SECRET
GROUP 10 YEAR VIEW AND CONCLUSIONS : 1983
INTRODUCTION
1. The purpose of this paper is to provide an information base for use in
the re,7iov of the Group's Investment Strategy which is due to be carried
out during July. Results and recommendations from the review will be
presented to the Board at the meeting due to be held on August 2nd.
2. The Group 10 Year View takes into account the results of the Operating
Group and Associated Company 10 Year Views and, based on these, the
long-term prospects for the Group have 'been assessed in relation to
B.A.T Industries' Objectives. Key issues which will need to be resolved
in determining Group strategy have then been identified.
3. It will be helpful to have the Board's views on these issues so that
they can be taken into account in next mouth's review of Investment
Strategy.
B.A.T INDUMIES OBJECTIVES
The B.A.T I=dustries Objectives against which the Operating Group 10 Year
Views have been assessed can be sumarised as follows.-
1. Growth: (a) B.A.T Industries' attributable profits and dividends
should increase by at least 3% P.A. in real terms and dividend cover
should be at least 1.5 on CCk attributable earnings (excluding earnings
not available outside the territory in which they are earned).
(b) There should be comparable rates of growth in. sales
turnover and trading profits.
2. Return on Assets Employed: The overall pre-tax, pro-interest, historic
accenting rate of return an net assets should be 25%. In addition,
each business within the. Group should have cash characteristics such
that it is capable of both servicing the capital employed in the
business (through interest payments and dividends) and also financing
real growth of at least 3% P. a.
3. Leadership:'A. high proportion of the Group's businesses should have
leadership positions in growth markets/market segments.
4. Risk ?:-of ile: The Group should achieve and maintain a reasonable 'risk
profile', particularly as measured by the industrial and geographical
distribution of earnings and assets.
It is the Group's long term aim to reduce its dependence on Tobacco by
achieving a rate of growth in non-Tobacco profits such that, by 1990,
these are contributing 50% of total Group profits.
S. The De@t:Bquity ratio for the Group should not normally exceed 50%
overall or 6OZ in transferrable currency areas. However, no really C)
valuable and justifiable investment opportunity should be lost as a _%J
result of an inflexible constraint on resources.
SAT Industries document for Province Of British Columbia 23 April 1999

2
CUIRENT S74ATEGIES
I. The conclusions from last year's 10 Year View were that, although
Tobacco activities could be expected to continua to provide profits and
cash, the Group would need to look elsewhere for Growth.
2. There was a lack of identified long-te= growth potential within
existing not-Tobacco activities and, as a result, there was a need both
to look for new activities which could provide the growth that is
required and to accelerate Group development in the higher growth areas
of the world.
3. The relatively low returns being obtained in many of the non-Tobacco
activities and also La 'some of the Tobacco activities represented a
signiftcant drain on resources which needed to be corrected.
4. The agreed strategies for B.A.T Industries were sumarised in the
Investment Strategy, paper presented to the Board last September:
(a) X high priority was given to maintaining and, where possible,
improving the competitive position of the Group's Tobacco
businesses with particular emphasis on improving asset
productivity, technical innovation and the market position In
:Urope.
M T-or the existing nou-Tobacco businesses, the first priority was a
review of all operations to ensure that, in cases where performance
was poor, action was in hand either to improve returns to
acceptable levels or to divest businesses which could not achieve
this.
(c) :Further emphasis was given to the formulation of long term plans
'or each of the existing operations, reviewing their long term
potential for profitability and growth and devising appropriate
strategies to achieve this potential.
(d) ?rojects were set up in the Centre to identify major new
opportunities for the Group in Brazil, South East Asia, Europe,
?iuancial Services and Biotechnology. An additional project was
also set up to consider the potential for coordinating and
expanding the existing activities in Plastics converting.
5. Although, in most cases, the work to implement the strategies outlined
last year is not yet complete, significant progress has been made in
each of the areas outlined in the previous paragraph. This is reflected
in ee sections which follow, in %ftch the current situation and
prospects in each of the Group's industrial activities are reviewed.
6. The implications for B.A.T Industries of the overall picture which has
emerged from the Group-wide review of prospects are then considered.
7. The -eview concentrates on the trading prospects in the subsidiaries,
since these are still the most important doatributor to Group profits
and -us form the basis for any longer term strategy. At the same time, CD
the impact of the other elements of profit a-,A loss (Incoze from
Associates, Interest, Taxation, etc.) have also been taken into account __J
where relevant. co
BAT Industries document for Province of British Columbia 23 April 1999

3
GROUP PROSPECTS AND KEY ISSUES
THE BUTMESS EMIRONMENT
Conclusions from the Future Business Environment paper, discussed at the June
Board meeting were as follows:-
I. Although economic growth rates are not expected to be as rapid as in the
period prior to the oil shocks of the 1970's, the present recovery is
expected to be sumtaimed and the next 10 years should be a period of
moderate growth.
2. Further adjustments -.1.11 be needed to overcome the current problems of
beavy debt burdens, high national budget deficits and high interest
rates. In the short term at least, this could lead to increases in the
rates of taxation, further pressure on remittances and increased
political and scono-Ic nationalism, especially in those countries where
the economic adjustments will necessitate stri-agent policies impacting
on real incomes. Latin America is particularly vulnerable in this
respect and, although the longer term prospects for this region remain
favourable, the next few years are expected to difficult.
3. East/West tensions are expected to continue as a problem and there must
also be a continuing danger of au outbreak of violence I,.% the Middle
East, upsetting the delicate political and economic balance of the world
as a whole. At the saze time, however, it is Lim the best interests of
both East and West for soma degree of detente to be established and it
is believed that there is a good chance that this will be achieved over
the longer term. Equally, stable oil prices &: a level close to that
ruling at present of fer considerable advantages to a wide range of
countries and mutual self-interest could result in this outcome
occurring in practice.
4. In summary, while ate cannot ignore the Very significant vulnerabilities
inherent in the current situation, there can be cautious optimism
about the most lik*17 trends Lu world growth. Both aspects of this view
of the future are taken Into account in the following review of the
Group's industrial activities.
C)
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BAT Industries document for Province of British Columbia 23 April 1999

4
TOBACCO
BAT Co.
1. The 'baseline' projection for the Tobacco activities in BAT Co. and its
subsidiaries is si-arised in the table.
(CGR Z)
Em (1982 values) 1982 1987 1992 1982/87 1987/92
Sales 1447 1535 1637 1.2 1.3
Trading Profits 289 286 332 (0.2) 3.0
Net Trading Assets 948 1101 1360 3.0 4.3
1LOXk (Z Historic) 30.5 26.0 24.4
2. The figures for growth rates need qualification in that some companies
change status during the period. Most importantly, Malaysia and Utico
are forecast to become Associates before 1987, while Empresas La Moderns.
is expected to become a Subsidiary. The total income from Associates in
BAT Co. is forecast to rise from L17m in 1982 to L5 9m in 1987 and E79a
in 1992. This is a compound growth rate of 16.62 p-a-
3. The overall rate of growth in cigarette sales in Subsidiaries and
Associates combined is forecast to be 2.9% P. a. I which is rather ahead
of the forecast for the market as a whole. Market share increases are
forecast for several countries including the UK (+4% to 10.5%) and only
in Kenya is market share forecast to decline. This is in. contrast to
last year's 10 Year View when the companies in Chile, Ran& Kong and
Indonesia were also thought likely to lose share. The rate of growth in
Latin America is expected to be low over the first five years (1.6%
p.a.) but a recovery is expected in the period 1987/92 to 3.5% p.a.
Sales growth in Europe is forecast to remain law throughout the period
(0.4% p.a.) and European sales drop from 6Z of the BAT Co. total in 1982
to under 5Z in 1992.
4. The 1982 result for Profit before Tax was distorted by the large
nominal interest income from Brazil and interest received is forecast to
drop from L91m in 1982 to F.61m in 1992. The overal affect of the
changes in income from Subsidiaries, Associates and Interest is that, at
the after tax level, income from Tobacco activities is forecast to rise
by only 0. 2Z p.a. over the 10 years and actually falls by 1.5% P.&. in
the period 1982/7.
5. BAT Co. believe that the main opportunities for expansion lie in
developing new relationships with the monopoly markets, especially in
France. Italy, Spain and Thailand. There is also potential for
improvement in the Group's European operations and further consideration
will be given to potential benefits to be gained from rationalisation.
There will be continuing emphasis on product innovation and intensified
lobbying to counter the adverse trends in taxation.
Co
BAT Industries document for Province of British Columbia 23 April 1999

Comments
1. The RAT Co. results remain highly dependent on Brazil, Venezuela and
UK&E, which together contribute 53% of trading pro in 1982 and are
forecast to provide 66% of the total in 1992.
2. The UK domestic market is a particular area of vulnerability as the
future of this activity must still be in doubt.
3. Apart from Switzerland, both the current performance and the forecasts
from the other European operations are below the levels required to meet
the Group's objectives. This adds emphasis to the need for positive
action in Europe.
4. The profit potential from the proposed new relationships with the
monopoly markets is likely to be limited.
SATUS
1. The 'baseline' (US accounting) projection for the BATUS Tobacco
activities Ls at-rised in the table.
CGR (Z)
La (1982 values) 1982 1987 1992 1982/87 1987/92
Sales 1327 15Z4 1392 2.8 (1.8)
Trading Profits 226 253 231 2.3 (1-8)
Net Trading Assets 542 476 473 (2.6) (0.1)
RONA. (Z Historic) 41.7 53.2 48.9
2. Compared with last year, the forecasts for sales and profits are both
lower but there is a much greater reduction in the forecast for net
assets and, as a result, the returns and cash flow are correspondingly
improved.
3. Last year, the main opportunity for expansion was seen to be the
potential acquisition of a company specialising in smokeless tobacco
products. However, because of the high cost of this company and the
need to concentrate BAM management resources on existing businesses,
this is now seen as a less attractive possibility.
Comments
1. The UTTJS forecast still depends on success with now brands and, without
this, sales and trading profits could be lower. In this case, there
will need to be more emphasis on cash generation.
PQ
Co
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BAT Industries document for Province of British Columbia 23 April 1999

6
Interversa
1. The 'baseline' (German accounting) projection for Interversals :obacco
activities is summarized in the table.
CGR M
La (1982 values) 1982 1987 1992 1982/87 1987/92
Sales (act) 305 305 309 0.0 0.3
Trading Profits 31.7 33.0 28.9 0.8 (2.7)
Not Trading Assets 159 1 3 3 139 (3.6) 0.9
&ONA (Z Ristoric) 19.9 24.8 20.8
Comments
1. The forecast is slightly more optimistic than the corresponding
projection last year and assumes a full recovery from the very low
profits expected in 1983. However, in view of the very significant
changes that have occurred in the market since last year, the ability to
achieve this must be questioned.
Imasco/Amatil
1. Although Imasco are expecting to have to face a difficult market
situation, they are confident that the Inherent competitive strength
will enable them to achieve reasonable growth rates in sales and
profits.
2. A-matil are also relatively optimistic, although in their case t-he major
factor allowing profitability to be maintained will be the lower
production costs that can be achieved, using the new manufacturing
facilities at Pagewood.
Issues for I-A-T Industries
1. It was agreed in last year's Investment Strategy that a first priority
in Investment should be the maintenance and, where possible, the
improvement of the Group's competitive position in Tobacco.
2. While this is still valid, developments since last year have underlined
the pressures that the Tobacco industry can be expected to face over the
next 10 years. It may be thought necessary to Siva more positive
e2pbasis to strategies designed to ensure that the cash flow from
Tobacco is sufficient to support the Investment in other activities
which is essential to sustain the Group"s longer term growth.
3. In particular, it will be necessary to take a. move rigorous attitude
tovards:-
(a) EXi3tiUg low performance businesses (e.g. in Europe).
(b) The justification for the levels of promotional expenditures r1-J
worldwide. C)
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(c) Potential reductions in the asset base, by stock control and by the -4
further rationalisation of manufacturing facilities. co
BAT Industries document for Province of British Columbia 23 April 1999

7
NON TOBACCO ACTIVITIES
RMILING
R&TUS
1. The 'baseline' (US accounting) projection for the B&TUS retailing
activities is shown in the table.
CGR (Z)
Lm (1982 values) 1982 1987 1992 1982/87 1987/92
Sales 1834 1908 2203 0.8 3.8
Trading Profits (a) 97 193 226 13.5 4.3
Not Trading Assets 958 908 949 (1-1) 0.9
RONA (Z Historic) 10.1 20.1 23.8
Note (a) The BAZUS figures for 1982 have been adjusted by adding back
the E57m of special expenses associated with the divestment
of Kohl Food Stores.
2. The main emphasis in the first five years is an improved margins with
negligible growth in sales during the period. Growth in the second half
of the period is forecast at 3.8% with soma further improvement in the
returns on assets.
3. BA,TUS believe that growth could be accelerated but this will depend au
the Identification of new market segments in which to expand.
Comments
1. There appears to be considerable potential for growth in BATUS
retailing, firstly from an improved use of existing assets and later
coal, from expansion into now markets and nev retail concepts. However, the
longer term strategy for this activity is still being formulated and it
is not possible clearly to define the potential at present.
INJ
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BAT Industries document for Province of British Columbia 23 April 1999

BAT Stores
1. The 'baselize' projection for B.A.T Stores Ls sumnarised in the table.
CGR (%)
La (1982 values) 1982 1987 1992 1982/87 1987192
sales 898 1117 1265 4.5 2.5
Trading Profits (b) 11.3 39.8 51.61 28.6 5.3
Net Trading Assets (a) 69 155 208 17.9 6.0
RONA (Z Historic) 16.6 25.7 24.8
Note (a) Average for the year.
(b) Includes Property profits 1982 0.1, 1987 5.0, 1992 10.0.
2. Argos sales of L207m in 1982 are forecast to grow to E308m by 1987 and
089m by 1992, giving growth rates of 8.3% p.a. and 4.8% p.a. for the
respective periods. Trading profits of Vm in 1982 are forecast to rise
to L17m by 1992.
3. Sales in International are forecast to grow more slowly from L691m in
1992 to L809m in 1987 and Z875m by t992. The respective growth rates
for the two periods are 3.2Z p.a. and 1.6Z p.a. Profits are forecast
to rise much faster from 1-14m in 1982 to E25m in 1992.
4. Longer term plans for the development of Food Retailing and for the
development of non-Food activities other than Argos are still in the
process of being formulated.
Comments
1. This year's 10 Year View has confirmed the good growth prospects for
Argos. However, despite the current recovery, International remains
very vulnerable to any increase In competitive pressures and the longer
term prospects for the Food Retailing activities must remain in doubt
pending completion of the strategic plan for this part of the business.
Borten
The written down book value of the 35% Investment in Borten is about Ws and
the current market value of the shares is rather above this. Although
Interversa now believe the prospects for this business to be better,
dividends are forecast to reach only 14.7m in 1992 and divestment must
continue to be considered as an option.
Imasco
Imascols retail interests accounted for oaly about 10% of total sales and
profits in 1982 and growth prospects of the existing businesses are thought
to be limited. Rowever. leasco do set major potential opportunities in
Retailing, as evidenced by the bid for Canadian Tire. co
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9
PAPER KND PULP
Wiggins Teaue
I. The 'baseline' projection for Wiggins Teape is summarised in the table.
Ca (Z)
En (1982 values) 1982 1987 1992 1982187 1987/92
sales 653 770 954 3.4 4.4
Trading Profits 31 67 110 16.6 10.4
Not Trading kssers 300 351 410 3.2 3.2
RON& (Z Ristoric) 10.3 19.1 26.8
Atcrib Profit 2 33 64
Divs (3) (16) (24)
Equity 173 174 274
Debt 152 173 124
Debt:Equity (Z) as 99 45
2. Thar* is a significant difference in the respective projections for the
Carbonless and Now-Carboulass businesses.
3. In 1982, Carbouleas accounted for approximately 2OZ of sales but 30% of
the net assets and trading profits for Wiggins Tespe. In addition, the
trading profits of L8.9m included a loss of ?8-6m in the UK.
4. Over the 10 years, Carbon-less sales are forecast to grow at an average
rate of Tw p-a- This is a faster rate than was forecast last year and
Wiggins Teape are now proposing a L65m investment in new base-papec
capacity in Europe. Despite this, the net assets employed are forecast
to rise by only 6% P.&. and, following a return to profitability in the
UK, profits are forecast to increase to Z53m, giving a return of 32.9%
by the end of the period.
5. Prospects for the other paper operations are less promising and further
rationalisation is envisaged in the UK to establish a firm base for the
future.
6. Wiggins Teape set opportunities for expanding their =rchanting and
converting activities, especially in Europe and Overseas. If these
opportunities were pursued, there would be addition* of Z123= to net
trading assets and L31.5m to profits in 1992.
N
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BAT Industries document for Province of British Columbia 23 April 1999

10 -
Co=ents
1. The improvement in returns between 1982 and 1987 is critically dependent
on recoveries in UK Carboulass (from ES. 6m loss to Om profit) and in
other UK operations (from E2.4m to Z23.5m profit). These projections
must be considered optimistic, especially in relation to the
now-Carbomless businesses.
2. It must still be questioned whether further investment in non-Carboiaess
paper operations is attractive to the Group.
3. Further consideration could also be given to the possibility of
obtaining the benefits of a continuing full commitment to the CarboUleS3
market without making the major investment in base-paper capacity.
RATUS
1. The 'baseline' (US accounting) projection for Appleton is shown in the
table.
CGR M
Lm (1982 values) 1982 1987 1992 1982/87 1987/92
Sales 255 387 506 8.7 5.5
Trading Profits 40 59 72 8.1 4.1
Net Trading Assets (a) 194 221 272 2.6 4.2
ROM (Z Historic) 20.6 26.7 26.5
Note (a) Includes Patents and Goodwill 1982 E52m, 1987 L19m, 1992 NIL.
2. The Appleton forecasts assume continuing high rates of growth and
profitability La Carbonless. Thera is an implicit assumption that base-
paper can be obtained from outside sources. The alternative option
would be a substantial investment in a new machine at Locks Mill.
3. On a UK accounting basis, eliminating the patents and goodwill from the
not assets and adding back the amortisatioa of this item to the trading
profits, the currant returns are over 30%.
.kracrus
1. The profits of Aracruz are forecast to rise from L19.82 in 1982 to E59m
in 1992 and this activity is seen an a good growth prospect. Proposals
are being formulated to invest further in this activity, initially by
adAint to the current 29: shareholding held br the Group. O
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BAT Industries document for Province of British Columbia 23 April 1999

AND PACKAGING
I. The 'baseline' projection for MPI is st-arised in the table.
CGIL (%)
Em (1982 values) 1982 1981' 1992 1982185 1985/92
Sales 464 517 750 3.7 5.5
Trading Profits 19.5 30.6 57 16.2 9.3
Net Trading Assets 205 196 280 (1-5) 5.2
ROM (% Historic) 10.5 15.6 20.4
2. The MPT businesses have been divided into three classes 'Mature',
'Growth' and 'Potential Growth'. The mature businesses account for 83%
of total turnover in 1982 and are forecast to grow at only 0.3% p.a.
compared with 16.3Z p.&. for the two growth categories, which are
forecast to contribute 47% of total sales by 1992.
3. The return in 1983 is still relatively low and this is reflected in the
operating cash flow. Investment requirements to support the growth
businesses are high and, even after L8.5m of property sales, KPI expect
to require L20m outside their debt:equity guidelines in order to support
this investment.
4. HPI see opportunities for further divestments to raise the funds
required to reshape their business. Possibilities that might be
considered for divestment include the European operations, US flexiblos,
Lawson and Jonas, part or all of the UK Cartons business and a number of
other businesses which, although profitable, do not fit with the long
term development plan for HPI. If these options were followed, MPI
might be expected to be smaller but more profitable in 1992.
5. The principle difference compared with last year is that there is more
emphasis on reshaping the business, with attention concentrated an a
more rapid expansion of growth and potential growth businesses, funded
by more divestments of existing activities. The overseas strategy has a
lover priority until a stronger position can be built up in the existing
businesses in the UK and Canada. There is also a need for a new
strategy and plan for continental Europe.
Amatil
1. Amatil's printing and packaging sales in 1982 were E128m and trading
profits were M. The return an funds employed was 18Z.
2. They are forecasting 5% p.a. growth and returns increasing to 27.7%.
Comments
1. The 10 Year Views for MPI and Kmatil and the assessments of the
relatively small printing and packaging operations within BAT Co. lead
to the conclusion that the Group still has a relatively weak position
in the industry. As a result, the prospects for profitable growth are,
at best, uncertain.
BAT Industries document for Province of British Columbia 23 April 1999

12
2. The relatively high returns being obtained in Amatil probably ref lect
the protected nature of the market and must be vulnerable in the longer
term.
3 . The lack of success in developing new overseas businesses in printing
and packaging is indicative of the limits of the existing businesses
and, although it may be possible to improve the mix of business In HPI,
it is difficult to see how this activity could form the basis of a major
diversification for B.A.T Industries.
COSHETICS
1. The 'baseline' projection for RAC is summarised in the table.
CGI M
;Em (1982 values) (a) 1982 1987 1992 1982/87 1987/92
Sales 200 240 290 3.7 3.9
r@l Trading Profits 17 21 27 4.3 5.2
Net Trading Assets 72 90 94 2.1 3.3
R014A ('. Historic) 23.6 26.3 28.7
Note (a) 1982 - 198213 1987 198718 1992 - 1992/3
2. Although it includes small, acquisitions, sales growth is still
relatively slow. However, the returns are good and the cash flcw is
expected to be adequate to fund the sales growth, including the minor
acquisitions. BAC also expects to provide a steady flow of dividends to
B.A.T Industries, rising from Om in 1982 to Om in 1992.
3. The main opportunities seen for expansion are through the possible
acquisition of two companies valued at L40m and L100m respectively.
These would contribute Z260m to sales and L146m to assets in 1992.
However, the returns would be lower than for the 'baseline' business and
considerable time and management effort would be required to absorb
these now businesses. For these reasons, BAC are relatively
unenthusiastic about accelerating development in this vay.
4. Compared with last year, there is more emphasis on achieving and
maintaining dominance In market segments in which B&C are already
active. There is correspondingly less emphasis placed an the
possibility of accelerating growth through a large acquisition.
Comments
1. The currant 10 Year view tends to confirm the limited potential of this
activity as a major contributor to B.A.T Industries profits.
co
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13
ROM L4PROMMMS
1. The 'baselina' projection for the Rome Improvements activities in
luterversa are shown in the table.
CC& (Z)
Ez (1982 values) 1982 1987 L992 1982/87 1987/9z
Sales 290 602 703 15.7 3.2
Trading Profits 12.7 50.1 62.5 31.6 4.5
Not Trading Assets 140 262 284 13.3 1.6
RON& (Z Ustoric) 9.1 19.1 22.0
2. The forecasts for growth have been increased considerably since last
year and reflect increased confidence both that the profitability of the
existing activities can be improved and also that these represent a good
base for expansion.
3. The investment in the period to 1987 includes acquisitions. The total
investment will need to be funded by cash flows from Tobacco and by au
increase in the levels of debt.
Comments
1. Existing Rome Improvements activities appear to have good growth
prospects and could form a strong second leg for latervarxa. Tz. the
longer tara, technology transferred from these operations could also
provide the basis for overseas development an a Group-wide basis.
Nowever, further consolidation of the German operations may be thought
to be required before these possibilities should be pursued.
2. It is euvisaged that the further investments in these activities
iacluding the purchase of the outstanding minorities in Pegulan for
around Mm) will be funded from within Interversa. If the cash flow
from Tobacco is inadequate, the divestment of the Rotten investment may
need to be considered.
OTRU ACTIVITIES
1. Although there are a number of ocher activities in the Group including
Fast Food, Food Processing, Poultry Farming, Agricultural Machinery,
Office Equipment and Furniture. Ho te Is and Property, none appears to
have the potential to act as the basis for a major new accivicy- an a
Group-wide scale.
Z. The main issue in relation to these activities is whether additional
emphasis should be given to evaluating them more critically to ensure
that their contribution to the Group is cmensurate with their use of
management and financial resources,
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BAT Industries document for Province of British Columbia 23 April 1999

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11MPUrCAITIONS FOR B.A.T INDUSTRIES
1. Based on the Operating Group 10 Year Views, a table of sales and profits
has been constructed showing the relative sizes that the various
industrial activities in the Subsidiary companies are expected to reach
by 1992.
Sales and Profits in Subsidiary Companies 1982/92
La (1982 values) As Z of Group Totals
1982 1992 1982 1992
Sales Tr Prof Sales Tr Prof Sales Tr Prof Sales Tr Prof
Tobacco 6468 572 6468 572 56.2 73.1 48.8 48.6
Retail UX 1085 10 1265 52 9.4 1.2 9.6 4.4
us 1912 92 2305 226 16.6 11.7 17.4 19.2
Carboalass 425 52 846 122 3.7 6.6 6.4 10.3
other Paper 549 23 614 60 4.8 2.9 4.6 5-i
Print/Pack 537 18 750 57 4.7 2.3 5.7 4.8
Cosmetics 172 13 290 27 1.5 1.7 2.2 2.3
Rome Imp. 307 10 703 62 2.7 1.3 5.3 5.3
Others 52 (7) - 0.4 (O.8) -
TOTAL 11507 783 13241 ills 10070 100.0 100.0 100.0
Non-Tobacco 5039 211 6773 606 43.8 26.9 51.2 51.4
2. It has been necessary to make a umber of simplifying assumptions in,
constructing the table and, in the case of Tobacco, it has bean assumed
that the cottribution to sales and profits in 1992 will only just match
those of 1982. Although this may be thought to be excessively cautious,
it does Siva a reasonable 'worst case' starting point for considering
the non-Tobacco activities.
3. For the non-Tobacco activities, the 1992 figures have been taken from
the Operating Group 10 Year Views but the L982 figures have been taken
from the B.A.T Industries consolidated accounts. Although there are
some discrepancies with the starting points used in the 10 Year Views,
these are relatively minor and do not invalidate the figures in the
table.
4. The overall rate of growth in sales shown in the table is 1.4% P. A. with
the non-Tobacco activities growing at 3.0% p.a. To meet the B.A.T
Industries objective, this overall rate of growth would need to be
doubled. Rowever, it may be felt that the lower rate of sales growth
would be acceptable provided that there is a satisfactory progression of
profits and continuing emphasis on increasing the proportion of
businesses with a proved potential for sustained profitable growth.
S. laesuse of the improvement in margins forecast by the Operating Groups,
profits increase =ch faster (by 4.02 P.&. overall) vith the margin for
all non-Tobacco activities improving from 4.2% iu 1932 to 8.9% in 1992.
This would obviously represent a very substantial achievement in a wide
range of businesses and it may be prudent to assume that, in practice, -i
only about 5OZZ of this improvement will be achieved, giving nou-Tobacco co
profits of around z.400m out of a total of C970m.
co
BAT Industries document for Province of British Columbia 23 April 1999

15 -
6 To achieve the 37. -P.&. growth required to meet the Group's objectives,
profits of about Z1050m would be required in 1992. This is nom more
than the discounted forecast for that year.
7. Considering the other B.A.T Industries Objectives, the projections would
meet the requirements for the dependence on Tobacco to be reduced and,
because of the improvements forecast for the UK and Europe, the
proportion of remituble earnings should be increased. This, combined
with the expected rise in the income from Associates, should ensure that
the total profits before interest increase at least as fast as the
trading profits and that there is no reduction in the proportion of
profits available in the UK.
8. Less satisfactory features of the projections are chat the proportion of
activities having a leadership position in growth markets/market
segments is still not as high as might be wished. In addition, the
growth markets in Latin America and Asia are still forecast to be very
dependent on Tobacco, even in 1992.
9. Another unsatisfactory feature of the projection for 1992 is that 5 of
the 8 industrial activities together contribute only just over 20% of
total Group profits. Since each of these is further subdivided into a
number of different businesses, this represents a disproportionate
burden on the Croup's management resource. This problem is made more
serious by the fact that, with the Possible exception of Argos and Rome
Improvements, none of these activities has an established potential for
sustained profitable growth.
10. A conclusion fram this analysis is that B.A.T Industries needs to invest
in one or two major new activities with identified growth potential
which are capable of replacing several of the existing non-Tobacco
activities and which will be of a size together to contribute at least
E160m of trading profits by 1992 (i.e. the Min identified in paragraph
6 above, plus 180m to replace the discounted 1992 profits of about half
the existing minor non-Tobacco activities).
11. Assuming a return of 20-25% on net assets, the minlaim additional
investment required to obtain these profits would be of the order of
Z650m - 1800m. Assuming that part of the investment is through
acquisition, this figure could be higher if the price paid involves a
premium over the book value of the shareholders funds. This win both
Fall add to the investment cost and will also reduce the Group's equity
through a write off of goodwill. thereby magnifying the effect on the
Debt:Equity ratio.
12. The use of B.A.T Industries shares as part of the consideration for an
acquisition would alleviate this problem considerably but, based on the
current price of 148p, B.A.T Industries shares stand at a P/E of 4.7.
Under these circumstances, the use of equity is unlikely to be a
practical Proposition.
13. Assuming that new investments will need to be funded by cash, it is
necessary to consider how this very considerable resource requirement
might be met. N
C:)
14. The immediate availability of resources for investment is shown in the
analysis of cash, debt and equity given in the Group Financial Forecast
paper presented to the Boaz, in june. co
C:)
BAT Industries document for Province of British Columbia 23 April 1999

Group Cash, Debt and Equit7 as at 31-12-82
UM) Cash Debt Equity Debt:Equit7 (2)
UK 199 48 605 9
Europe 199 208 429 48
N. America 59 926 L089 85
Australasia 2 10 108 9
Sub-Total 9 1192 2231 3_3
Latin America 196 86 459 19
Asia 10 32 177 is
Africa 17 54 124 44
TOTAL 682 1364 2991 46
15. At the and of 1982, the Group still had a capability for incurring
additional debt of Z130% without exceeding the 5OZ Debt:Equity limit
and all of this could be Incurred in the developed countries without
exceeding the 60% Debt:Equity limit for transformable currency areas.
la addition, a substantial proportion of the C460m of cash balances in
these areas could also be available for investment. The remaining cash
balances of MOM are largely unavailable outside the countries in which
they are held but can be used to fund new investments in these
countries (e.g. in Brazil).
16. It is clear from this analysis of the current Balance Sheet position
that the Group does not have an immediate capability to make Investments
on the scale envisaged in paragraph 11 above, especially as the total
investment would need to be increased to offset the adverse effects on
interest payments and receipts of using cash balances and/or incurring
additional debt.
17. This underlines the importance of the other sources of funds, from
internal cash generation and from divestment.
18. The Group Financial Forecast indicated that by 1985 internal cash
generation could have raised the Group's additional borrowing capacity
to about MOM in current terms, equivalent to about MOM at 1982
values. This shows again how important it is that the Operating Group
forecasts are actually achieved, especially in 1984 and 1985 when the
bulk of the surplus is forecast to occur.
19. The third source of funds is by divestment of existing activities. This
will, of course, give an immediate gain in profits if the assets sold
are low performers at present. There is also the further advantage that
is whole businesses are sold, there can be a reduction in consolidated
debt as well as a cash gain. In addition, if a divestaout is made for a
consideration above book value, there is an increase in the Group's
equity. Both of these factors could increase the Group's borrowing
capacity.
20. Further work is required to evaluate the potential additions to resource
availability that could occur through divestment and this issue will be I%j
covered in the Investment Strategy paper. CD
BAT Industries document for Province of British Columbia 23 April 1999

17 -
CONCLUSIONS
1. The maim conclusions from this year's 10 Year View are similar to those
from the corresponding paper last year in that:-
(a) The Group is still too dependent an Tobacco both for profits and,
perhaps more importantly, for cash flow.
(b) Neither the Tobacco activities nor existing *on-Tobacco activities
appear to have the potential for providing sustained, profitable,
long term growth.
(c) Thera is an urgent need to identify and to Invest in one or two
major new activities which have the required longer term potenial.
2. It would be advantageous to fund the new investments by internal cash
flow and by realising assets which are giving a poor return at present.
3. This implies a need to give more emphasis to ensuring the optimum cash
flow from the Group's Tobacco activities by taking a more rigorous
attitude towards promotional expenditure and capital investment, by
accalaraticg programes to rationalist production facilities and by
divesting or closing low performance activities.
4. It also implies a need for a more rigorous attitude to be taken towards
non-Tobacco activities which are either low performers or which appear
not to have the potential to make a significant contribution to future
profits.
S. Further emphasis may need to be given to the search for the major new
activities which B.A.T Industries needs in order to sustain Its growth
into the longer term future. The progress zade in the project teams set
up last year will be reviewed during July and appropriate
recommendations will be Included in the Group Investment Strategy paper,
due to be presented at the August Board meeting.
30th June, 1983
RS/?S
BAT Industries document for Province of British Columbia 23 April 1999