CAC Vill -1 ITEM H WEDNESDAY 28TH SEPTEMBER
Group Investment Strategy 1983
Introduction
1. The purpose of the Group Investment Strategy paper is to propose
strategies for achieving B.A.T Industries' long term objectives.
2. After discussion and agreement by the Board, the paper will be used as the
basis for developing B.A.T Industries' Guidelines for each Operating Grow
T
and for the other business units reporting directly to the centre. A
draft of these Guidelines will be presented for discussion and agreement
at the October meeting of the Board.
3. In addition to the strategies that will be implemented through Operating
Groups there will also be a need for action to be initiated and progressed
in the Contra. This aspect of B.A.T Industries' strategy is also
considered in the paper presented here.
4. The information base for the Investment Strategy has already been
presented to the Board in the Future Business Environment paper in June
and in the Group Financial Forecast and Group 10 Year View papers in
July.
5. The main conclusions from these papers can be summarised as follows:-
(a) There can be cautious optimism about the prospects for world economic
growth and, although the underlying financial imbalances will
restrict the abilities of governments to achieve rapid growth, the
present modest recovery is expected to be sustained. However, it
will still be necessary to prepare for a normal cyclical downturn in
worldwide activity in 1985. In addition, there will be continuing
vulnerability to major crises which could erupt, especially in Latin
America and the Middle East. Hence, B.A.T Industries' strategies and
plans need to be sufficiently robust to be able to withstand these
adverse factors.
(b) Although considerable progress has been made in formulating plans to
improve current levels of performance, the strategic review of the
Tobacco activities and of the existing non-Tobacco activities have so
far failed to show prospects for sustained profitable growth on a
scale sufficient to meet B.A.T Industries' objectives.
(c) In addition, the studies of potential new B.A.T Industries'
activities, which were initiated last year, have not yet reached a
stage where it is possible to identify specific alternative
opportunities for investment.
(d) The review of resource availability suggests that rigorous action
will be needed to provide B.A.T Industries with the capability to
make the major investments which are thought to be necessary to lay
the -foundations for satisfactory long term development.
6. It is against this background that the strategy proposals have been made.
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BAT Industries document for Province of British Columbia 22 April 1999

2
Group Investment Strategy: Overview
1. The strategies proposed in this paper ref lect a view that there is a
used to reshape the Group and that the main moves in this reshaping
should be completed over the next 2-3 years.
2. The aim will be to nova towards a Group consisting of a small number of
major interests, each made up of activities which are closely related
and which have complementary strength*.
3. it will also be a requirement that each of the businesses within the
Group should have satisfactory cub characteristics and that a high
proportion of the Group's activities should be in leadership positions
in profitable growth markets or market segments.
4. In order to achieve the portfolio of activities that is required it
will be necessary to accelerate the identification of suitable
investment opportunities both in activities related to existing
businesses and in now areas of activity.
5. At the same time it will also be necessary to imp-rove the availability
of the resources required to fund investment. Particular emphasis will
be given co:-
(a) increasing the net cash flow from Tobacco;
M Divesting unprofitable businesses;
(c) Divesting other businesses which do not fit with the long term
plans for the Group.
6. In addition to providing an additional source of funds, the divestments
will also result in a reduction in the total number and disparity of
the businesses within the Group.
7. it is proposed that there should be a reversal of the previous policy
which aimed to obtain a broad spread of activities in each element of
the Group. In future, the aim should be to put most emphasis on
expanding the more successful activities within an Operating Group even
though this may result in some businesses, or even whole operating
Groups, becoming dependent on a narrow range of products or
activities.
S. Geographically, a high priority will continue to be given to Improving
the returns in the UK and European based businesses.
9. In the USA, priority will rAed to be given to cash generation and to
the further development of the long tam strategy for 'ALTUS, Including
accelerated investment in retailing.
10. There will be continuing emphasis on broadening the industrial base La
Latin America and the East Asia/Pacific Basin region by identifying
suitable non-Tobacco investments. However, it way be necessary to
carry out more work at the Contra to determine which industrial sectors
should be preferred before pressing for the identification of specific
investment opportunities at regional level.
11. Investment opportunities in Africa and in the Indian sub-continent will C)
be dealt with on an individual basis.
BAT Industries document for Province Of British Columbia 22 April 1999

3
Strategies for the Existing Businesses
Tobacco
1. Although there should be a continuing objective to develop
international Brands and to maintain and expand domestic market shares,
rigorous -ast/benefit analysis should be applied to all expenditure.
Growth objectives should be pursued only as long as satisfactory
returns can be guaranteed an incremental as wall as total expenditure.
2. Despite the limitations on production and marketing expenditure, K & D
expenditure should be maintained at a level sufficient to at least keep
pace technically with major competitors
3. Improving or at least maintaining profitability should continue to be
given a high priority. Particular emphasis should be given to
improving asset productivity and there should be a specific objective
to reduce leaf stocks by 10% over the next 2 years.
4. Priority should be given to improving the returns from the European
Tobacco businesses. An overall plan covering all these activities
should be prepared and implemented.
S. The review of the strategies and plans for the UK market should receive
a high priority and should be completed by the end of 1983.
Retailing
1. In the USA, the first priority should be to improve the returns in the
existing businesses, with particular emphasis on the Marshall Field
activities and Kohl Department Stores. This should also apply to
Gimbals, where the aim should continue to be to improve performance
without major now investment. The divestment of Kohl Food Stores
should be completed.
2. BATUS have work in hand to identify the real growth potential in
retailing in the USA. The aim of this work should be to develop firm
proposals for the optimal size and range of activities that should be
established, including entries to now market segments and the
development of new concepts.
3. In Germany, the Horten situation must be resolved by the end of 1983,
either by agreeing a satisfactory long term plan for this activity or
by divestment.
4. In the UK, Argos should continue to be developed to its full potential.
ly the end of 1983, proposals will be developed for a strategy to
develop the Group's interests in UK non-food retailing to a size where
they can make a significant contribution to Group trading profits (i.e.
L50m +).
S. A high priority should be given to reviewing the longer term options N.)
for the Group in UK Food Retailing, including divestment. C)
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BAT Industries document for Province of British Columbia 22 April 1999

14
Paper
1 . Wiggins Teape shoule share fully in the expansion of the market for
Carbonless but should seek to achieve this with a minimos of now
investment in base-paper capacity.
2. The achievement of improved levels of performance in the UT, should
continue to receive a high priority both in Carbonless and in other
activities.
3. Although there should not be an explicit objective to reduce the
dependence on Carboulass, other investment opportunities should continue
to be sought. The current proposals for expanding Wiggins Teape's
merchanting and converting activities should be developed further.
4. In the USA, Appleton should also seek to pursue growth in Carbonless
without a major investment in new base-paper capacity, unless this can be
achieved on favourable terms through acquisition. Further consideration
will be given to the long term future of BATUS within the paper industry,
taking into account the returns that can be earned and the opportunities
open to the Group.
5. Further consideration is being given to expanding the existing paper
operations in Brazil by integration within Souza Cruz, followed by further
investment. Firm proposals will be developed during 1983.
6. The Group should aim to become the major shareholders In Aracruz. If this
is not possible, the desirability of continuing with this investment
should be reconsidered.
Printing and Packaging
1. it was agreed in last year's investment strategy that before the end of
1983, B.A.T Industries needs to determine whether or not the Group has a
future in printing and packaging.
2. Key issues to be considered will be the overall profitability of the
industry and the profit potential and growth prospects of the Group's
existing activities. It will also be necessary to determine whether,
after divestment of businesses which cannot matt the Group's objectives,
MPI has sufficient potential to Justify its continuing existence an a
separate Operating Group.
3. The main options to be considered are:
(a) To continue with a reshaped MPI;
(b) To divest many of the existing businesses but to continue with
certain individual operations (e.g. rigid plastics) which can then be
transferred to other operating Groups;
(c) To attempt to dispose of the whole of NPI. 1110
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BAT Industries document for Province of British Columbia 22 April 1999

Cosmetics
1. The current strategy is to consolidate and develop existing activities
but co reinforce these by minor acquisitions where these cm be funded
within the existing Debt:Equity limits.
2. BAC is expected to grow slowly and will continue to represent only a
relatively small contribution to the Group's profits. It is proposed
therefore, that there should be a firm intention to find a buyer for
this business in the early part of 1984.
Rome Improvements
1. The first priority should continue to be the consolidation of the
existing activities in Germany to a stage where these are adequately
profitable and are able to provide a base for further davelopaeut in
Germany and overseas.
2. It is still the intention to acquire the outstanding minority in
Pegulan.
3. A longer tars strategy is being formulated for the development of Home
Improvements and related activities, including plastics conversion.
The strategy will cover both Germany and other con -r 'ies where it is
possible to establish a leadership position in a defined market
segment.
4. An important criterion in determining the direction of future
development will be that Rome Improvements should be restricted to a
limited number of major activities and should have a clear focus in a
few well defined market segments.
Other Existing-Activities
1. it will be necessary to review carefully the performance and potential
of each of the other industrial activities in the Group. Activities
which do not Seat B.A.T Industries' criteria will be considered for
divestment. This will include businesses which are unprofitable or
which are not in a leadership position in the market segment in which
they operate. However, it will also include businesses which are
profitable but which do not have tha potential to reach a size where
they can make a significant contribution to profits.
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6
Strategies relating to the Associates
1. The criteria to be applied to B.A.T Industries' investments in the
Associated Companies should be similar to those applied generally within
the Group, especially in respect of the growth in dividends and the
returns on Investment which should be sought both from existing and
proposed new activities.
2. Providing the investments meet B.A.T Industries' objectives for returns on
assets, the intention is to maintain or increase the percentage of the
total equity of the Associated Companies held by B.A.T 'Industries (i.e. by
participating in rights issues or by purchasing further equity).
Exceptions to this will be those cases where there is either a statutory
requirement or an existing commitment to reduce the total equity stake
(e.g. Malaysia)
3. In cases where the Associated Company is not providing a satisfactory
return, where the prospects are uncertain or where B.A.T Industries is
unable to exert an appropriate level of influence on the company,
divestment will need to be considered. During 1983/4, the future of the
investments in ITC and Moline will need to be reassessed.
4. For Imasco
(a) Iva$ co I a strategies for development throughout North America will
need to be reconciled with RATUS plans in order that, so far as is
possible, potential conflicts of interest are avoided.
(b) Within the existing business, particular emphasis will be placed on
the development of strategies for the Retail division and for the
Past Food operation.
(c) Further discussions need to be held regarding the possible extension
of Imasco's interests in energy/ resource based projects.
(d). The agreement to reduce the B.A.T 'Industries' shareholding to 4OZ has
been implemented by not taking up share Issues and it is now intended
to maintain the equity holding at this level.
5. For Amatil
(a) It is intended to discuss the longer term strategy for Amatil during
the Chairman's visit in November.
(b) B.A.T Industries will continue to encourage Amatil to base their
strategy on the development of a major new activity within Australia,
preferably in consumer goods or services. It vill be suggested that
this should be combined with the divestment of those existing
operations which are unsuccessful or scheme prospects are suspect.
The existing Printing and Packaging operations will be one element of
the business that appears to require a rigorous review.
(c)' If suitable investment opportunities are identified, B.A.T Industries r*j
should be prepared to consider commiting extra funds to Australia, to C:)
assist in financing the investment and to maintain the equity holding
in Amatil at 402. co
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BAT Industries document for Province of British Columbia 22 April 1999

7
Implications of Existing Business Strategies
Profit Implications
1. The Group 10 Year View paper concluded that if the operating Groups
continued along the lines proposed in their 10 Year Views the progression
of Group Sales and Trading Profit from 1982 to 1992 would be as shown in
the table.
Sales and Profits from Subsidiary Companies 1982/1992
1982 1992 CGR (Z) 1982192
La (1982 values) Sales Profit Sales Profit Sales Profit
Tobacco 6468 572 6468 572 - -
Non-Tobacco 5039 211 6773 400 3.0 6.6
11507 783 13241 9T2_ Y-A 2.2
2. . However, assuming that the strategies described above are followed and that
BAC, MPI and International are divested, the progression to 1992 would be
modified as follows:
Sales and Profits from Subsidiary ComEanies 1982/1992
1982 1992 CGR (%) 1982/92
La (1982 values) sales Profit Sales Profit Sales Profit
Tobacco 6468 572 6468 572 -
Non-Tobacco 5039 211 4858 324 (0.4) 4.4
11507 783 11326 896 (0.2) 1.4
3. To achieve a 32 P. a. rate of growth for profits the 1992 requirement is
L1052m or about 1160m greater than the figure shown above.
4. The remainder of the paper in concerned with estimating the resources that
could be available for investment and r*viev:Lug the progress that has been
made to date in identifying opportunities for investments which could fill
the profits gap that bas been forecast to develop.
Resource Availability
1. Based an the figures given in the Group Financial Forecast, the Croup V"
1130a inside the 502 Debt-Equity ratio at the end of 1982. There were, In
addition, EA60m of cash balances in transferable currency areas and a
substantial proportion of this could be made available for investment if
required. r1k.)
2. The Budget for 1953 showed an increase in borrowing capacity of about L3002 CD
but a reduction in the cash balances of about L50m in the transferable
currency areas. Latest forecasts suggest that the actual results will not 00
be as favourable as this and It may be more realistic to assume a net C)
increase in resource availability of L150m-9200m. ..0
1@0
BAT Industries document for Province of British Columbia 22 April 1999

8
3 . The proceeds from the assumed divestments could add a further E250m-000m
to the funds available for investment and could elimimate LSOm-170a from
consolidated Group debt. (There would also be an effect on shareholders'
funds but this would be likely to be relatively small and has been
ignored).
4. The net effect is that by early 1984 B.A.T Industries could have the
capability to invest about Elba in new activities.
5. This excludes the cash available in such countries as Brazil where the
resources are not available outside the country in which they are held but
where they can be used for local investment.
Strategies for Group Development
1. As reported in last year's Investment Strategy paper, project taams have
been set up at the Centre to identify investment opportunities meeting the
following basic criteria:
(a) Any investment made should amble B.A.T Industries to establish a
leadership position in a growth market or market segment.
(b) The investment should be in a field whore B.A.T industries can asks a
positive contribution to the development of the activity.
(c) Activities complementary to existing businesses or where existing
skills and expertise can be applied will be preferred.
(d) Any new activity must be of a size such that it can sake a significant
contribution to Group profits. For a completely now activity this
means that there must be prospects for contributing MOM of trading
profits (at 1982 values) within 10 years (i.e. 7-10% of the expected
Group total). However, for investments which are extensions of
existing activities (e.g. a geographical extension of Home
Improvements) this size criteria could be relaxed.
(a) Any investment must be capable of earning returns on funds employed
sufficient to meat the Group's objectives.
2. Three of the project team have been concerned with considering
opportunities on a geographical basis covering:
(a) Brazil
M E. Asia/Pacific Basin
(c) UK/Europe
3. Two other project teams have been considering opportunities classified by
activity:
(a) Financial Services
(b) Biotechnology. PQ
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4. Food Processing and Brewing have also been considered in separate studies -
of industry sectors which could be of interest to the Group. 00
C@
5. In addition, there has been a study of Plastics extrusion (conversion) and
a further team has been set up in Wiggins Teape to consider possible
opportunities in Office Equi@ment and Services. %-O
BAT Industries document for Province of British Columbia 22 April 1999

9
progress to date in the Project Teems
1. The Brazilian study has special features in that there is a large cash
balance in the country which cannot be used elsewhere. In addition,
retained earnings from financial "sets cannot be used to increase the
registered capital which determines the levels of remittances permitted
from Brazil.
2. Work is in hand in Brazil to identify investment opportunities within
consumer goods industries and this is due to be completed during the
Autumn. In addition, a further study which is due for coaplatiou In
October will recommend action to incorporate -Pirahy within Souza Cruz and
subsequently to expand the paper operations in Brazil to take full
advantage both of the skills of Pirahy and of technology transfer from
elsewhere in the Group. Further consideration will also be given to
opportunities for increasing the Group's involvement in Aracruz by taking
a controlling stake in the business.
3. The end object of the Brazilian study will be to broaden the base of the
business and to introduce more non-Tobacco activities.
4. The East Asia/Pacific Basin study has confirmed the view that the region
as a whole has growth prospects which are probably better than those
anywhere else in the world, at least in the short to mediLm term.
5. Industrial sectors which have good growth prospects and which could offer
opportunities for B.A.T Industries include Food Processing, Agribusiness,
Leisure/Tourism and Financial Services. Tertiary processing of primary
products (e.g. furniture manufacture) could also offer opportunities,
especially if a strong marketing link can be achieved.
6. investment directly related to existing Group businesses shows limited
promise and although Carbonless paper could be a good long term prospect
it is likely to be some time before local demand will be sufficient to
justify a major investment. However it is believed that there could be
more immediate opportunities in plastics conversion and in floor tiles.
7. In considering opportunities unrelated to existing activities, difficulty
has been encountered in identifying suitable investments since individual
national companies are generally too small or too unprofitable to be of
interest to B.A.T Industries.
8. Although the investigation of national and regional opportunities is
continuing, it seems likely that for these to be really successful they
will have to be related to & wider Group activity. This could occur as a
follow on from the strengthening of the Home Improvements/Plastics
conversion activities. However, it also underlines the need to acquire or
develop other non-Tobacco businesses capable of providing the basis for
overseas development.
9. The UK/Europe project team has carried out systematic studies both on a
national and on an industrial basis.
10. it has been agreed that further work to identify investment opportunities NJ
should be concentrated on the UK, Germany, Trance, Italy and Spain. C)
Particular emphasis will be given to identifying opportunities related to
Home Improvements/Plastics conversion and to non-Food Retailing. OD
C)
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10 -
11. The Financial Services project teas is still of the opinion that financial
services is au activity that could offer a good profit potential for B.A.T
Industries.
12. The studies to date have confirmed that the concept that appears most
attractive in the longer term is a division providing a broad range of
financial services. However, it is believed that the most practical way in
which to enter this field would be through the acquisition of a relatively
large conventional business which could provide a firm base on which to
build in the future.
13. Two types of business are being evaluated further. These are Composite
Insurance and a Clearing Bank. The evaluations should be completed during
the Autumn and could result in a specific proposal for an acquisition.
14. The study of p2tential opportunities in Biotechnology has suggested that,
although it is unlikely that Biotechnology itself will provide
opportunities on a scale that would be sufficient to make a major
contribution to Group profits, the establishment of a business based on
Biotechnology could provide a good entry to a much wider business related
to Agriculture.
15. The advantage of developing within this field would be that the Group has
existing expertise and worldwide contacts an which to build. Agribusiness
would also be particularly appropriate to developing countries and, if a
central core of expertise can be built up, there should be good
opportunities for expansion in a wide range of countries.
16. The first requirement in following this line of development is the
identification of potential partners who have an existing technological
base and with whom B.A.T Industries could work to develop a care business
based on Biotechnology. one potential partner which has been identified
appears particularly suitable and the possibilities for co-operation are
being investigated. Should these fail, there are at least two other
companies which might also be considered.
17. At the same time that the feasibility of setting up a Biotechnology based
business is being investigated, it is proposed that further studies should
be carried out to define and *valuate the wider potential for B.A.T
Industries in Agribusiness.
18. Food Processing and Brewing have also been evaluated and, while the results
of these evaluations were generally discouraging, segments of the Food
Processing industry may be worth further consideration, especially if there
could be an opportunity to acquire a company which is a leader in a
specific market segment in the 'USA or Europe but which has unrealised
potential for overseas expansion.
19. Brewing appears to be relatively unexciting but related Industry sectors In
wines and spirits, in non-alcoholic beverages and in leisure related
activities could be worth further investigation.
20. The studies of the potential for office Equipment and Services by Wigging
Teape are due for completion by the and of 1983. While the main aim of
this project is to consider new opportunities related to existing expertise
in Wiggins Teape and MPI, the possible wider implications for the Group as
a whole will be kept under review.
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BAT Industries document for Province of British Columbia 22 April 1999

conclusions
1. In the Investment Strategy which has been outlined above, the contribution
expected from each of the Group's existing activities has been clearly
defined and can be reflected in the Guidelines to the Operating Groups.
2. Where further definition may be required, however, Is In the work which
cannot be allocated directly to operating Groups because it involves a
complete divestment, because it covers more than one Operating Group or
because it Is concerned with activities which are unconnected with the
existing businesses.
3. This work must be initiated and managed from the Contra. A number of
specific projects have been Identified in the paper and it is proposed to
carry out a review over the next few weeks to ensure, that for each project,
there are clearly defined responsibilities, clear term of reference and an
agreed date for completion. In addition, it will also be necessary to ensure
that sufficient management resources are available to complete each of the
projects satisfactorily.
4. The underlying purpose of this review will be to consider how we can
accelerate the formulation and implementation of a Group Strategy which meets
the basic requirements that we should be in fewer activities but that these
should have a greater potential for profits and for growth than our existing
range of businesses.
C)
OD
C>
PQ
00
CD
27th July 1983
RS/DJA
BAT Industries document for Province of British Columbia 22 April 1999