CAC 11 : 110 DE JANEIRO
Item F : Tobacco
1. The consolidated Group forecast for 1989-1993 shows trading profits
from Tobacco growing at 9% p.a. and levels of profitability which are
sufficient for the activity to generate a substantial cash surplus
which will be available for investment in other activities.
2. Key assumptions underlying these forecasts are that the total
'free-world' market for cigarettes will remain approximately constant
at 2,850 billion p.a. and that the BAT Group will increase its share
of the market from 19.3% in 1988 to 19.6% In 1993, reversing the
Slight decline experienced in 1987 and 1988. Also, that market
conditions will be such that it will be feasible to continue the
current trend of improving profitability.
3. Supporting assumptions about the market are that:-
(a) Anti-smoking pressures will continue but will be contained.
(b) Taxation will tend to increase but the increases will be
moderated by the need to maintain the industry as a major source
of revenue.
(c) The impact of the Single European Market will be significant.
(d) There will be Improved access to monopoly markets both in Europe
and the Par East.
(a) There will be increases In sales in Latin America. the Indian
sub-continent. the Middle East and Africa, offsetting slow
declines in the markets in North America. Europe and the Par
East. This will maintain the total market at current levels,
extending the trends which have been established over several
YOO M -
(f) For the product, there will be a continued fall in levels of
delivery but at a slower rate than La the post. Full flavour
products will continue to dominate with a continuing trend in
consumer, preference towards US type blends.
(g) There will be some increase in the po larizat ion of markets with
International Brands increasing at one and of the price range
but with emphasis also being given to value-for-money segments
in many markets with competition Increasingly using pricing or
the postponement of price increases as a competitive tool.
(h) However, overall profit levels will also be influenced by the
strategic need for Philip Morris and &.J. Reynolds to maintain
the cash flow from their tobacco businesses.
(I) A key assumption for the US market is that the price of
cigarettes will continue to rise significantly faster than
inflation (enabling BATUS to continue increasing profits despite
increasing the proportion of sales in the value-for-money
segment).
4. A first issue for discussion will be the accuracy of these assumptions
and the identification of key sensitivities likely to affect the
relatively favoucable industry environment which is projected.
especially where these impact on the projections for the Group's own
Tobacco businesses. -4
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S. Other issues for discussion will be:-
(&) Likely developments in the competitive environment with particular
reference to the extent to which the new financial pressures on &.J.
Reynolds and Philip Morris and the comparatively poor showing of the
other major Tobacco companies represents an opportunity for B.A.T
Industries.
(b) Likely technological trends in products and processes within the
industry and the adequacy of the current R&D programm as a means
for enabling the Group to establish a competitive advantage through
having a capability to build on the recent good record in launching
Innovative now products and In establishing facilities for lowest
cost production.
(c) Opportunities for strengthening the current rather weak market
position In Europe and the costs of doing this in relation to the
potential benefits.
6. Delegates will also be asked to comment an the extent to which the
recently expanded Tobacco Strategy Review Team meets the need for
coordinating Group policies and strategies, to discuss whether further
co-operac Lou might be desirable and, if no, the optimum method for
achieving this.
7. Taking the session as a whole, the sine will be to identify key
sensitivities in the current projections for the Group's Tobacco
activities and to identify new initiatives which might be taken to secure
and if possible Increase the contribution of the activity to the overall
development ot the Group. Implicit in this will be the question as to
whether it Ls possible to identify specific opportunities for investment
In Tobacco which are at least an attractive as opportunities within the
Group's other major activities.
RS/DJA
23rd March 1989
C)
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BAT Industries document for Province of British Columbia 21 April 1999