent available within the Group; and to discourage the
ievel,)Dmenc 3-: r4.sk-averse accitudes in -management.
1 : -da snoted that a simplific3tion of the structure in RAT UK & Z
-would be announced at the beginning of February.
Public Relations : It das noted that the introduction of new
leadership 4-n the ?-iblic !@etatlons function had been successful. it was
ilso noted znat 1ATCo. -4ere undertaking a review of the Non-Executive
Directors in che overseas subsidiaries to evaluate the effectiveness
present incLwbents aid to dete".ine where further strengthening
night be approprtate.
25. Kenya : It -.as noted that there was a specific problem in Kenya
.where c-e Chal-man of the company might usefully be complemented by a
vounger less "estabLishmenr" Deouty Chairman, who would be prepared to
Q
r
3e core active in pursuing company objectives such as the resolution or C:)
:;-.a current. problem with the housing project.
26. Excise avoidance by compecit3rs appe3red to be a problem in Kenya, 01%
Chile and tie C4meroons and it was suggested that BATCo. should collect -
evidence to lav before t'.-e relevant authorities.
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27. :t -jas noted that the overall situation in the Cameroon& company
appeared to be improving with a stable casn flow and profits at
breakeven despite an increased interest charge following conversion of
the external debt to local borrowings.
23. ".he CPC stressed che importance of sound Financial and Tax Planning
witnin 3ATCo., particularly in respect of the need to maximise UK
acome.
(a) I= was noted that although it had not bean made explicit in the
?!an, 3ATCa. were giving a high priority to the work of the task
Eorce set up co consider options for increasing UK income. The
task force was due to complete its worr. ia Februar-
.r and would
@aport by the end of that conch.
0) Caoi:al reductions were under consideracion for the companies in
Switzerland, 'ietnerlands and Ladonesia.
C) --urther consideration would be given to options for the release of
the r---mairing Z35 million of blocked funds, about Z12 million of
which -.*-re in Suriname.
1::11 7urcher zons4-dleracion would also be given to the potential .4or
'acreasing local borrowings La order to allow increased
re!:arr:.ations-aff 1--ands to the M.
'-9. Summarising, the -.iai:--:an congratulated 3ATCo. on the progress which
,.aa oeen 7ace turn L991) but stressed the importance of continued
both on achieving profitable .7rowth and on maximising UK
:tcome -7-its latter requirement would be par:4-cularly important in
aecarmining wrhere new manufacturing capacity was sited.
';O. 7: was conftrmed that the @;uidaline objective ior profits growth was
D-a- and 3.ATCo. ihould strive to achieve this in L991 and in
;ucziedin? -ears. :: -4as also suggestd that 3ATCo. should agree with
'Ir. 3rougnt3n a method for presenting their results in a way which
!i;-=:.nacad :-ie distorc--ans due to changes in the income from BATIF funds
.;nich were aucside tneir Control.
:: @4as also noced that Ar. .3roughton would be reviewing with BATCo. the
evels of iividena navvents which B.A.T Industries would require from
-'-ie ')peraci-':-.g 1'roup.
NJ
.ZSiDJA
31sc January 1991,
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BAT Industries document for Province of British Columbia 23 April 1999