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BAT Industries document for Province of British Columbia 23 April 1999

BATCO PLAN PREVIEW
1991 - 1995
SUMMARY
1.Vol me/Trading Profits
2.Sensitivities
3.Investment/Cash Position
4. Other Options
SUMMARY OF GROWTH STRATEGIES
1.INCREASED SALES VOLUME
1.1Development of UK International Brands
1.2Deployment of UK IB in Existing and New Export Markets
I.Z.1 Existing Export Markets
1.2.2New Export Markets
1.3Development of US International Brands
1.4Deployment of UK and USIS in Domestic Markets
2.COST COMPETITIVENESS
2.1Factory and Production Rationalisation
2.2Productivity
2.3Crop Expenses
2.4Other Cost Reduction Measures
2.5UK Income
3.ADDITIONAL GROWTH STRATEGY OPTIONS
3.1Cigars
3.2Pricing Strategy
3.3Development of Leaf Exports
4.OTHER DEVELOPMENTS
S.DIVERSIFICATION
N. S.The performance projections in this paper have been submitted by
operating companies before the completion of their plans. The
figures have not yet been audited or approved by BATCo Territorial
Directors, and may change in the final I a plan.
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BAT Industries document for Province of British Columbia 23 April 1999

SECRET
BATCO PLAN PREVIEW
SUMMARY
1. Volume/Trading Profits
1.1 BATCo's 15% P. a. growth objective for the plan period succeeds five
years of mixed profit growth rates, based largely on cost reduction
measures and on price increases.
Latest
Est. %
IM IM = Growth
Volume Sales (bns) 250 251 240 241 251 266 1.2
Trading Profit KM) Z37 234 224 232 300 348 8.0
Profit before Tax 303 298 289 316 393 435 7.5
US$ exch. rate 1.450 1.483 1.879 1.809 1.613 1.767 (as at
30-9.90)
1.2 The 1990 - 1994 plan projected the following trends:
% p. a.
Jn4_ Growth
Volume (bns) 251 260 264 269 274 279 2.1
- Trading Profit (Emn) 300 365 414 466 504 552 13.2
Assocs PST 38 41 46 51 57 63 10.6
1.3 The projections in 1.2 above were based on the 1989 year-end exchange
rate of $1.63. On translation to the exchange rate used in this
preview, i.e. $1.768 as agreed with BAT Industries, the 1990 - 94
projections would have been of the order of:
% P. a.
=9 im im IM 12L4 Growth
Trading Profit 300 318 348 388 409 443 8.1
Assocs PBT 38 36 40 44 48 53 6.9
Precise comparison is impossible because the underlying inflation
rate assumptions for each territory remain unaltered.
1.4 BAT Industries' guidelines to BATCo call for a 15% P. a. profit growth
on the 1990 budgeted trading profit base of C365 mn, as against an
end-September estimate for 1990 of E348 mn.
1.5 The preview projections for 1991-1995 are based an the implementation
by operating companies of those strategies which are expected to have
the maximum impact on sustained profit growth. Those strategies,
which are focussed on achieving greater sales volumes of
international brands and greater cost competitiveness, are outlined
in this paper.
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BAT Industries document for Province of British Columbia 23 April 1999

1.6 Based an these strategies, preliminary projections for the 1991-95
preview, submitted by I I operating companies at the aid stage
of their 1990 planning cycle, indicate-the performance forecast for
BATCo in the table below. It must be emphasised that all the
projections by the operating companies in this paper, including
forecast exchange rates, have iiern neither 'audited' in depth nor
a proved by a I and that the figures may well change in the final
ILA
(90-93) (90-95)
10 S 4_3
Volume (bns) 266 269 1.2 279 286 2.5 290 300 2.5
TP (Emn) 348 379 9.0 434 475 10.9 S36 581 10.8
Assocs PBT* 40 41 3.7 44 48 6.7 52 55 6.6
[*N.B. The low growth in associates' projections results from
projected devaluation of the rupee. In local currency terms, ITC
and SH Group project annual profit growth rates in excess of 15%
and 6% respectively.]
1.7 These projections imply a growth of 10 8% p. a. from the probable I
1990 TP base of E348 mn, and of 9.7% p:&. from the guideline base
of E365 mn. Volume and profit projections by region are contained
in Appendix 1.
1.8 The shortfall gap between the performance expectations in the
1990-94 plan and those in the 1991-95 preview is caused primarily 6-;;@@2@
by currency fluctuations. At the exchange rates used In the
1990-94 plan, the trading projections in the 1991-95 preview would
indicate a more optimistic overall performance. Marginally lower
expectations in the domestic markets of Africa, South America and
the Sub-Continent are offset by higher growth in the export
markets, principally of the Far East.
2. Sensitivities
With the exception of the China, Chile and Venezuela markets, loss
of forecast trading performance in any one of BATCo's markets would
not affect the overall operating group results by more than 4%.
There are four possible factors which could influence performance
results more severely.
2.1 The effect on translation of a 10c movement in the US$ exchange
rate from the preview rate of US$1.768 would be:
on USS strengthening - TP +C16 mm +CIS an +E23 an
on US$ weakening - TP -E14 on -06 mn - C20 =
2.2 Total 13AT Group sales to China in 1991 are estimated at 24 bn,
ielding a contribution of the order of L99 mn to BATCo. lWor
Disruption of this market is not foreseen. However, between 75%
and Sb% of the trade will comprise non-duty paid ships' starts.
Closer efforts by the Chinese authorities to control the ships"
stores trade, or by, CHTC to limit official imports, could result in C:)
a diminished contribution, but this has a low probability.
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BAT Industries document for Province of British Columbia 23 April 1999

2.3 A prolonged increase in energy prices as a result of the Gulf crisis
could impact significantly on fitability. Developing country
economie's would-weaken from Inflationary pressures and reduced
commodity prices, causing a fall in demand and foreign exchange
shortages. The preview projections assume modest increases in oil
prices. Preliminary calculations, which are being refined, suggest a
sustainodlincrease to US$40 per barrel could affect BATCo's TP by
between-M - E40 mn. The impact an cash flow to the UK could be
equally significant.
2.4 The preview projections assume the loss of the intra-EEC duty free
business from 1993 onwards. Should that not occur, BATCo I trading
profit would rise by approx E17.0 mn in 1993. In the 1990-94 plan
this was shown only as a sensitivity (EI3.4 mn in 1993 and E14.2 mn
In 1994).
3. Invegtment/Cash Position
3.1 All the investments currently proposed in major additional production
capacity and in accelerated productivity are included in the preview
projections (see section 2.1), except for Singapore. These amount to a
total of approx. ElM DI En over the plan period I, in addition to normal
replacement expenditure. It is likely that additional expenditure on e
further capacity increases will be proposed over the plan period. >
3.2 The level of dividends to be paid by BATCo to BAT Industries, the
balance of deposits with BAT I F, and the net external debt have been
calculated, at this stage, on the basis of broad assumptions:
JM JILO JM D-9 Z M3_ 1194 IM
Dividend
1990-94 plan 162 183 205 228 255 ZB6 321
1991-95 preview 200 220 242 266 293 322@
RAT I deposit 125 348 394 473 493 509 SIB
Met Cash* 67 39 23 48 86 127 137
*Cash and current investments (excl . BATIF deposit) less external
borrowings.
Dividends have been struck at a growth rate of 10% P. a. on the 1990
guideline base of C200 mn. The growth of projected BATCo attributable
PAT is not yet known.
The level of BATIF deposit is increased significantly in 1990 following
a capital reduction in Australia (E225 mn)-, and in 1991 by a capital
reduction in Singapore (f.28 mn). BATCo HQ relocation expenditure,
Including fixed assets, of up to C18 on has been taken into account,
and is offset by assumed proceeds on the sale of Millbank of C40 mn.
4. Other Options
The preview projections indicate that, on current exchange rate
assumptions, the 15% P. a. growth objective is unlikely to be achieved
on the basis of existing strategies. Further options are therefore @t
forward for consideration, the impacts of which have not been includ
in the projections. These options, which include the expansion of leaf C=
exports, a change of pricing strategy, and the possibility of
acquisitions and joint ventures, are considered in Section 3.
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BAT Industries document for Province of British Columbia 23 April 1999

SIM OF am MUNI EJ
BATCo I ability to achieve sustained profit growth over the next decade
will depend primarily an expanding the sales volume of its international
brands. In the shorter term, profit growth will continue to depend on
achieving continuing cost reductions per unit of sales, without
sacrificing product quality.
1. INCREASED SALES VOLME
The next decade will be characterised by:
i. Increasing restrictions on advertising, on use of additives, on
cigarette constituents, and an deliveries.
ii. The continuing growth of demand for US blended and 100
products, and for low delivery and reduced sidestream products.
( 11 A. I - ) 1-@, ")I J ")
M. The increasing importance of THO',and of international
sponsorship in determining purchasing behaviour.
W. Increasing concentration of the distributive trades, and
importance of in-store communications.
RATCo has four types of volume growth opportunity, apart from
acquisition or mergers:
i. In some growing domestic markets where BATCo is dominant, there
is the opportunity to grow with the market, e.g. in Nigeria,
Kenya and Chile, at a rate of some 14% P. A. Total BATCo sales
volume in these markets (including India) is approx 100 bns.
ii. In other domestic markets, there is the opportunity to increase
an existing low share, as in Europe and Malaysia. in these
normally competitive, and declining markets, growth will be
difficult and slow. An additional 1% of the aggregated shares
of such markets would increase sales volume by 1.5 bns.
iii. In existing and newly opening export markets, there is the
opportunity to grow more rapidly, mainly with exports, but if
necessary by joint venture arrangements. The main
opportunities lie in Russia, Eastern Europe, Turkey, and
S. . Asia.
iv. There may be an opportunity to increase volume sales by holding
price levels in markets which have declined over the last
decade due to price increases, often taken above local
inflation levels. (See section 3.2).
In situations ii. and M. above, share will be maximised, with
Category one international brands. in some markets, further growth
will be secured by the launch of second line international brands.
1.1 UALUM OF UK INTERNATIONAL BRANDS
BATCols prime marketing objective is to increase the volume of its UK
I8 sales by not less than 5% per annum, and thus to increase its
current 29.4% share of the UK 18 segment (excluding the UK market).
General strategies to promote growth of the UK trade marks include:
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BAT Industries document for Province of British Columbia 23 April 1999

i. An active search for new markets where these trade marks can be
introduced. See Section 1.2.
ii. A targeting of recovery in specific traditional markets where
sales volumes have declined in recent years e.g. Malaysia and
West Africa.
iii. A continued focussing of adequate levels of support on key
markets, as well as behind the diversification of the B & H and
SES55 trade marks.
iv. An increasing deployment of line extensions, princip
and Mild versions. Delivery levels will be reduced,
the competition, in line with the consumer swing fro
flavour to light and ultra light products.
v. An increasing flexibility of blend style incorporating more
modified Virginia, and US blended products, for selected UK
trade marks. Greater modification initially an the mild line
extensions of the trade mark will optimise product performance
Ik at the lower delivery levels.
Yi. The tactical launch of second-line quasi-international brands
in the price category below PGL in certain export markets e.g.
Indo-China and West Africa.
Specific strategies for developing each of BATCo major UK trade marks
are contained in Appendix 2.
1.2 DEPLOYMENT OE UK 1B IN EXISTING AND NEW EXPORT MARKETS
Exports of UK international brands to existing and new markets offer
RATCo the single greatest opportunity for rapid volume and profit
growth, reflecting the move towards greater liberalisation of trade,
particularly in certain Far East markets. End markets are either
'domestic' (to which BATCo companies export directly) or GT (to which
BATCo companies export indirectly). Both types exhibit sow
volatility as restrictions an imports are raised or imposed. Of the
two, the former are more stable and offer BATCo the opportunity for
measured investment in traditional marketing and distribution
techniques. Owing to the level of international competition in these
end markets, pay backs on investment will tend to be long term. GT
markets are inherently unstable but by definition offer few
investment opportunities and are therefore highly profitable. Under
pressure of greater trade liberalisation, GT markets are migrating
towards 'domestic' market status throughout the world.
BATCo will seek to enhance the security of its profits profile from
exports, by investing to secure a larger share of domestic and
markets, whilst aggressively seeking out new GT market opportunities
to fund such investmnt.
The main areas of growth foreseen for the three principal UK trade
marks are:
a & H -France, West Africa, Thailand, Bangladesh, India
and Korea.
SE555 -Chinat Taiwan, Thailand and Indo-China.
PGL -Africa, Indo-China, Taiwan, Sub-Continent, and the
Middle East.
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1.2.1 Existing Export Markets
The principal initiatives currently planned in existing export
markets will be:
Far EAst
China - launch of B & H
Taiwan - SESH loos to be launched and PGL introduced
Korea - Introduction of B & H SH KS and 100s
Thailand - Drive SEFK and SE100s when market opens
- Launch of BHS
Indo-China - Introduction of PGL and 8 & H 100 mm
Sub-Continent - Introduction of PGL Lights into Pakistan
Middle East - Introduction of SE100s (Saudi and Gulf)
Africa - Launch of PGL into new markets
Europe - Extension of 100 mm version of 8 & H
France - Introduction of B & H U14 Menthol
Greece - Increase in support behind B & H
Germany - Introduction of B & H Golden Milds
1.2.2 New Export Markets
The now market opportunities which have not been included in the
plan projections, but which could lead to acceleration of profit
growth are shown below. [The size of the total market shown may
tend to exaggerate the scope of opportunity for UKI BS I
i. Far East - Burma and Vietnam (total market 29 bn) - BATUKE are
developing marketing initiatives.
ii. Near East - Lebanon/Syria (total market 21 bn) - BATUKE are
exploring brand and distribution options.
iii. Harth Africa - (total market 20 bn) BATUKE is currently
evaluating the potential for SAT UKIBs.
iv. Europe - Russia (total market 480 bn) - An overall strat y on
products, blends, pricing etc. is being formulated for all
ATCo companies.
- Eastern Europe (total market 270 bn) - In addition to
Cate ory I UKIBs and the duty free business in each territory,
the ?aunch of an economy blended product is being evaluated.
- UK (total market 98 bn) - the possibility of targeting
oriental and subcontinental communities with SES55 may be an
opportunity.
The RATCo 1991-95 plan will contain investment proposals to support
'ill be
BATCols brand strategy in each major market. These proposals W
designed to optimise I O's normal level of support expenditure by
focussing an key brands in growth markets. There is no evidence to
suggest that major investment outside these normal limits in any
particular major market will enable BATCo to accelerate its profit
growth materially in the medium term.
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BAT Industries document for Province of British Columbia 23 April 1999

Export objectives for the key brands of 8 & H and SE555 (Which
currently make no volume assumptions for markets for which full
profit approval has yet to be given) are:
JH4 JM Growth
Vol.sales B & H 6.7 7.2 7.7 7.2 7.5 7.9 3.4%
(bns) SE555 11.1 12.4 12.9 13.5 14.2 1S.0 6.2%
Com.exp. B & H 8.7 11.5 12.2 10.1 10.3 10.5 -
(Emns) SE555 4.2 7.1 8.0 8.7 9.3 9.7 -
1.3 DEVELOPMENT OF US INTERNATIONAL BRANDS
BATCo will continue to work closely with B & W to develop and to
position the D= for maximum growth:
I. Lucky Strike will continue to be developed in Latin America,
Europe and the Far East. In markets where the parent is
established, Lucky Strike Lights will be launched to compete
with Marlboro Lights.
ii. Barglay"s progress will accelerated by:
a) management of the change to 5mg/0-5mg on-pack claim
b) launch of Barclay Ultra Lights (2mg) into BATCo's European
markets as appropriate, in the light of its progress in
Switze;iand.
C) potential launch of Barclay in Spain. The launch of
Barclay in Spain, France and Italy Is important In order to
increase the brand's exposure in Europe, but BATCo is not
responsible for the latter two markets.
evitalisation of Kent in Europe is being reviewed by
Ken The
B & W. A TOVof Kent Lights and Ultra Lights is being
conducted by B & V in Switzerland, Belgium, France, Italy,
Spain, and Germany, with a view to possible launches from July
1991 onwards. Kent may also be relaunched in Argentina, and
will continue to be supported in Hong Kong, Singapore,
Malaysia, and Chile.
Successful development of US brands within Europe will require a
common approach by BAT operating groups to sponsorship and THO of the
above brands.
1.4 DEPLOYMENT QF UK AND USIB IN DOMESTIC MARKETS
BATCo I long-standing operating company domestic markets are unlikely
to be the source of any quantum leap in profit growth. Nevertheless,
particular attention will be focussed an a number of markets where
recovery opportunities could impact BATCo I profit growth. These are:
Austral - 1990 sales 10.4 bn. Slow market share growth foreseen
from 8 & H, and potential launch of Kent, Barclay, and JPS Milds.
Reduction of price discounting and increased productivity will
reinforce profit growth. NJ
Malaysia - 1990 sales 5.0 bn. Share recovery targeted by focus on
LSF, Kent and 8 & H, and by potential launch of JPS, and SE100s.
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BAT Industries document for Province of British Columbia 23 April 1999

Kem - 1990 sales 6.9 bn. Growth of total market will depend on
BATCo I 5 ability to increase volume in line with smoking population.
Potential launch of PGL.
Spain - 1990 sales 4.7 bn. A new market t7 beaeXploited by focus an
LSF, and by potential I aunch of Kent, Barc ay nd Kool .
Venezuela - 1990 sales 13.8 M. Recovery of market share will be
maintained by potential launch of LSF and Kent, and profit growth
achieved through more realistic price increases.
Argentinj - 1990 sales 18.6 M. Real price increases are key to
profitability growth. Launches of Koo and possibly Barclay, and
relaunch of LSF, to be evaluated.
2. COST COMPETITIVENESS
Low or zero market growth and constraints on real price increases
make continuing cost competitiveness a condition of survival, let
alone profit growth. Further cost savings will be effected by
factory rationalisation, by increased productivity, by control of
crop expenses, and by elimination of unnecessary overheads.
2.1 FACTORY AND PRODUCTION RATIONALISATION
After closure of Liverpool, Semarang and Amsterdam, further factory
closures are being reviewed in Bangladesh, Nigeria, and Pakistan
(Karachi PMD) .
The scope for further rationalisation, particularly in free trade
areas, namely, EC, EFTA, Southern Africa and Central America, is to
be evaluated.
in order to satisfy potential demand for exports, Southampton
capacity will be increased from 18 bn to 25 bn p.a. by end 1992. The
maximum possible capacity of the Southampton site is being
investigated. It is proposed to expand Hong Kong from 8 bn to 16 bn
P. a. and Singapore from 6 bn to 8 bn p.a.
Subject to MIE clausing, BATCo will work towards an export product
sourcing strategy based on contracting to the most cost efficient
Group producer able to maintain continuity of supply, and adequate
quality standards. UK income will be max imi sed. The potential for
using BAT's production facilities in Argentina, Chile, Venezuela,
Cyprus, and possibly Germany and Brazil will be reviewed.
Other significant investments planned in production facilities over
the five year period include:
Venezuela Primary - Modernisation, Productivity
Switzerland Primary - Productivity
Spain Secondary - Productivity, Modernisation
Australia Reorpnisation - Madernisation, productivity &
and DIET HO relocation
Additional initiatives underpinning these strategies include:
t%J
- rationalising production specifications between operating C)
companies, wherever this is feasible.
8
BAT Industries document for Province of British Columbia 23 April 1999

. establishing a common Production source where machine utilisation
is very low e.g. Super slim cigarettes.
- working with machinery suppliers to minimise the time and cost of
reacting to changes in demand, and of developing new machinery.
2.2 PRODUCTIVITY
All operating companies are required to sustain quantified
productivity improvements, through improved working methods, and
machinery performance, and by rationalisation of service areas.
Factories in Southampton, Australia, Spain, and Hong Kong are being
targeted to improve productivity significantly by appropriate
investment in high speed machinery, combined with optimum working
methods.
2.3 CROP EXPENSES
To hold leaf stock costs per kg below local inflation, BATCo
operating companies involved in causing tobacco to be grown have been
given objectives which call for the highest possible control on crop
expenses and GLT expenses. Between 1998 and- 1989, crop yields
improved by 6.5%, employee numbers reduced by 3.5%, and leaf crop
expenses dropped by 7% as a percentage of NTO. On-going improvements
are targeted with increased efficiencies and further reduced numbers
of field staff.
All operating companies involved now have standard procedures to
monitor performance in reducing crop and GLT expenses. Levels and
trends will be shown in future company plans.
2.4 OTHER COST REDUCTION MEASURES
Initiatives to reduce the level of overhead expenditure within SATCo
include:
i. the reduction of BATCo HQ to a 'holding company' responsible
for strategic direction, performance monitoring, and
international co-ordination. The strategic management element
will be relocated at Staim'. and the technical support in
Southampton. The anticipated overall net annual benefit of
relocation of the order of E2.5 mn p.a. has been included, but
special expenditure on relocation of up to to. 5 mn is not
included, in the trading profit projections for 1991 onwards.
ii. a current review of the structure of BATUKE.
iii. on-going review of the organisations within individual
operating companies, in order to achieve flatter structures and
smaller boards.
2.5 UK INCOME
The continuing objective of maximising UK income will be reinforced
by:
i. Use of offshore production facilities to undertake contract
manufacture of sales orders invoiced from the UK.
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BAT Industries document for Province of British Columbia 23 April 1999

II. Continued monitoring of asset productivity, in order to
real further opportunities for the disposal of surplus
assets, for repatriation of blocked funds, and for capital
reduction, and an on-going review of the opportunities for
increasing T & A fees.
III. Opportunities to improve SAT Industries' UK income by
evaluation of the most advantageous way of earning profits
generated overseas by B & W and BATCo.
3. ADDITIONAL GROWTH mm OPTIONJ
On the basis of current strategies and exchange rate assumptions,
described above, the preview projections do not met the 15% p. a.
profit growth objective. Further investment in the market place
seems unlikely by itself to bridge the gap, certainly in the short
to medium tem. Additional growth strat options for existing
operating companies are therefore propos ow for
consideration. These have not been quantified in the preview
projections.
3.1 CIGARS
Expansion of BATCo's cigar interests by acquisition has been
evaluated. A proposal to establish Henri intermans' leadership of
the rapidly consolidating European cigar Industry, and to increase
its profitability from an estimated POT of MS mn in 1990 to
E20.0 mn in 1995 by acquisition of Agio, is the subject of a
current strategy review paper being developed for submission to the
- CPC.
3.2 PRICING STRATEGY
In Europe and parts of the Far East, prices can in principle be
increased above local inflation levels without prejudicing volume
levels, although the low priced segment in some markets is
threatening to impact on the premium brands. In the GT markets,
products will be pl aced at premium prices in order both to maximise
profits and to avoid disruption of other markets.
In Latin America, Africa, and the Sub-Continent, sales volumes in a
large number of markets (15) declined or remained static over the
last decade, despite population growth, as a result of price
increases to cover excise rises and cost inflation, and to meet
profit expectations, viz:
1, ?
BARD Sales im
South America 42.5 (bns) 40.4
Central America 12.0 10.0
Africa 24.6 24.4
Bangladesh/Ceylon 15.0 14.4
As a consequence, it my be possible to exploit volume growth
.potential in those domestic markets by withholding price increases
on local brands. This is currently being researched, particularly NJ
the potential impact on profits and ROM. CD
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BAT Industries document for Province of British Columbia 23 April 1999

Excise duty is the most significant element of the retail selling
price of tobacco products. Excise structures and excise rites
change frequently influencing the overall pattern of smoker demand
for tobacco products. Now initiatives are being taken to be more
proactive in influencing excise changes to BATCo I advantage.
3.3 DEVELOPMENT OF LEAF EXPORTS
The current world demand for good quality filler and fl avour
tobaccos will offer the potential for developing leaf exports.
Twelve BATCo operating companies, mostly assisted by tobacco
merchants, have developed leaf export markets, five in flue-cured
(4,600 tons), five in burley (7 800 tons), and five in fire-cured
(3,100 tons), with total estimated sales of 15,500 tons in 1990, and
an order of magnitude value of US$45 million, with the potential to
generate an average trading profit margin of 20%.
Those companies (excluding Venezuela) have potential for expansion
in the following tobaccos:
Flue cured - Argentina, Bangladesh, Kenya and Uganda
Burley - Chile, Guatemala, Honduras, Panama and
Argentina.
Fire cured - Kenya, Uganda, Zaire, Ghana and Sierra Leone.
The above companies will be given objectives to generate the
necessary quality and quantity of tobaccos to establish profitable
leaf export businesses, particularly as an alternative to
diversification. The potential for additional intra-group sales will
be reviewed. The potential exports from these countries could reach
20 million kg (USS60 million).
Other BATCo operating companies have the potential to export, as
shown below, but need first to satisfy domestic supply/demand before
exports can be considered:
Flue Cured - Venezuela
Burley - Sri Lanka, Indonesia, El Salvador, Nicaragua and
Venezuela.
Fire Cured - Indonesia
The maximum potential exports from these countries could reach
3 million kg (USS7.5 million).
The new capital investment needed to meet the above development
potential is being reviewed. Requirements could include a new GLT in
Indonesia, packing presses in Zaire and Ghana, and upgrading
facilities in Panama and El Salvador. The other operating companies
mentioned are either geared to the additional volume suggested, or
are already making the major capital investment requ ire .
4. OTHER DEVELOPMEM
Other opportunities to expand the core business by joint venture,
which are being pursued or evaluated, include: NJ
CD
i. Hungary - Potential participation with Pecs in the planned
privatisation of a factory.
CC)
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BAT Industries document for Province of British Columbia 23 April 1999

-.1
II. Turkey - A possible joint venture with TEXEL.
III. Bulgaria - Preliminary discussions with the Bulgarian Tobacco
Min-opoly on a possible Joint venture.
W. Mexico - Re-entry options are being evaluated.
v. Other tobacco operations - The opportunity to strengthen
BATCo I brand portfolio by acquisition of, or merger with,
other tobacco operations, or by purchase of brand rights, is
becoming increasingly limited. In Europe, where
rationalisation of brand rights is necessary to resolve
increasing conflicts caused by split ownership, it may be
opportune to seek to secure for RAT one or more of the
following advantages from American Brands and/or Gallaher: a
domestic base for B & H, and resolution of the B & H trade mark
problem in Europe, the use of Lucky Strike and Pall Mall in
France, use of Silk Cut worldwide, and strengthening of BATCo's
cigar interests. Closer co-operation with Gallaher could lead
to opportunities for factory rationalisation and Increased leaf
exports, relief of BAT's ACT problem, and alleviation of the
1oss of intra-EEC duty free.
5. DIVERSIFICATION
Apart from the activities of associates in Denmark and India (where
ITC will seek to real its investment in hotels), BATCo's
non-tobacco activities consist of two snack food companies in Chile
and South Africa, Malloa in Chile, and a number of small agri-based
operations in Indonesia, Malaysia, Sri Lanka and Venezuela in support
of the tobacco operations. A trading company, whose principal
objective is to generate foreign exchange, will serve as a channel
for produce from Latin American and Asian companies to the North
American and European markets.
BATCo has no overall diversification strategy beyond the Organisation
of appropriate activities, on a company by company basis, where
necessary to generate forei exchange for the importation of raw
materials and the payment Tdividends to the UK.
BATCo will take a more proactive approach to identifying
opportunities for financial services.
Fall
There may be a need to establish countertrade arrangements, in order
to support long term export opportunities to, and investment in,
Eastern Europe, USSR, and possibly in future China. The most
appropriate mechanisms, external and in-house, to facilitate this
expansion will be evaluated.
19th October 1090
r-J
C)
- 12 -
00
Ul
BAT Industries document for Province of British Columbia 23 April 1999