SECRET
CAC VZ - ZVEDS CASTLE
CONFERENCE NOTES
Chsjz=jn11s opening Address
The Chairmen welcomed all delegates ujd particularly those who were not
at Leeds Castle In 1978. He expressed regrets that this would be the
last C&C to be attended by Dr Stiltz@Z, whom he thanked for his contributions
since the Smoking and Health Conferences began, before CACs. He congratulated
xr Sheehy on his appointment as Vice Chairman and Mr Bruell on his
appointment to the Board of B.A.T Industries.
The Chairman highlighted the principal events which had occurred since
1978 and the changes which have, basically, altered the shape of the
Group.
He said that, although the Group results for 1980 were creditable con-
sidering the difficult economic climate world-wide, there Is no Z-(X= for
complacency. Exchange rate fluctuations have a direct and somtImes
significant effect on Group profits expressed In sterling, but the
Important factor Is operating performance on the spot and It Is here
that gains =at be seen, not only In volume and market share, but also
In profit term.
There Is a continuing need for the careful us& and profitable deployment
of money In the numerous businesses throughout: the Group, particularly
as economic conditions show little sign of Improving before the middle
of next year.
FlImIly, Om Chairman stressed the Importance of having the right people
In the right: places. Succession plans and promotion policies should
reflect the fact that a vast majority of people do respond to the
challenge of early pxonotion and responsibility.
Xtem A - Outline of Present Activities
Fresentations we" made as follows z
Mr McCarty BATUS
Mr F"4 Zmasco
Mr Widdup Ametil
Mr Long Sousa Cruz
Dr Stftzer Xneervorsa
Mr Stewart Lockhart B.A.T Co
Xr Jest Wiggins Toape
xr Ricketts B.A. 21 Stores
Jar Denals B.A.C
Mr Marl I d9o MPX
Tbopswentations highlighted significant changes over the past year,
d$WZIW tht C=Ont 51tutIGA And SUMAXIS64 the min current problem
am opportImItIes.
C)
Ztem B - Report on Audit Committee
Co
Lord GreenM12 reported on the purpose, scope and achievements of the C)
PO
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Audit Committee since Its inception. 2'he chairmanship of the Committee
will be taken over by Sir Jasper Hallom on Ist August, 1981.
Item C - Unitary Tax - Progress Report
Mr Symms reported an the current situation and possible future develop-
Monts concoxnIAg Unitary Tax. Prospects for a successful outcom are
uncertain.
Xtem D - Smoking Xszues
Mr Sheehy presented the It*=. Three main issues were discussed. Messrs
McCarty, Wi ddup, Pari and Long and Drs StDtzer and Eri chosen contributed
to the discussion of each issue by reporting the current situation in
their respective countries and suggesting how matters might develop in
the future. Messrs Stewart Lockhart and Druell made similar contributions
for the UK.
The three Issues and the =&In conclusions drawn for each were as follows
1. Restrictions on our right to do business
Restrictions have proliferated and have become more onerous since
last year. rhis trend will Itensify unless the industry takes
steps to raslse further encz,oachawmt on Its zight to do business.
Such steps should Include
(a) The Industry should talk to, and wherever possible
work with, governments at national and local level
and officials of bodies such as the WHO and-REC.
Even sympathetic government doWtments and ministers
might be under considerable political pressure to be
seen to be taking Soso Positive action. The Industry
should accept this and try to reconcII& the respective
objectives.
Sporadic discussions have not proved effective. A
continuing programme of visits and metings with
appropriate authorities is essential.
(b) rho Industry needs as many allies as possible.
Attempts should be =mde to obtain concerted support
fromm pressure groups such as retailing associations,
bodies such as FOASS21 In the UX, trade unions, etc.
1c) Support for ZNM?AB and national manufacturers'
associations should be maintained. rffoz-ts should
be ande to strengthen any national associations
which are currently Ineffective.
(6) rho" Is growing evidence that our opponents are
organising an an International basis (*V NNO) and
that their communications between countries are
Improving. We should, therefore, encourage better
communication between countries and particularly
between ZNF07AB and the national assocations.
(a) Research and studies should be continued on matters
which might assist the Industry's arguments, such as 00
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the captive smoker theory and benefits of smoking.
2. Social acceptability of smoking
There was general agreement that the increase In social un-
acceptability is the greatest danger and challenge to the
Industry. AS the trend is largely based on fashion, it will
be particularly difficult to reverse. However, everything
possible should be done, for example :
(a) Passive smoking Is the major platform of most
critics. Sidestreas reduction or *I-imination will
be helpful and research should continue In this
lb) :rd*v`artisIng should, wherever possible, emphasis* the
acceptability of a pleasurable habit as a normal
part of a civilised life-style.
W while care needs to be taken If refuting evident and
blatant arrors In anti-smoking propaganda, wider
publicity should be given to the results of studies
which assist or reinforce the arguments of the
Industry.
3. The credibility of the Industry
The degree and, therefore, the seriousness of the credJhilitV
problem varies from country to country. However, certain
overall strategies for establishing and maintaining the
credibility of the Industry were Identified. Some appear
similar to those proposed for the first Issue discussed,
(Restrictions on our right to do business), but they are, In
fact, complementary and In a different context. Th* main
strategies agreed were :
la) There is a whole range of publics. Xndustry actions
and communications should be geared to identified
target groupings. 21he Industry shoul become used
to talking to foes as well as to friends.
lb) Efforts should be made to got the Industry viewpoint
across to the man In the street. For example,
emphasis could be placed an the oxaggoration by
critics of any risks associated with smoking, rather
than on the nw-existence of such risks.
(c) Further efforts should be made throughout the Group
to Involve and communicate with employees, both In
tobacco conpanies and non-tobacco companies.
(d) Whenever possible, Independent third parties, rather
than the Industry Itself, should be the authors 61
arguments or evidence which support the Industry's PQ
position.
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(a) Research efforts should be continued (the industry's
opponents allege that no further research is needed).
Such research, which should Include the benefits of
smoking, should be less defensive and more constructive.
Ztem Z - CoEporate Relations
Sir Peter Macadam reported an activities In Group headquarters In the
following areas
(1) Relations with the City, Whitehall, Westminster and the EEC.
(2) Internal communications.
(3) Corporate Identity.
(4) Social responsibility.
(5) Multinational Issues.
rh* video film 'The World of B.A. Xndustrios" was shown.
Ztein F - Report an external Affairs Advisory Comdtte*
Mr Rlc*etts reported an the role and composition of the Lrxtern@l Affairs
Advisory Committee. He described the Committee's main activities over
the past year and outlined Its current programme of work.
Item G - Energy Management Reports
Reports an energy management were presented as follows
Mr Stewart Lockhart D.A.r Co
Mr Best Wiggins ftape
Mr JkCarty BATUS
Mr Ricketts B.A.T Stores
Mr Dennis B.A.C
My Nbrltdg& MPZ
A great deal of wozt has already been done and significant savings are
being made. rho two main Issues are cost effectiveness and vulnerability
to Interruptions of supply.
It was noted that In those units where general management has shown &
high commitment to effective energy management, very significant savings
have been made.
Wdle 41C was evident that, using their own resources, operating Groups
have achieved a large measure of success In energy conservation and
consequent cost reduction, Group headquarters Vill consider If anything
furtbar needs to be done to ensure that the Operating Groups have all
the relevant Information they need.
Item K - Group Financial Objectives
Mr Symons explained how the Group financial objectives w*re originally PO
defined and subsequently dev*lopod. The financial objective& include C)
dividend growth, dividend Cover, attributable profits, returns an assets Co
and debt/equity ratios. C)
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Mr Parif and Mr widdup described the financial objectives for their
respective companies.
.Ttem N - Gzoyz Profit and Cash Forecast
Mr Garraway presented the Group profit and cash forecast. He said that
operating Group forecasts tended to understate capital requirements for
the later years and experience has shown that profit performance also
tends to be forecast optimistically for the later years.
Ztem, .7 - Group 10 Year View
six Peter Macadam presented the Group 10 year view, which had been
circulated In advance. ' He said that CM paper outlined the probable
shape of the Group In con years' time, If current policies and strategies
are not changed. Zn highlighting the main points raised in the paper, he
stressed that there was heavy reliance an the achievement of forecast
improvements In profit margins and on recoveries in certain businesses.
Ztem Z - Group Znvestment Strat2&
Six Peter Macadam presented the Item which led straight on from discussion
of the previous it*=. go outlined some of the issues which arose from
the 10 year view and which would be included in the Group Investment
strategy paper to be presented to the Board of B.A.T Industries in
September. A broad consensus was reached on some of these issues, as
follows :
12) We should be In, or got Into, businesses with the rigbt.
characteristics of profit margins, growth pr6spects, market
leadership, *to. No should look at our existing businesses
closely to ensure that they match these criteria. Xf they do
not, we should consider divestment.
(2) Mile continuing to support and Invest In existing non-tobacco
businesses, subject to (1) above, there Is not - and should
not be - a policy of curtailment of Investment In tobacco
businesses.
(3) rho min thrust of invest t for growth should be in extensions
of existing businesses rather than In now 'sunrise' businesses.
There are many opportunities for such extensions, both in
technological development and in product/concept innovation.
Optimal use of assets, such as r*development of pzoperty,
should also be considered.
(4) Zn continuance of the Group policy for Investment in selected
developing countries, we sbould alm to maintain or establish
successful businesses rather than merely sell technology.
Za addition, there was som discussion on the question of keeping in
touch with now technological developments and how development possibilities
In now business areas could best be identified.
Ztes M - Summary of Future Plans
Sumarles of future plans were presented as follows
Mr McCarty DATUS 00
Mr
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Mr widdup Amat.il
Mr Long Souza Cruz
Dr Stbtzer Interversa
Mr Stewart Lockhart B.A.T Co
Mr Best Wiggins Teape
Mr Ricketts B.A.T Stores
Mr Dennis B.A.C
Mr worlidge MPX
The presentations Included opportunities for new investment, acquisitions
and mergers, as well as divestments and disposals which were being con-
sidered.
Xtem N - EEC Directives
Sir Peter Macadam described the current situation and suggested likely
future developments of proposed Directives and initiatives in the EEC
which could impinge on our business. Be also referred to related
developments In the UN and to the Brandt Report.
1. EEC
(a) The vradeling Proposals are unlikely to become a
Directive In their present form and even an amended
version Is unlikely to become a Directive isforo the
latter half of 1982.
(b) Xt Is expected that the Caborn Report will be debated
by the European Parliament, possibly this nKuji*.
The Immediate significance of the Report lies In its
possible Influence an the climate of opinion on both
the Vrodeling Proposals and other draft legislation.
(c) Xt is likely to be some time before anything final
materiallses for the Draft Fifth Directive, which Is
concerned with the structure of companies and employs*
partla4pation.
2. UN
rho drafting of a Co" of Conduct for Transnationals Is con-
tinuing at a slow pace and there a" signs of a lessening of
enthusiasm for the Cod* on the part of the Group of 77. Prospects
for an agreed cod* are diminishing.
3. Brandt Report
TJ* Brandt Report will be the subject of a high level conference
In Mexico In October. Sir Peter felt that the Report was a
stop In the right dlrectlon, but that there war* apparent
~knesses, such as the emphasis on the transfer rather than
the creation of wealth and undue emphasis an the role of
governments and now International Institutions, while therole
and contributions of the private sector were Ignored. Lord
Greenhill suggested that, In spite of Its weaknesses, the N)
Report did point to the Interdependence and mutual interests
of developed and developing countries and he thought It would
have a considerable political effect.
OD
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Item P - Productivity
In presenting the !tam, Mr Sheehy said that improvement In productivity
of people and assets had become a more and more Important element In the
improvement of profitability. rim Is not on our side and productivity
Improvement Is particularly important in relation to competition Inter-
nationally.
rn 70bacco, Mr Sheehy demonstrated how over-optimistic forecasting can
and does prevent productivity performance from matching potential. In
people productivity, there is a reasonably good record In the production
function, but there are still areas for significant Improvements in
administration. He outlined the order of magnitude of potential gains
In asset productivity and described the opportunities and problem In
achieving them.
mr Best said that for Paper the main factor Is the combination of market
demand and mill capacity. He compared productivity performance for
carbanless paper In UX, Europe and USA. He noted that In Belgium,
who" legislation had necessitated a five shift system Instead of the
previous four shift system, there had been an Increase in production
with a slight reduction In people, due to lower absenteeism.
,Nr McCarty and Dr Erichsen spoke on productivity in Retailing in the US
and Germany respectively. The main problems in Improvement are the
cyclical nature of the work load and the difficulty of substituting
capital for labour. It was agreed that there should be further liaison
and co-operation between the Group's retailing interests on the subject
of productivity and particularly on a Comm= approach to the m6st
effective methods of measurement.
In sumndng up, Hz Sheehy said that the presentations had shown what has
already bean achieved and that they Indicate what further IWzovemnts
can be achieved over the next two or throw years If current efforts and
cowl I t are maintained.-
Item 0 - Staffing the Centres.
ur J)@nnIs prosented the item. He described the Problems and constraints
which need to be over, In order-to onsure that Group headquarters Is
staffed by the best people availab2ein spite of there being, very littlo
natural career progression within the functional departments of the
headquarters Itself. He also reviewed the approaches adopted by the
various Operating Groups to their own central staffing.
Resulting from tM discussion which followed, It was agrrood that
(1) Ideally, the Boards of B.A.T Industries, and of Operating
Groups where appropriate, should consist of people of different
nationalities, based In the UK. However, there have bean, and
still &re, real problem In achieving this &In, ArInce people
cannot be forced to move to another country for the last few
years of their career. Movertheloss, B.A.T Co expect*d to see
sow non-British nationals an Its Board In the next decade who
might move through to the B.A. Industries Board.
(2) Xntozchmg* of staff between operating Groups and the contra co
Is in the best long-term Interests of the Group as a whole and
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should be encouraged. Operating Groups will need to plan for
a small not loss of their very best people.
(3) Rotation of managers between Operating Groups and between
different industrial activities should be encouraged, although
it was accepted that the ease of transferability would vary
with the departmental function.
ztem A - Report on Share option scheme
Mr Dennis reported on the B.A.T Industries Employee Share Option Schemes,
which are open, subject to eligibility rules, to Group employees in the
LFK.
lream S - Organisation Structure
Sir Peter Macadam presented the Item. He described the present Group
Organisation and said that the cantre would be considering this year the
Implications of there now being nine directly reporting units, five of
which are Industrial and four of which are geographic groupings. Sub-
groupings could be considered.
No outlined the principal acquislUons since 1962 and the key structural
changes since 2973. He also dem=strated on graphs the effect of the
change In the Industrial shape of the Group an turnover and trading
profit, which is quite dramatic In the last decade.
Xten 7 - Special Ztems
2. rho RothmanslPhillp Morris association was discussed, with ;articular
reference to the current situation and likely future developments
In Canada, Australia, Germany and the LTC.
2. Mr Ricketts reported on litigation with Philip Harris In various
countries.
3. Six Peter Macadam confirmed that CAC VXZ would be hold In Australia
from lath to 16th July, 2982. wives would be Inv4tod on that
occasion. Mr VIddup &mid that the location would be at Hayman
Island, off the coast of North Queensland.
Chairi"n's Sunning UP
The Chairman said that the Conference had bean useful and be thanked
delegates for all the work they had done In preparing their presentations
and In havingr contributed so constructively to the discussions.
No noted that this year there was more empbaslo an Improving performance
In current Industries and their potential ortensions, rather than "Wang,
entirely now industrial activities, as the main strategy for profitable
growth. him* fully supporting this strategy and the need for continued
concentration on better utilisatdan of assets and cash, he said that we
should still be thinking of what businesses we should be In, and where,
In ton and twenty years' time.
He outline some changes which he proposed for the content and emphasis
of the pr4ravine for CAC V.TZ next year and said that further consideration 00
would be given to these before delegates to CAC VZZ were asked for their 00
oomments. N.)
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Finally,, he again thanked Dr StUtzer for the contributions he had made
to all the CACs and to the Smoking and K"Ith Conferences which preceded
then and extended to him his best wishes for the future when he retires
next year.
16th July, 1981
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BAT Industries document for Province of British Columbia 22 April 1999