SECRET
C.A.C. VII - HAYMAN ISLAND
CONFERENCE NOTES
Chairman's Introduction
The Chairman welcomed all delegates and thanked Mr. Wi ddup
and his colleagues at AMAT I who had worked so hard to make all the
arrangements.
In outlining the background of the original three Smoking and
Health Conferences and the subsequent seven Chairman's Advisory
Conferences, the Chairman suggested that one of the secrets of the
success of these meetings has been the consistency of. individual
attendances.
In referring to the B.A.T Industries 1981 results, he said
that the results were extremely good, particularly when viewed against
the background of a world in varying degrees of recession and turmoil
and also against varying exchange rates and interest rates. He
remarked on the several outstanding performances by Associated
companies, led by Imasco and AMhTIL.
In the Chairman's Speech at the A. G. M. -9 he said that he saw
progress in all our businesses in 1982, but that the overall picture
would not show quite the same excellent rate of improvement as was
achieved in 1981. The signs of genuine recovery in the economies of
the world are still but few. However, there are indicators that the
gloom of recession may be lifting and there are reasonable expectations
for better working conditions in 1983.
Two events have recently occurred which will have deep and
lasting repercussions on the world economic and political scene - The
South Atlantic crisis and the Lebanon situation.
It is now a matter of winning the peace in the South Atlantic
and the internal situation in Argentina could get considerably worse
before anything can be achieved. It is odds-on that there will be
considerable civil disorder before some form of civilian goverment
emerges with whom the U.K., the U.N., the U.S. or anybody else can
deal. The scars and wounds of the battle will make It difficult to
find an early solution.
The problem of Israel and the P. L. 0. is, in many ways, more
dangerous. The position of the U.S. is hardening against Israel and
there are prospects of Syrian and other Arab intervention. This would
put the supply of oil from the Middle East in Jeopardy, as well as
bringing on to the scene the possibility of greater Russian
intervention.
Turning to the B.A.T Group. the Chairman outlined the main
changes which had occurred throughout the Group over the past twelve
months and said that there are a number of immediate internal problems N)
which require attention. In Tobacco, where continuing positive
attention is essential, the Smoking and Health issue must be a top
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priority and among other more direct competitive areas, the co-
ordination of international brands remains a problem. The Paper
business requires some clearer definition of its role and position in
1990 and on to the year 2000. Further efforts need to be made in the
worldwide expansion of Printing and Packaging. A decision will need
to be taken regarding the future development of the Cosmetics business
and a period of consolidation is needed in the Home Improvements
business in Germany. There is also a requirement for consolidation in
Retailing in the U.S. after the Marshall Field acquisition and a number
of fundamental questions will have to be answered concerning Retailing
in the U.K. and Germany. All in all, there are a number of
challenging situations and questions for the future.
Item A - Outline of Current Situation
Presentations were made as follows:
Mr. McCarty SATUS
Mr. Pare Imasco
Mr. Wi ddup A14ATIL
Mr. Long Souza Cruz
Dr. Erichsen Interversa
Mr. Stewart Lockhart B.A.T. Co.
Mr. Best Wiggins Teape.
The presentations highlighted major changes over the past
year, described the current situation and sumarised the main current
problems and opportunities.
Item 8 - Situation ReRorts
Presentations were made as follows:
Mr. Sheehy BAT Stores
Mr. Stewart Lockhart KPI
Sir Peter Macadam BAC
The presentations described the businesses of the three
Operating Groups which were not included in Item A. They sumarised
the main problems and opportunities and outlined lines of possible
future development.
Item C - Organisation Structure
Sir Peter Macadam presented the item. He outlined the
principal acquisitions since 1962 and the key structural changes over
the last six years. He described the present Group Organisation and
demonstrated on graphs the effect of changes In the industrial shape of
the Group on turnover and trading profit. A paper was circulated
showing B.A.T Industries Directors' representation and liaison
responsibilities at Operating Group Board level.
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Item D - Corporate Relations
Mr. Sheehy presented the item. He covered the following
four major areas:
- Financial Communications
- Government Relations
- International Trade and Investment
- Corporate Responsibility.
For each area he defined the issues; outlined the Group's
basic stance and strategy; and sumarised recommendations for action.
In the area of Financial Communications, Mr. Symons said that
the City was becoming more aware that the Group has important stakes in
countries round the world. Group Headquarters, therefore, needs to
have prompt appraisal of information published by overseas companies
which might have an effect on the B.A.T Industries share price.
In summing up, Mr. Sheehy said that, while a lot has been
achieved and activity is continuing, there is still a long way to go in
each of the four major areas.
Item E - ON/EEC/DECD
Sir Peter Macadam presented this item covering UN/EECIOECD
developments as they impinge on multinational companies. A summary of
his presentation will be circulated as Si trep 4 immediately after the
Conference.
Item F - Energy Managewnt Reports
Reports on Energy Management in their respective companies
were made as follows:
Mr. Stewart Lockhart B.A.T. Co
Mr. Best Wiggins Teape
Mr. McCarty BATUS.
Agreat deal of work has been done over the last few years
and significant savings have been made. In some cases there is
comparatively little more that can be achieved, but continued efforts
In fine tuning, as well as searching for further innovations, can and
will yield additional gains.
Item H - Smoking Issues
Mr. Stewart Lockhart presented the. item. Three major topics
were discussed. Messrs. Long, Widdup, Pare", McCarty and Dr. Erichson
contributed to the discussion on each topic from the viewpoint of their
respective countries.
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The three topics were:
1. The credibility of the industr@
The credibility of the industry will remain a key issue for the
foreseeable future and attacks by anti-smoking organisations are
becoming more intense. There is no simple or speedy solution, but
it was agreed that some positive steps can and should be taken:
a) Continuing support of INFOTAB and strengthening of National
Manufacturers Associations where this is needed.
b) Further and bolder action in mobilising support from allies of
the industry.
c) Continuing the industry stance that Smoking and Health is still
a debatable issue and that more research is needed, rather than
propaganda.
d) Ensuring that blatantly incorrect allegations are refuted.
wherever possible by independent people or bodies such as
doctors and scientists. To this end, an effective
intelligence and surveillance system is necessary.
e) Further work on defining and agreeing an industry stance on
promotional standards and allegations of double standards.
This is already an important issue and is likely to remain so.
2. Obstacles/Enemies of a swing to low tar
The obstacles/enemies of a swing to low tar were outlined, as were
other relevant considerations. The main issues are:
a) Do we wish to pursue, or maintain, or reverse the movement
towards low tar products?
b) If we wish to pursue the movement. where should we stop?
It was agreed that this topic should be referred to the next B.A.T.
Co Conference and that in the meantime our general policy should be
to continue to offer a full range of products which meet consumer
demand.
3. Direction and level of resources in R A D
It was noted that co-operation in R & 0 between C.A.C. Companies
had improved over the last two or three years and that relations
between R & D and Marketing departments had also improved. It was
proposed that consideration should be given to the holding of
occasional joint R & 0 and Marketing Conferences.
The general direction of the effort and activities of G R D C, and
its current budget. were endorsed.
It was agreed that BATUS will investigate and advise delegates of
the latest position regarding research on Compensation.
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In addition to the three topics, it was noted that tax rates
on tobacco products are rising excessively steeply in many countries
and tax levels. whether for budgetary purposes or because of pressure
from anti-smoking groups, are a cause of considerable concern.
The video tape 'Parliamentary Film" was introduced by
Mr. Stewart Lockhart and shown.
Items J, K and L - Group Profit and Cash Forecast
-View
- Group 10 Year
- Investment Strateiy
Mr. Sheehy introduced the paper "Group 10 Year View and
Conclusions 1982', which had been presented to the Board of B.A.T
Industries on 29th June. He described the purpose of the paper and
outlined B.A.T Industries' Objectives and the current si tuat on/past
performance of the Group.
Mr. Symons then presented the Group Profit and Cash Forecast,
covering the five years to 1986, which had also been presented to the
B.A.T Industries Board on 29th Jun ; He explained the reasoning
behind some of the B.A.T Industrie: objectives and outlined the
forecasts, covering in particular Trading Profit, Returns, Cash Flow
and Debt/Equity. He said that there is still a tendency to under-
estimate the level of investment required in the later years of
forecasts and that a system to overcome this tendency needs to be
developed. This is being investigated at Group Headquarters.
Mr. Sheehy then referred again to the Group 10 Year View
paper. By considering an analysis of each of the Group's Industrial
activities, he outlined the longer term potential for profitable growth
and the consequent issues facing B.A.T Industries. .
In the discussion which followed, the following points were
raised:
1. The possibility of adopting regional strategies for growth,
compared with the previous emphasis on global strategies.
2. The required level of returns in different Industrial
activities.
3. 'The need for cash pay-back from investment within a reasonable
time, as well as for profit growth.
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Item M - Productivity
Mr. Sheehy presented a paper on Asset Productivity. Copies
of the paper were circulated to delegates who wished to have one.
Mr. Sheehy said that the central purpose of business is to
put in cash today in order to take out more cash tomorrow. This is
achieved if the return on assets employed is sufficient so that, over
the long term, the business produces enough cash to pay dividends and
to invest in further real growth after allowing for inflation.
He considered what has been achieved in the past, the
potential for improvement in the future and how we are planning to
achieve that potential. A carefully planned and long term approach to
improving Asset Productivity is needed.
An analysis of past performance and future plans of the Group
as a whole and, in particular, of Wiggins Teape, 14PI and BATUS Retail,
prompted four questions:
1. How fully in the past have we acknowledged the importance of
asset productivity to the profitability of our businessess?
2. How carefully have we examined the opportunities for improving
asset productivity?
3. What obstacles have we identified that could impede such
improvements and what would be the costs of better
performance?
4. How stringently are plans examined to ensure that programmes
are in place to achieve improvements in Asset Productivity
reflected in the plans?
There is a great deal to be gained from improvements in Asset
Productivity, and this should be emphasised in next year's plans, with
particular reference to the above four questions. Consideration will
also be given to Operating Groups being asked to report on trends in
key ratios half-yearly.
Item M- - Special Items
1. Mr. Symms reported on the current situation regarding Unitary
Tax. There is now less reason for optimism than the -was a
year ago. There have been setbacks at State and Federal level
and there are now thirteen States which have adopted the Unitary
Tax system on a worldwide reporting basis. compared with the
original three. Apart from the possible tax burden, the cost
of compliance is very high and there Is a danger of the system
spreading not only to other States In the-U.S. but also to other
countries.
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However, at Supreme Court I evel there are some slightly more
encouraging signs. The Supreme Court is taking a stringent
view of the definition of what is a Unitary business and there
are tentative indications that foreign owned companies might be
exempted.
2. Mr. McCarty reported on the latest position regarding
FTC/Appleton
3. Mr. McCarty reported on the latest position regarding
FTC/Barclay.
4. Mr. Sheehy advised that Dr. Erichsen has kindly agreed to host
the next C.A.C. in Germany next year. It will be held in the
week commencing Sunday, th September, 1983. Wives will be
Invited.
I tem'P - Summary of Future Plant'
Summaries of future plans were presented as follows:
Mr. McCarty BATUS
Mr. Part Imasco
Mr. Widdup AMATIL
Mr. Long Souza Cruz
Dr. Erichsen Interversa
Mr. Stewart Lockhart B.A.T. Co
Mr. Best Wiggins Teape.
The presentations included opportunities for new investment,
acquisitions and mergers, as well as divestments and disposals which
were under consideration.
Chairman's Summing Up
The Chairman said that the Conference had been interesting
and that the quality of presentations had been very high. It has been
a very professional meeting.
He noted that all companies were reporting difficulties of
varying severity in the current economic and political conditions.
He emphasised the necessity for the establishment of both
Virginia and Blended International brands with wide coverage and
wondered whether the current level of advertising expenditure was
sufficient.
At one stage in the programme, an introspective and critical
view of the Group had been taken and this was both useful and healthy.
One of the issues which &rose was centralisation/decentralisation. He
thought this could be the subject of a good debate in the future, but
his current thinking was that, given equal excellence in communication
and management, decentrallsation is and will continue to be the best
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He remarked on the differing levels of real returns on assets
which were both required and attainable in different countries and in
different industries. Perhaps a rather more flexible definition of
acceptable levels should be devised. However, he stressed once again
the necessity to concentrate on improving the performance of all
businesses in the Group and to dispose of any which seemed incapable of
achieving acceptable returns (25%/15% CCA at 10% inflation?).
The anti-smoking lobbies have become even more active and
this trend will continue. Perhaps. therefore, future Conferences
should revert to spending rather more time on Smoking Issues so that
more positive conclusions can be reached. Another issue which might
be considered for future Conferences is the question of regional
strategies for diversification, compared with the global strategies on
which emphasis had been placed over the last three or four years. -
He noted that the B.A.T. Co Headquarters at Millbank had, of
necessity, been devoting a great deal of time and effort to the
re-organisation and re-definition of role resulting from the changed
organisational arrangements for BATUS, Interversa, Imasco and AMUR.
In conclusion, the Chairman said that he thought it had been
a very good meeting and he thanked delegates for all the work they had
done in preparing their presentations and in having contributed so
constructively to the discussions. He wished them all the greatest
success for the future.
16th July. 1982
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