Guidelines for SAM. : July 1990
General
I . The first priority for SATCO, which should be reflected La the
performance criteria for the Number Ones in the operating companies
should be to achieve progressive improvements in the results from the
existing Tobacco businesses, concentrating particularly on achieving
improved market shares and volume growth (especially in Europe, in
Exports and in International Brands) while also continuing to improve
profit margins and asset productivity.
2. Zn addition to its direct role in the management and development of its
own businesses, BATCo will also be responsible for promoting sales of the
Group's UK -ri 3rands and, through the Tobacco Strategy Review
.eam; for formulating and agreeing with the other Tobacco companies, a
groupwide R&D Pr og for the preparation of compendiums on smoking
issues; and for initiating and co-ordiaating activities to promote the
Group's views on these issues.
3. Diversification (e.g. into Agribusiness) should be kept to a minimum,
and pursued only where this is necessary to support the Tobacco
@usiness.
/A. However, BATCo may be asked to co--operate In developing financial
;ervices businesses 'In selected territories as part of the overall plan
for establishing a worldwide presence it this activity.
Financial Guidelines
5. returns : BATCo should aim to achieve a historic cost return of at
least 35% for the Operating Group as a whole with each individual
business az-dev ing at least 25%. BATC* should also confirm from time to
time that a 35Z historic return equates to a CCA return of at least 20% .
"here RONA is influenced by debt factoring, sale and leaseback etc. ROKA
should be shown both inclusive and exclusive of these factors.
6. Profits Growth : BATCo should seek to increase trading profits by
15-@ p.a. from the 1990 base of E365m. In view of the Group's ACT
position, specific consideration should be given to strategies for
zaximising UK earnings.
7. Dividends : The minimum dividend empected from BATCo in 1990 is
LZOO million.
Subsequent to this, the aim should be to increase dividends at rates in
line with the growth in attributable profits.
S. Debt:Equity: The first aim should be to keep the gross debt:equity
ratio below the levels forecast in the 1990/4 plan:-
1990 1991 1992 1993 1994 1995
Dapt!Equity
Ratio (Zi 12 12 11 10 10 10
r1J
However this Ls not an absolute limit and projects resulting La a higher
debt:equity ratio tay still be submitted for approval. In particular
3.@M sho r- on to seek to maximise cash flow to the UK and, where 1-4
av,jropriate, should be prepared to incur increases In foreign borrowiags
in order to achieve this. co
BAT Industries document for Province of British Columbia 23 April 1999

Specific Priorities
9. Volume Growth : A first priority for 3ATCo should be to develop plans
for accelerated volume growth, concentrating particularly on UK
international Brands and licenced US brands, aiming to achieve an overall
5'ZY p.a. i,tc:ease in volume.
10. US International Brands : Strategies for growth should be developed
market by market, using the most appropriate brands for each market and
market segment, concentrating on competing with Marlboro for the younger
adult smoker through campaigns specifically directed at this customer
group; promoting Lucky StrLke, Kent, Barclay and Capri/Finesse.
11. Europe : 7-hare should be particular emphasis on plans to gain share
in Europe, taking fall advantage of opportunities arising from the Single
I
market initiative and from developments in Eastern Europe.
12. New Markets ; There should be continuing emphasis on seeking
0 to enter new markets (e.g. Turkey) and for re-entering
Mexico.
13. ?xisting Markets : Emphasis should also be given to the plans for
regaining market share in halaysia and for implementing the planned
imorovemenzs in Australia
14. In order :a be able -to pursue these strategies successfully it will be
important to develon specific plans relating to:
(a) Quality : li = 4-1 to be able to achieve and maintain superior
smok!_=3 quality, accepting that it may be necessary to consider
inczeasitg :he proportions of imported leaf in certain overseas
comoanies where the local fails to provide the quality, required.
(bi Production Costs : Aiming for each business to be the lowest
cost ;rod-icer of quality cigarettes for its markets.
(c) Asset Productivity : Establishing tight controls on capital
expenditure and leaf durations but also bearing in mind the need to
maintain high standards of manufacturing efficiency and product
quality.
(d) Innovation : Emphasising the need for innovation in product and
process design and for the effective implementation and
dissemination of now ideas throughout the Group.
15. Production Capacity : There should also be a plan to ensure that
cigarettes are manufactured in the optimum locations, taking into account
both the need for cost-effectiveness and also any specific sourcing
required to met market needs. The plan must also take into account the
need to have concingency plans for reacting to demand levels in excess of
the sales forecasts in the plans.
L6. 3ATCa. should investigate the feasibility of transferring to Southampton
the volume currently produced in Brussels. In addition, there should
also be an aim co be able to produce brands currently pcoduced in BATCF
and vice versa, achieving interchangeability between the production
centres.
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3
17. Diversified Activities : Except where diversification is required to
support the Tobacco business or where it is part of the plans to
establish financial services activities worldwide, the aim should be to
reduce the level of non-Tobacco activities.
t8. India : There should be a specific plan, for implementation at the
earliest possible opportunity, for restructuring the Group's shareholdings
La India, by merging TrL with ITC and aiming to withdraw from the Hotels
business or, failing this, to realise the appreciation of the underlying
assets. Options for obtainiag a more direct shareholding in the Tobacco
business should also continue to be examined.
19. Skandinavisk : There should be continuing efforts to increase the
Group's shareboldiag in the Tobacco interests and to reduce the
shareholding In the ocher interests of Skandinavisk.
fLS/DJA
26th July 1990
CD
GN
071
BAT Industries document for Province of British Columbia 23 April 1999