CAC X ; LONDON
COVISRERM NOTZS
Item A : Chairman's Introduction
The Chairman thanked Sir Jasper Hollow. for making William Kent House
available for the conference and welcomed the delegates, especially
Mr. Slobom, Mr. Butt and Mr. Rombaut who were attending a CAC for the first
time.
Reviewing the period since the previous CAC bald at Phoenix in April 1985,
he said that there had been continuing progress in implementing the Group's
agreed strategies. In addition, there had been good profits growth La 1966
after a year'Ln 1985 when the results had been adversely affected by the
weakening of the US dollar compared with 19$4.
Looking back over the past five years, there had been reasonable success in
devising mid implementing plans to improve the profitability of existing
businesses and there had also been soma major moves into now growth
activities In linancial Services.
However, the Group had still not identified sufficient well defined
opportunities for Investing in growth either in current businesses or in
now activities and he would have preferred to be in a situation where there
was more competition for the financial resource* that the Group's existing
activities had been proved to be capable of generating.
There was no shortage of ideas but few had rtachad the stage of a firm
proposal for investment and it was suggested, therefore, that the
conference should concentrate on trying to dotarmins which of the any
options for Group development looked sufficiently promising to justify
giving then priority consideration.
The Important criteria for assessing the attractiveness of Cho options
considered would be:-
(a) The potential for growth.
(b) The Group's ability to achieve and maintain a competitive
advantage.
(c) That the opportunity was large enough to be of potential
significance In Group terms.
(d) That there was a feasible route to implementation.
The programme for the conference was similar In structure to that for
previous CAC's, with the first day Siven over to a series of presentations
describing the current situation wed immediate plans foe the Group's
existing businesses and the following two days allocated to a discussion of
the development options for the Group. The final day would then be
allocated to Tobacco and to a discussion of management Issues.
L4
0%
BAT Industries document for Province of British Columbia 21 April 1999

2 -
Item 3 : Operating Group/company Reviews
The current situation and prospects for their respective businesses were
reviewed by:-
Mr. Worlidge : Wiggins T*ape
Hr. Prison : BATUS
Hr. Roubaut : Souza Cruz
Mr. Ilroall : RATCo.
Dr. grichson : UTIG
Hr. Wills : AmatLl
Mr. Crawford : Imsco
Sir Jasper Rollou)
): Eagle Star
Mr. Butt ) -
Sir Mark Weinberg : Allied Dunbar
Mr. Long : B.A.T Stores
Item C Financial Issues
Mr. Long presented the Financial Forecast for the Group.
He started by analysing the Budget for 1987 and showing the sensitivity to
movements in the exchange rate of Sterling, where a I cent movement in the
US dollar rate leads to a =vacant of tAm In operating profits.
Considering the five years to 1991, it was shown that the forecast profits
growth was heavily dependent on Tobacco and on Retail and there was also an
important contribution to growth forecast to come from Souza Cruz.
Much of the Increase in profits was forecast to cam from improved
performance and there was very little underlying growth. In addition, the
levels of performance being forecast represented a higher level than had
been achieved previously and It would take vary positive management to meet
the forecasts.
Mr. Slobom presented an analysis of the resources which could be
available for Group development, totalling E2.8ba by the and of 1987,
assuming the Debt:Equity ratio was allowed to rise to 65%.
Considering possibilities for increasing the availability of funds, the use
of now equity was discounted on the grounds that the P/E relative was still
comparatively low at 0.58 and that it was an expensive method of funding.
There was also a limited potential for raising additional cash in other
ways than through equity. Part of the reason for this was that a
significant part of the cash raising potential of the existing operations
(e.S. through sales of "sets and receivables) had already been realised.
Mr. Carraway said that although the forecasts showed a satisfactory
progression of profits and a continuing strong cash stream from the Tobacco
activities, there was a degree of fragility La the figures shown. Previous
experience had show that there had tended to be a significant degree of
optimism in forecasting, especially with respect to the later years and the Pk.)
figures for any given year had been discounted progressively in successive CD
forecasts.
-4
LA
BAT Industries document for Province of British Columbia 21 April 1999

3
He emphasised the importance of maintaining a tight control on assets and
highlighted Retail inventories as an area requiring particular attention.
Re also underlined the importance of achieving and maintaining a position
as the lowest cost producer an a basis for "ruing good marlin*.
Although agreeing that there were limitations in the degree to which equity
could be used either in acquisitions or as a mans for raising additional
resources, he did not entirely exclude the possibility of increasing
equity. The issue of equity in place of dividends and the possibility of
small issues in European markets could add to the total. There was also
the possibility of having a rights issue after an acquisition in order to
reduce an extended Debt:Zquity ratio.
Taking an oviirall view of the Group's forecasts, the major problem which
was highlighted was the lack of underlying growth. The dependence on
improving margins and sales/asset ratios was a continuing source of
vulnerability.
'In discussion it was agreed that because of the increased importance of
Paper and General Insurance, the Group was more vulnerable to cyclical
trends than had been the @as* in the past. Experience in the developing
countries had also shown that Tobacco sales were not as. recession proof as
had once been thought. Volume in these countries were very dependent on
the real prices of the product and when these fall the beneficial effects
of Increased sales were offset by reductions in margins. The forecast rise
in ROMAN for Tobacco was partly a reflection of the depreciation of the
assets employed in the business but also reflected good margins, especially
in the USA. The" could. be vulnerable to market trends, especially if now
management in one or other of the major manufacturers decided to use price
cutting as a strategy. This had already had a serious affect an
profitability in Germany, Canada and Venezuela.
However, despite these vulnerabilities, it was stressed that there was
still a good cash producing potential in the Group which was moving towards
being und*rgesred. The cash flow also provided a potential for moving to a
high Debt:Equity ratio an a temporary basis since this could be restored in
succeeding years, as had been demonstrated following the acquisitions of
eagle Star and Hasbro Life.
CO
a%
--4
L4
0%
(A
BAT Industries document for Province of British Columbia 21 April 1999

4
Item D : Group Strategy Review
The Chainua reviewed the Group's objectives and performance and the
progress which had been made against the strategies which had boon agreed
in 1982 and which were still largely in place.
During the period from 1982 to 1986:-
(a) The performance in Paper/Pulp and Retailing in the UK had been
radically improved.
(b) Several businesses which were either low performance or outside
the mainstream activities had been divested.
(c) There had been successful entries to Financial Services in the
UK and Canada.
(d) The financial results had comfortably exceeded the Group's
objectives and the shareholders had dome extremely wall,
obtaining an outstanding return on their investment.
However, despite these favourable trends, there were still problems to be
resolved In several areas of the business, especially in Retailing. In
addition, although the performance had comfortably exceeded the objectives,
a comparison with the other major UK companies suggested that these
objectives say aot have been sufficiently demanding to ensure that B.A.T
Industries maintained its record of being in the upper quart of
performance.
Reviewing trends in the business environment, it was suggested that taking
an overall view of 1986-91 compared with 1981-86, it seemed likely that it
would be harder to achieve similar rates of growth In sales and profits.
Economic growth was likely to be lower and there would be no net gain from
currency translation&. Thus, although the Group's business environment was
still expected to be reasonable, It was unlikely that it would be quite an
favourable as had been the case in 1961-86. It was against this background
that future prospects, objectives and strategies needed to be assessed.
The main conclusions from the Strategy review were that-
(a) Consideration should be given to Increasing the growth
objectives for B.A.T Industries to 8Z p.&. for dividends and
earnings and to 6Z p.a. for "lea which, taking Into account the
expected low growth in Tobacco. would represent 92 P.&. for
other activities (all figures In real term after eliminating
the effects of Inflation).
(b) Priority should be given to considering options for accelerating
the growth rate of existing activities, looking first for
opportunities for increased organic growth.
(c) The next options to be considered after this should be
opportunities for adding complementary activities which were
sufficiently close to the existing business to be able to draw
extensively an existing strengths.
C)
E.
'-4
QQ
CY%
BAT Industries document for Province of British Columbia 21 April 1999

(d) Opportunities for acquisitions of now businesses could also be
considered but the difficulties in developing and justifying a
proposal of this type should not be underestimated.
(e) The main thrust of the Group's development should continue to be
in Financial Services, Retailing and Paper/Pulp but it might
also be necessary to consider opportunities for Agribusiness
developments where diversification was necessary to support the
Tobacco business and to maintain a strong position in a specific
developing country where it was not possible to develop in-one
of the Group's other mainstream activities.
(f) Further work would be required to determine whether a stronger
Organisation was needed to support these Agribusiness
developments and to determine whether the Group's developments
in Biotechnology have real value in providing a basis for
achieving a competitive advantage in this field.
(g) Geographically, the main emphasis should continue to be given to
investing in UK/Europe and North America but further work would
be required to allocate priorities between the different
countries within this North Atlantic bloc.
It was noted that there were a preponderance of development projects which
were at a comparatively early stage and it was concluded that, unless a
limited number were selected for priority treatment, there was a danger
that none would reach a decision point within a reasonable time scale. It
was essential. therefore, that every effort should be made to identify
which projects hold the most promise in order to be able to make the right
choices on priorities.
It was intended to consider with the Operating Groups, Amatil and Imasco a
clearer definition of investment opportunities In each of the Croup's major
areas of activity as a basis for deciding priorities for Implementation.
It was suggested that this need to identify the most promising prospects
for development should be borne in mind in the discussions during the
conference.
C:)
-4
'-4
Ln
BAT Industries document for Province of British Columbia 21 April 1999

6
Item E Paper and Pulp
Mr. Worlidge reviewed the prospects for the Paper and Pulp sectors
worldwide. The Group is mainly active in Printings and Writings which are
likely to show growth rates slightly in advance of CDP growth in North
America and Western Europe, with Cacbonless and Copier paper continuing as
the fastest growing product groups. Elsewhere, growth rates for Printings
and Writings are likely to be higher (e.g. in Brazil) but in developing
country markets per capita consumption is much lower than in the developed
world.
The economics of pulp production are crit dependent an the cost of
wood and this favours fast-growing Eucalyptus from Brazil and Iberia and
Radiata Pine from Chile and New Zealand. These and other low cost sources
which may be -developed where the climatic conditions ace favourable, are
expected to show rates of growth considerably higher than for Scandinavia
and other traditional sources of Northern Softwood.
A significant industry trend Ls a continuing increase in the linkages
between paper manufacturers and pulp producers with integrated production
being an important economic factor for products such " copier paper and
with affiliations also being important in guaranteeing the availability of
pulp supplies where full integration is not appropriate.
Another factor which has to be taken into account in considering the
optimum papec/pulp strategy is that whereas Softwood Pulp La normally
produced as pact of a total operation including sawmills producing cut
timber, Hardwood is often produced only for pulpLog.
Describing the development strategy for Wiggins Teape, Mr. Worlidge
said that this was centred an maintaining and extending a lead in Printings
and Writings and especially in Coated Papers. Important adjuncts to this
strategy were to establish complementary strengths in Herchanting and
Distribution and in the supply of Eucalyptus Pulp. It was also believed
that their business in Self-Adhesive products used complementary skills and
could be a useful extension to the main activities.
Key features of the strategy were the use of the strengths in Merchanting
to extend the market share in Carbonless in Europe from 32.8Z to 34.52 by
1995. This would lead to a requirement for additional production capacity
of 93.000 tonnes of bass paper. This would be met by switching capacity
currently used for copier paper which would be transferred in turn to new
integrated facilities which were planned to be added to the pulp mills in
Portugal and Spain.
Wiggins Teapo are seeking opportunities to accelerate the rate of growth of
their existing activities and in addition to the projected Investments in
paper asking in Portugal and Spain, opportunities for acquisitions in other
European countries are also being considered, including an acquisition to
strengthen the market position in self-adhesive products.
In discussion, It was agreed that there were possible problems Inherent
in the management of distributors by manufacturers and the importance of
the mcchanting operations both retaining a degree of independence and
having appropriately skilled management was stressed. P-3
=1
E.
-.4
Cy%
4
L4
0%
0%
BAT Industries document for Province of British Columbia 21 April 1999

- 7 -
It was questioned whether the Self-Adhesive business might be too small and
too far divorced from the rest of the business wad hence represent a
dissipation of management effort out of proportion to the potential
benefit. However, Mr. WorUdge argued that because of the related Coating
technology and the similarity of the marketing outlets, the business was
closely complementary to the main care businesses In using similar skills
and expertise.
Mr. Frigon outlined the development options for Appleton where the
two key issues are the optimum strategy co maintain leadership in
Carbonless and the options for broadening the business to provide
additional opportunities for expansion when the current growth phase of
Carbouless comes to an end.
It was noted that since Appleton already have a dominant position in the
market, the opportunities for growth through improving market share in
Carbouless are necessarily United. However, since the market an a whole
is still forecast to grow at a rapid rate for at least the next five years,
this is not seen to be a major problem at present.
Considering opportunities outside the existing business, It was noted that
90-952 of Appleton's sales are in Carbouless. Of the other activities, the
Graphics Art products are thought to have a limited potential and although
the Non-Impact Printing products look more promising, the total size of the
market La such that the" do not represent a major development opportunity.
One option to be considered was a move into distribution but the structure
and the nature of the competitive practices in this sector make it
unattractive. An entry into pulp manufacture was also considered but
further study suggested that rather than move in this direction, it would
be preferable to concentrate on being affiliated with B.A.T Industries'
pulp producers in other countries.
The most promising option to be considered so far was a possible move into
Publications Paper or Printings and Writings. Those market segments ace
relatively large, have good rates of growth and are not dominated by one or
two major companies. There La also an &4dod advantage that the acquisition
of a company in this type of activity could provide additional base paper
capacity to support the growth of Carbonless. Work is in progress to
identify specific options for further consideration.
Mr. Rambaut said that Souza Cruz were in the process of reviewing and
redefining their strategy for Paper and Pulp development. This is a growth
market sector in Brazil and, nationally, there are a number of major
projects under way in both Paper and Pulp.
Souza Cruz started from a good base In Pirahy but there were constraints on
the company Inherent in the limitations of the current site and in securing
guaranteed supplies of pulp. Through the interest in Aracrux. there van a
connection with a successful producer which was well equipped co expand Its
production of Internationally competitive pulp. However, Chore was a major
problem in establishing a satisfactory relationship with the other
shareholders which would allow an adequate degree of control over the
future development of the company.
Souza Cruz will have developed strategy proposals by July and these will CD
then be discussed by the CPC- A priority in these will be to identify ways
in which a Carbonless business can be developed in Brazil. -4
... L4
BAT Industries document for Province of British Columbia 21 April 1999

Mr. Bruall said that-there were development opportunities for
Bhsdrachalan in India where there was a possibility of investing in a
greenfields pulp project. Further progress on this was being delayed by
the difficulties ITC (who own 40% of Bhadrachalan) were experiencing with
their Excise Tax dispute.
In Argentina, the main opportunity depended on the development of the
Zarate site and it was hoped that negotiations could be resumed on this now
that the owners of the site, Cellulose. had cone out of receivership.
In Chile there could be an opportunity to be associated with a
consortium developing a now pulp still based on Radiate Pine. However. the
main interest In this project would be as part of a wider strategy to
become established in Paper in the Pacific Basin, possibly in combination
with a Japanese Company.
Summarlsing, the Chairman said that the discussion had been encouraging
in that it showed that significant progress had been made over the past two
years in developing the Group's strategies for Paper and Pulp.
Although there were good opportunities for continuing high rates of growth
in Carbonless in existing markets over the next five years, there was a
clear need to establish renewal options for the longer term. The current
view was that there could be opportunities with good growth potential and
where It should be possible to achieve leadership building on existing
strength*.
The challenge now was to identify specific investment opportunities (which
were likely to be large in scale) through which it would be possible to
expand and extend the business in order to provide the base for sustaining
growth into the longer term.
CYN
4
OD
BAT Industries document for Province of British Columbia 21 April 1999

9 -
Item F : RetallIPA
Mr. Sheehy reviewed the status of the Group's current retailing
activities and suggested that although it was important that a high
priority should be given to resolving the problems in those businesses
which were not performing satisfactorily at present, the discussion should
concentrate an identifying opportunities for profitable growth, once a
satisfactory base had been established.
Ho emphasised that although retailing as a whole was likely to grow at
rates close to those at which CDP grow, there were many examples which
showed that, by defining a concept and pursuing it efficiently, the better
retailers could achieve and sustain very high rates of growth and
profitability.
Mr. Crawford said that Imascols choice of retailing as an activity to
develop had been founded on good growth prospects based on demographics.
They also believed that it was a sector that offered good margins and
returns.
In Hardees they now had around 2,700 outlets of which 900 were company
owned and 1,800 were franchised. Pressures included rising real estate
values. rising costs in advertising and fluctuating beef prices. The
overall market was growing only slowly and, at present, the only major
chains that were growing in real terms were MacDonslds and Hard***.
Despite the market pressures, it was still believed that there were good
opportunities for development including the possibility of an acquisition
to extend and consolidate Hordes's geographical coverage. Other options
included taking cash out of the business through the sale and leaseback of
its real estate and through new arrangements for the manufacture of the
supplies for the restaurants. Considering opportunities for expansion, one
of the growth are" in eating-out was an increased demand for something
better than fast food. Rardeas were experimenting with 5 restaurants under
the Mesa Grisanti name and soles at these restaurants were currently
running 30% above budget.
Shoppers Drug Ls a franchise operation which has around 27% of the
Canadian drug store market. Opportunities to Lucrease this were being
sought through organic growth and through Sap filling acquisitions-in. parts
of the country where the share Ls currently low. A key question in the
longer term is whether the chain should be extended into the USA.
Peoples Drug. with 830 outlets, is currently in difficulties, caused by
the previous management spending too such time on diversif ication and
allowing the core business to go out of control. However, it Ls still felt
that the industry demographics are positive and, once control has been
re-established, the prospect* far expansion should be good. Mr. Crawford
also remarked that it had been advantageous to be able to apply the
management expertise available in Shoppers Drug in tackling the problems in
this business.
Overall, Imasco maintained its commitment to Retailing which is still seen
as a good development opportunity. P11)
E
-14
(,j4
0%
BAT Industries document for Province of British Columbia 21 April 1999

- 10 -
Mr. Frigon said that SATUS had covainsionod Management Horizons to
identify the key trends in US retailing and believed that BATUS was wall
placed to take advantage of these treads. The best prospects for growth
and profitability were believed to be La Department Stores and Apparel and
BATUS were strong In each of theme.
Saks were continuing to develop their existing business and had
strengthened their capabilities In Information Technology aid in their
ability to monitor and react to consumer perceptions of the store. They
did not see development overseas as an opportunity that would give a good
return on the effort that would be required to pursue Lt. However, if the
free trade negotiations develop favourably, Canada is a possible market
extension that my be worth further consideration. Saks is also
considering ideas for internal diversification by extension* of the range
of products and services offered. A key criterion for these is that to be
acceptable, an idea should have the capability for generating a minimum of
$loom P. a. additional turnover and $10m p.a. additional profits.
Marshall Fields is also believed to have a good potential for expansion
but this is being hold back until the present operations are brought to an
acceptably high level of performance and until there has been further
definition of the image of the company such that there can be a clear
recognition of what Marshall Fields stands for wherever it is established.
This is felt to be particularly important as a cornerstone to any
development plan.
In Ivey'@, the immediate priority is to complete the consolidation of
the company before defining the concept around which its future expansion
will be built. It La believed that there is a good market potential for
this business and that the numbers quoted in the current plans for the
business may be understated.
Brounere Retail is thought to be well positioned to profit from a
market opportunity which should develop for furniture retailers as the
department stores continue to withdraw from this market sector. Furniture
retailers generally make a good return in the USA and the first task will
be for Brounece to improve its performance from the currently depressed
levels.
groaners Rental Is also thought to be capable of further development
but Thimbles still requires further study to determine whether it is a
viable concept.
Dr. Zricbsen outlined the current situation for Rortga, where the
immediate priority was to formulate detailed plane for splitting the
existing 58 store chain into three separate chains, retaining 28 stores as
department stores, and finding suitable partners for a chain of 6 Carsch
House stores and for a chain of 14 StIf-Service/Weighbourhood stores. In
addition, it would also be necessary to devise plans for the future of the
other 10 stores which do not fit immediately into one of theme three
classification&.
A first key stage in the effective reduction of the size of the Hortaft
department store chain from 58 to 29 stores will be a reduction In the
central overhead and plans for this are being formulated. N)
CD
(J4
13AT Industries document for Province of British Columbia 21 April 1999

Mr. Long "id that the first priority for Argos would be to develop
the existing business to Its full potential, Including the large format
Superstores and the small format Best Sellers an well as the conventional
stores, the format for which would be modified taking into account the
experience gained with the Superstores. Argos were currently considering
how the development of their existing activities might be accelerated and
one of the options to be considered might include an acquisition to provide
additional sites.
In addition to the development of existing activities, Argos were also
considering the possibilities for extensions through corporate sales (e.g.
incentive schemes) and through mail order. The potential for other forms
of home selling was also being kept under review. Consideration had been
given to the Plot anti a I for overseas developments (e.g. through liconcing
the concept) but although Argos would respond to Initiatives an this, It
was not thought that this was a promising line of development.
Opportunities for developing or acquiring now concepts would also be
evaluated and preliminary work bad identified a range of concepts that
appeared to have some potential, including a 'membership warehouse'.
Jewellers Guild had been under trial for a year and results from the
current range of 35 stores would be evaluated during 1987. prior to a
decision regarding the longer term future for this concept.
Summarising, the Chairman. said that the discussion had confirmed the
view that there were good prospects for profitable growth in Retailing. It
has also confirmed that there were good prospects for expanding the Group's
existing operations and this should have the highest priority when
considering the options for development.
Looking to the longer torn, there was a need to identify and implement new
concepts. Key factors for success in a new business were likely to be that
it is based on an original concept which is applied consistently in a range
of outlets but which is also updated periodically in response to consumer
research. It will be preferable for the concepts to be in specialty
businesses and to be systess-driven.
Another point arising from the discussion was that staff training is a key
issue which might writ further consideration, especially in view of the
high turnover of staff in retailing.
Consideration had been given to the potential for linking retailing and
financial services but it had been concluded that although this might be of
Interest in the longer term, no-one had yet derived a formula for
successfully combining the two activities in a way that offered significant
opportunities for Joint development. Similarly. although it would be
necessary to continue to monitor the development of hose selling through
the telephone and/or screens, it was likely to be some time before this
became significant as a major channel of distribution.
The session had suggested that there could be advantages to be gained frou
sow degree of information sharing within the Group on Information
Technology on Consumer Research and on Training. The Chairman would be
setting up projects on each of these within the next few weeks. M3
C:1
BAT Industries document for Province of British Columbia 21 April 1999

12
item G : Financial Services
Mr. Garraway reviewed significant developments In Financial Service* in
the UK and other major markets. The Importance of deregulation and
re-regulation was discussed and also the contrast between the essentially
international nature of Corporate Financial Services and the more national
orientation of Consumer Financial Services.
it was suggested that advantages of integration wore likely to be limited
but It was thought that there could be advantages to be gained from some
degree of linkage on Asset Management, an Technology, an Product
Development and on Marketing and Sales Techniques. There might also be an
advantage to being La Merchant Banking as a means for providing an extra
dimension to a Consumer-Oriented Financial Services business.
Sir Mark Weinberg agreed that there were limited pins to be made from
Integrating different types of business. His own discussions with
Rothschilds at the time of the proposed merger between their companies had
suggested that the potential gains from synergy were more than offset by
potentially adverse effects of trying to combine together two organisations
with disparate cultures.
Allied Dunbar were concentrating first on looking for options to accelerate
the organic growth of their business. Since they still had only 5% of the
available market, there. should be a considerable potential for expansion.
Their experience with now products such as Health Insurance showed that It
was possible to expand very quickly from their existing base, using the
strength of the sales force.
Although the growth prospects for the existing business are thought to be
good, Allied Dunbar were also starting to look at additional opportunities
outside their existing activities. The criteria for these developments
would be that they should be of substantial size and in a field where
Allied Dunbar has some transferrable skills. Rovever, it was also
important that they should not prejudice growth In the core businesses.
There were no immediately obvious targets In the UK but It was thought
that In the shake-out following the changes La Financial Services. an
acquisition opportunity might &rise. They would also evaluate
opportunities In Continental Europe.
A limitation at present was the availability of suitably experienced people
to Identify, evaluate and subsequently implement now opportunities. Allied
Dunbar were seeking to overcome this by the us* of consultants and by the
appointment of a dedicated development executive Inside the company.
Sir Jasper Hollom thought that there might be more opportunities than
Sir Mark had suggested, to co-operate on asset management.
He also believed that the Group should consider opportunities for acquiring
a major credit institution and. possibly a Building Society.
Mr. Butt outlined the development thinking in Eagle Star where IC was
believed that there were considerable opportunities both for expansion and
for Improved performance In *xLsting activities. NJ
C>
-4
N.)
BAT Industries document for Province of British Columbia 21 April 1999

- 13 -
However, a projection of these existing activities showed a continuing very
high dependence on the UK and he believed that a high priority should be
given to extending the overseas interests, particularly in Europe, perhaps
by acquiring a UK composite with extensive overseas interests.
Outside the field of insurance, the first field to be looked at has bean
Consumer Credit and a proposal on this will be submitted to the CPC
shortly.
Mr. Lipwarth thought that Continental Europe, and especially Italy and
Franca, offered very good prospects for development but reiterated the need
to build up a management resource capable of exploiting any development
that was proposed.
Re was doubtful about the potential benefits of integrating different types
of financial services activity and made the point that it might be
necessary to keep different types of operation separate for regulatory as
well as for management reasons.
Mr. Will* said that Australian Z*gle was performing well and had a good
potential for organic growth. There was a shortage of good insurance
managers in Australia and Australian Eagle had gained from the staff
transfers from Eagle Star. There had been great strides in deregulation in
Australia and the subsequent shake-out in the market was still in progress.
This should throw up acquisition opportunities for Australian Eagle but the
quality of these would need to be evaluated carefully.
Mr. Crawford reviewed the Canadian Financial Services market and the
position of Canada Trust as the 7th largest financial institution and 4th
largest deposit taker.
The regulations covering Financial Services La Canada are being
reformulated and Imasco are active in trying to influence these. Under the
current draft regulations, Imasco will need to divest 35% of the holding in
Canada Trust. There are limitations an the ability to enter Insurance and
Tuasto cannot met up a Chartered Bank. However, it should be able to set
up an an investment dealer and would be able to manage investment funds.
Imasco has an &in to broaden its range of financial services and it had
originally been intended to do this mainly through Canada Trust. However,
partly for regulatory reasons and partly for cultural reasons, it is now
likely that the development will be managed more directly by Imasco.
Mr. FrlSon "id that IATUS were committed to entering Financial
Services as a fourth leg of their business. The market was ten times the
size of the equivalent market In the UK and because it was highly
fragmented there should be good opportunities to achieve a leadership
position in a defined market segment without falling foul of the FTC.
Preliminary evaluation@ had suggested that market segment& which could be
of particular interest were Life Insurance. Property and Casualty
Insurance. Savings and Loans, Consumer Finance and Security Dealers.
The &is would be to identify opportunities with a potential for generating
profits of $200a-$300m. A short list has been prepared of eight companies C)
which might be considered as potential entry points to the market and this
would be discussed with the CPC before going on to work up a more specif ic 1-4
proposal. 0%
-4
L1.4
-4
BAT Industries document for Province of British Columbia 21 April 1999

14 -
Suvoiarising, Mr. Garraway said that the discussion had confirmed that
it was still the view that Financial Services offered very good growth
prospects, both through the expansion and extension of existing activities
and through the use of acquisitions as a springboard for further
development
There appeared to be a general feeling that it would be inappropriate to
develop a detailed global strategy but it would obviously be helpful to
maintain a broad consensus an the most promising directions of strategic
thrust.
There was so" disagreeisent on the extent to which it night be helpful to
consolidate asset management and this was a subject which should be
discussed further. It was agreed, however, that it will be vital to
maintain a high level of Investment performance both for internal reasons
and also as a tool for selling Investment products.
The ability to manage and to recruit skilled managers had been stressed and
this would continue to be a critical factor determining the rate and
effectiveness of financial services development.
N)
CD
E.,
4
4N.
BAT Industries document for Province of British Columbia 21 April 1999

15
Item R : Tobacco
Mr. Bruall reminded delegates that the aim in the first session an
Tobacco was to review the current legal and scientific position an Smoking
issues and to discuss what additional action might be taken to improve the
position in relation to these issues.
Dr. Thornton reviewed the current position an *pLdauiol*Sy -mbd
reiterated that although there Is still a common perception that this shows
strong evidence against smoking, there were a amber of acgusients to
discount the conclusions that had been published. Much of the evidence Is.
based an statistics of deaths whose cause way have been mis reported, many
of the studies have been badly designed and the reported correlations are
often below the level at which they cah be claimed to be significant.
Another Important factor in that a statistical association is not evidence
of causation.
A priority for Group action has been to attempt to promote the arguments
against the simplistic interpretation of the epidemiological evidence,
preferably through independent scientists such as Professor Birch who was a
norr-ismoker but who believed that such of the evidence &&&Last smoking was C=)
at best questionable.
U%j
-4
Un
BAT Industries document for Province of British Columbia 21 April 1999

16 -
Although the ef forts to have the alternative view publicisod have had a
setback with the death of Professor Birch, alternative avenues are being
explored, including a continuation of the efforts to promote a scientific
conference to consider the validity of some of the claims made In low risk
epidemiology.
It is now hoped that by combining with other sponsors interested in similar
problems such as the affect of diesel fumes. it will be possible to
persuade an Independent institute to organise the conference within the
next year.
In discussion, the importance of mounting some form of counter-argument
was endorsed, especially in view of the current publicity on the alleged
effects of passive smoking. It was also suggested that further
consideration should be given to the possibilities for generating
'headlines' similar to those which are colouring the public perception of
the results of the work whose validity we are challenging.
In addition, it was noted that work was being carried out to study the
beneficial effects of smoking in patients suffering from a range of
stress-related diseases and it was suggested that this might also be given
greater exposure.
Mr. Board reviewed the allocation of resources to the various types of
Research and Development work in Tobacco. Approximately 80% of the
expenditure was on product and process development, improving quality,
reducing costs and developing innovative products. The approximate split
between short-term work and long-term work in the category was 65:16.
One aspect of this work was to try to design products where the proportion
of nicotine to tar in the deliveries was Increased. Possible methods for
achieving this Included growing special strains of Tobacco, modified by
biotochnological techniques. Good progress had been made on this and It
had been possible to move from a tar:nicotine ratio of 15:1 to 8:1
following research carried out under contract for Brown & Willisason.
Of the remaining 19Z of expenditure, about 12% is on work related to
sucking issues and regulations. including projects to engineer the product
to meet existing regulations and to be prepared for a possible extension to
tests of biological activity. Other work in this category includes studies
to measure the extent of the effects of exposure to passive smoking, which
appear to be considerably less than is suggested in the literature.
The other 7% of R&D expenditure is allocated to fundamental work on smoking
issues, including the studies of the beneficial effects of smoking. on
molecular biology and on work by geneticists whose approach to the effects
of sucking is believed to be more valid scientifically than that of the
epidemiologists. Rather more than half of this expenditure is for work
which is contracted out to universities and other independent research
organizations.
In discussion. Mr. Crawford said that it would be helpful to be able to
put a strong case to the Canadian authorities regarding the true levels of
the effects of passive smoking since they were currently considering the
imposition of a total ban on sucking in public places. Mr. Heard saw no N)
problem in providing the expert avidanc* required and it was noted that
this might also provide a good forum for giving the evidence increased
public exposure.
BAT Industries document for Province of British Columbia 21 April 1999

- 17 -
However, it was reiterated that it would still also be desirable for the
Group to give a greater priority to considering how the case an smoking
issues could be made to a wider public in the same simplistic term that
the opposing case is made.
On the question of the adequacy of the 7% of the resources applied to
fundamental research, Mr. Heard said that until they had a clear lead it
was difficult to see where progress could be accelerated by applying more
resources. However, the situation would be changed If a breakthrough was
achieved, in which cast more resources would be allocated to pursuing
strongly any line of research that was opened up.
Mr. Bruall introduced the second session on Tobacco. the &in of which
was to discuss strategies for optimizing profits and cash flow, taking into
account the limited growth expected In the total market for Tobacco
products.
For RATC*., the heavy Involvement in developing countries meant that
there was an above-average potential for volume growth but only when real
prices were depressed. As a result, the potential for profits was
correspondingly reduced.
Key strategies were to concentrate on becoming the lowest cost producer, to
have rigorous regime of asset management, especially on capital
expenditure and leaf stocks, to focus the marketing expenditure on key
brands and to try to maintain prices in line with inf lation. The sis would
be to maintain market shares in the developing countries and to increase
the shares in the developed countries, using product innovation to boost
the shares in the full-priced segment* of the market.
The most important areas in which to succeed would be in Increasing the
shares in the developed countries and in maintaining the volumes of exports
from the UK.
Dr. Erichwen stressed the Importance of concentrating on the most
profitable markets and brands for LA= which were UN, Benson & Hedges and
Prince Denmark in Germany and Kim and Lucky Strike in Italy. They would
also try again with Barclay. Also important were the projects to cut costs
and these would be pursued strougly.
Mr. prison said that the market in the USA was still falling in volume
and there was a significant chance of an advertising ban. The main
opportunities for Brown & Williamson were in increasing shares In the full
price segment through products such as Capri and 91i Cutter and in exports
to Japan and China.
Some success had bean achieved in halting the decline In the shares of
existing brands but Kool and Barclay still remained as problems. Quality
had been Improved and the Incidence of defects was much lower.
In discussion, it was agreed that Capri appeared to represent a major
opportunity but since it could not be protected by patent, It would be
necessary to ensure that It was exploited quickly and effectively.
-4
0%
-4
--4
BAT Industries document for Province of British Columbia 21 April 1999

Mr. Roubaut said that in Brazil both cigarettes and tobacco are still
growth Industries.
Key concern@ for Souza Crux were the ability to keep the prices of
cigarettes up in line with inflation and It would be necessary to maintain
a close rapport with the Brazilian government on this, emphasising the
effect on the ability to reinvent In Brazil.
From a competitive point of view, the potential threat from Marlboro was
still a factor to be considered and. although Souza Cruz has a dominant
share, there is no evidence to suggest that Philip Harris will not continue
to compete strongly in the market.
Mr. Wills forecast that the Australian market would continue to
stagnate in volume term and competition would be fierce with a high level
of direct discounting and difficult decisions to be made regarding the
balance between packs of 20,25 and 30 respectively.
It was still believed that the key to success was in achieving and
maintaining a position on the lowest cost producer. Based on what has been
achieved to date. it should be possible to absorb some further reductions
in margins without coming down to the levels which were being earned before
production was racionallsed In Pagewood.
Mr. Par& reviewed current developments in Canada, including the price
war which has recently ended and the expected increase in the controls on
smoking and on cigarette advertising.
Looking to the future, the total size of the Canadian market La expected to
continue to decline but Inasco, will aLu to maintain their own volume so far
an is possible by increasing market share.
Key strategies are to reduce costs by rationalLsing production facilities,
to try to prevent another price war and to try to boost industry volume
and profitability; by taking a positive stance in the smoking controversy
by preparing a case to oppose the advertising restrictions and by
continuing the dialogue with the federal and provincial governments on
taxation.
Summarising, the Chairman said that spart from Brazil and some other
developing countries, that* must be an expectation that total Tobacco
markets will decline. Social and Taxation pressures vote also likely to
increase. However, the industry was still profitable and it was essential
that this profitability should be maintained. In order to do this, It
would be necessary to husband resources through good asset management and
through a rigorous control of expenses. At the same time, however,
Investment must be made where it was needed to maintain manufacturing
efficiency and to capitalise on opportunities to Improve market shares in
the more profitable segment& of the market.
Market shares in the developed countries are still low and this represented
an opportunity for the Group. However, it would be necessary to be sore
successful than has been the case in the past in order to take advantage of
thee* opportunities. N)
C:)
A key factor in this will be the more efficient exploitation of product E.
Innovations such as Barclay and Capri. A conference would therefore be -4
organised as "on an possible to discuss what steps can be taken to C)N
accelerate the market development of ultra-slim cigarettes. -4
L4
4
00
BAT Industries document for Province of British Columbia 21 April 1999

Item J : Management Resources.
Mr Dennis introduced the session by suggesting that unless the Group took
action to improve the recognition and development of managerial talent, a
shortage of management resources could be a significant constraint an the
Group's development.
As an example of this, he cited a recent case where a key factor in
deciding not to pursue an acquisition had been that the Group did not have
sufficient management available to control and develop it.
Reviewing the approaches which other companies used in tackling-this
problem he quoted ITT's 'Bull Pen' which was made up of teams of
heavy-weight managers kept available for brief secondments on specific
projects - BTR had a task force available to be used in a similar way and
they also had a team dedicated full time to acquisition studies. Racal
used a different approach, setting up ad hoc project teams by seconding
managers from the large =whet of small business units making up their
Group. GEC an the other hand recruited people from outside and had
'head-hunters- at the ready to undertake assignment* for then.
What all these companion had in common was that they recognised the need to
make special arrangements to have managerial resources available to deploy
on key development projects.
In addition to ensuring that there was a sufficient number of people
available it was also necessary to ensure that they had the right
qualities to be able to pursue developments effectively.
One of the talents which was suggested as being important was
entrepreneurship.
Sir Hark Weisberg believed that entrepreneurs were barn rather than
made. Although an entrepreneur can be helped to develop his expertise, he
must start with the right characteristics. Important among these were
self-confidence, self-reliance and a healthy disregard for conventional
wisdom. Entrepreneurs were motivated by the recognition of their
achievements not only in monetary terms but also in the status that these
achievements give to the individual concerned.
B.A.T Industries tended to be a proactive investor rather than a management
company and the high degree of delegation to Operating Groups should create
an environment whet* entrepreneurs were able to operate effectively.
One problem that would need to be overcome, however, was the scale of
reward that could be offered to entrepreneurs within the reward systems of
a large company.
In Allied Dunbar, the main emphasis is still on growing the existing
business but they were now considering whether it was necessary to set Up a
separate team of a few key people dedicated full tin to development.
C:1
a%
1*_J
BAT Industries document for Province of British Columbia 21 April 1999

20 -
Mr. Carraway draw attention to VG Instruments where entrepreneurship
was an intrinsic quality of the business and where development was achieved
by offering individuals with ideas the opportunity to develop these "
separate operations. The way In which this worked La practice was that
when a new product reached a scale where the turnover was approaching Cla.,
it was set up as a separate company with the 'product champion' as managing
director. Re then had the opportunity to continue to grow this company in
an environment where his rewards both in financial terms and in status were
dependent on the measure of success achieved. If the cuspatay failed to
develop, It was then disbanded and the person concerned reverted to his
original function.
Sir Jasper Rollom. thought that the VC Instruments system was excellent
and their success with it had been proved by their results. However,
theirs was a special case and he doubted whether the system could be
applied directly to other businesses.
The Chairman suggested that the problem in B.A.T 'Industries was not so
much in developing now businesses but more in applying entrepreneurial
thinking to the existing businesses, including Tobacco.
Mr. Part agreed and suggested that the examples to study were companies
such as ITT and IBM, learning from their failures as well as their
successes.
Mr. Worlidge thought that it might be helpful to extend the concept of
performance related remuneration.
Sir Campbell Fraser supported the need to encourage more
entrepreneurship but within a framework where there were clear disciplines
to detect and eliminate failure at an early stage.
Mr. Crawford agreed and said that one of the marks of a successful
entrepreneur was that he made sure that he had people and systems to
provide the necessary controls.
Mr. Dennis thought that a key problem was the identification and
development of the talent which was already available within the Group. He
believed that it was necessary to Improve the systems for monitoring the
development of people who appeared to have potential and to build up data
on their careers over an extended period. However, it was important that
this should not be looked on an a predominantly staff function. The
recognition and development of the potential of his subordinates was a
responsibility of managers at every level. One of the key criteria in
judging a manager's effectiveness should be his record In surrounding
himself with people of talent and in ensuring that they not only use this
talent but also develop their potential and take the career steps necessary
to provide a basis for their future development.
Mr. Crawford said that in Imasco, management development was a key
function in each operating division. whose management had a responsibility
for ensuring that they had systems which met the specific needs of their
businesses. The Centre also had an Important role In monitoring this
function and meat with the Operating divisions twice a year to discuss the
systems and their implementation. Good progress had been made with N)
training systems. Both Shoppers Drug and Rardees had built up good C:)
training facilities and had an impressive track record of performance in
this respect. However, such still remained to be dosse. and both training
and management development remained priority concerns for Dusco.
4
00
C@
BAT Industries document for Province of British Columbia 21 April 1999

21
Dr. Erichoon described the now systems for the recognition and
development of managerial talent In NATI.G. The system Incorporated
separate assessment* of performance and potential within an overall system,
which was currently in the process of being tested prior to Implementation.
Mr. Druall said that UTCO. had special problems in being a mature
industry and being committed to lean manning. It was therefore necessary
to be able to reward the better people well without increasing the total
wage bill for the operation.
SATCO. had a well established system for management appraisal and
development and had formal reviews of their management resources twice a
year. They were keen to participate in providing managers for other pacts
of the the Grbup but needed more idea of what was likely to be required.
He felt that BATCo. received insufficient guidance from the Centre and
suggested that the B.A.T Industries Personnel department might be asked to
provide a stronger lead in this respect.
On training, he suggested that further thought needed to be given to the
possible need for more Industry specific courses either at Chelwood at
elsewhere.
Mr. Crawford agreed on the need to look for alternative routes for
developing the surplus of talented people from the Tobacco businesses.
Imasca had already substantially reduced the size of Imperial and if
the expected restrictions an advertising were implemented, there Vero
likely to be further cuts, especially in marketing.
Mr. Frigon said that in the past, I=$ had not had a good record
in Management Development. However, following new initiatives which had
been taken two years ago, they now felt that they were beginning to achieve
a measure of success in being able to lay out career paths for a number of
key managers.
They had been particularly fortunate in having people from inside the Group
who had been able to fill positions on the "TVs Board and while he
believed that it was necessary to look at both external and internal
candidates in order to ensure that each post was filled by the best person
available, it was gratifying that there were a sufficient number of high
quality internal candidates to fill these Board positions.
Mr. Par& agreed with the need to look outside as well as inside the
company before key appointments were made. Past experience with
Rardees had demonstrated the dangers of not being sufficiently
demanding in ensuring that the manager appointed was fully capable of
meeting all the challenges of the business.
Mr. Long amphasimed the need to be very critical in ensuring that the
person in charge of each phase of a now developsont had the right talents
to met the challenges of the stage it had reached. it was particularly
important that once the decision had been taken to implement a development.
the person to lead this should have the right bland of managerial and
analytical abilities. C)
Kr. Lirmrth thought that it was important that there should be a
conscious decision to move people around the Group both for their own
benefit and also for the benefit of the Group which would gain from the
transfer of expertise. Mr. Butt agreed and eaphasived the need for -4
these transfers to occurr at a relatively early state -in a person's carver, L4
00
giving managers real responsibility while they 'were still young.
BAT Industries document for Province of British Columbia 21 April 1999

22 -
Sir Richael Palliser agreed and also thought that there might be some
advantage to maintaining a central list of potential high-flier*.
Kr. Will* said that although there had been a long established system
for moving people around, top management had not been sufficiently
committed to Lt. As a result, Lt was often the more limited people who
were moved from one company to another as each company hold an to their
beat people.
Mr. loubaut believed that Lt was necessary to be more demanding In
seeking to ensure that each generation of managers were better than their
predecessors. Business was becoming progressively more challenging and it
"as essential to have people who were able to meet the now challenges. It
was equally necessary to make decisions early on concerning those people
who did not hive the potential to seat the standards required. He endorsed
the value of transfers, which were particularly useful in providing an
extra dimension of experience in developing the future top managers for
Souza Cruz. He also thought that Lt was important to have a good system of
manager assessment and although well designed form were helpful In
Improving the quality of this, Lt was also necessary for training to be
given In the techniques of assessment.
Summarlsing, Mr. Dennis said that the discussion had confirmed the need
to take action to prevent a shortage of management resources becoming a
serious constraint an Group development.
improved management development system were certainly required but in the
short term there was also a need for some special recruitment to met
defined weaknesses, especially of people capable of developing and
implementing significant new business Initiatives.
Although there were advantages to being able to develop a high proportion
of future top management from inside the Group, it was also important that
internal candidates for jobs should be measured against the quality of the
talent available from outside, in order to ensure that the Group had the
best possible management.
It was clearly beneficial for managers to be given full commercial
responsibility at an early stage In their career and some of the smaller
businesses within the Group could be valuable testing grounds for young
managers.
There might appear to be some Inherent contradiction between loan meaning
and creating an environment where it was possible to provide managers with
the experience that they needed for their longer term development.
However, the emphasis should be an planning to transfer people between real
jobs and under those circumstances it should be possible to achieve both
lean manning and effective management development with the same system.
On motivation, the statements an vhat satisfies an entrepreneur had been
interesting and Mr. Dennis also felt that it might be worthwhile to look
again at how far the concept of profit related pay might be extended.
PQ
C)
E
L.,4
... 00
BAT Industries document for Province of British Columbia 21 April 1999

23 -
Item K : Challenges of the Future
The Chairman summarised the main conclusions from the conference.
He reiterated the importance of ensuring that the Group identified and
developed good nanagers and emphasized the need for this to be a priority
concern throughout the Group.
He thought that the argument that effective management development was
inconsistent with lean manning van a red herring. Even when manning levels
had been such higher than they were at present, there had still been a
shortage of good managers. Having adequate management resourcei was more
dependent on quality and Organisation than on numbers.
He also thought that It was Important to emphasise the need for weeding out
managers whose performance was Inadequate, both to raise the overall
quality of the management resource and to create opportunities for the good
young managers to come through.
He reminded delegates that the CAC was an advisory conference rather than a
decision-making meeting. However, the conclusions reached In the
discussions would be taken into account in the reviews of objectives and
strategies which are due to be discussed by the Board In July.
He also hoped that the conference had been useful in establishing a measure
of consensus on & number of issues and that this would be of assistance to
delegates in guiding their thinking in developing objectives and strategies
for their own organisations which would gain additional strength from being
part of a coherent strategy for the Group an a whole.
A first major conclusion from the conference was that although the Group
had comfortably exceeded Its objectives over the period 1982/86 a
comparison with poor companies, although still favourable, suggested that
these objectives say not have been sufficiently demanding.
This suggested that although the business environment was likely to be lose
favourable over the next five years than It had been In the immediate past,
consideration should be given to strengthening the objectives.
This would be addressed in the reviews of objectives and strategies du* to
be presented to the Board in July. An a starting point for these reviews,
consideration would be given to increasing the objectives for the growth in
B.A.T Industries' earnings per share and dividends from 4% p.a. to 8Z p-A.
in real teem. The objective for sales growth would also need to be
increased and be believed that the Group as a whole should be looking for a
6Z p.a. real rate of growth which, taking into account the relatively low
growth expected from Tobacco, would represent 9% p.a. for the Group's
non-Tobacco activities.
It was amphas is*d that this did not mean that each of the businesses should
be expected to grow at 9% p-a- but it did me= that there was both a need
and an opportunity to seek options for accelerating growth both within the
existing business and In complementary activities.
The financial forecast and the associated review of resource availability NJ
had shown that there In currently Obve-C2 Abn available for investment. In
addition, the existing businesses and particularly Tobacco are forecast to
continue to generate surplus funds for Investment throughout the period to -.4
1991. 0%
-4
LA
... 00
L4
BAT Industries document for Province of British Columbia 21 April 1999

24
The Chairman stressed *$&in that the forecasts depended on achieving
continuing improvements In margins and in "set productivity and it would
require very positive management to achieve the results which had been
projected. This would used to be borne in mind in setting priorities for
action. However, the main purpose of the conference had been to consider
the options for accelerating growth through the investment of the resources
which are either available now or which are expected to be generated in the
future.
For Paper/Pulp it had been agreed that the main thrust should be In
building on the existing strengths in Carbonloss and Fine Papers with Pulp
developments being complementary to this min thrust. A major issue was
the need to look at renewal options for the Carbonless business In the USA
and this could involve a major investment to acquire a business to sustain
growth In the-longer tars when the growth rate of Carboulass was expected
to fall.
The discussion of opportunities In Retailing had confirmed the
commitment to the sector and there appeared to be good opportunities for
accelerating the growth of the Group's existing businesses.
However, there were still a number of problem areas that needed to be
addressed in retailing and there was also a need to identify some now
opportunities for growth. Key factors for success were to have a clearly
defined concept, to keep this up-to-date by consumer research, to keep in
the forefront of system technology and to pay particular attention to
training.
It was intended to met up a project at the Centro to consider what action
needed to be taken to ensure that expertise was shared and that beat
practice was followed throughout the Group La Information Technology,
Consumer Research and Training.
Another form of co-operation that would be of Interest is that between
Retailing and Financial Services. While the evidence to date In not
encouraging. the Chairman believed that there could still be a potential
for fruitful co-operation in this respect and this would continue to be
borne in mind an a possibility for the future.
For Financial Services the discussion had again confirmed the initial
view that this is a sector whose growth potential and size make it
particularly suitable as an Important part of the Group's mainstream
development.
There was a need to give priority to developing specific proposals for
extending the Group's activities, particularly In the UK, Continental
Europe and the USA.
In order to do this effectively it might be necessary to reinforce the
strength of the management resource dedicated to development within this
sector.
It had been agreed that it would probably be counter productive to try
to consolidate the Group's financial services activities into a single NJ
monolithic unit. However. consideration should be given to action that C)
might be taken to improve co-operation and the transfer of knowledge and
skills between the Group's businesses especially with regard to the overall __4
direction of strategic thrust. investment management. products. information (7%
technology and marketing. -4
00
BAT, Industries document for Province of British Columbia 21 April 1999

- 25 -
The Tobacco businesses would continue to have a vital role both in the
contribution they sake to Group profits and in the cash which they produce
for investment in the Group's other, faster growth activities.
The maintenance of high levels of profitability was vital and a key factor
in this would be asset management and the control of expenses. However,
the Group must still be prepared to invest resources where it made sense to
do so either to establish or maintain a position as the lowest cost
producer or to pursue specific marketing objectives.
A key challenge would be to increase market shares in the developed
countries where it was necessary to be more successful than had been the
case in the past. Innovation would be a key factor in this and it was
vital that the Group should be more effective in capftalLsing an
developments such as Barclay or Capri.
It was intended to arrange a conference during June to consider what action
should be taken to accelerate the exploitation of the market opportunities,
worldwide, for Ultra-Slim cigarettes.
Taking an overall view of the priorities for the Group, a key task over
the next twelve months would be to accelerate the identification of
specific investment proposals which meet the Group's criteria of having
sustained growth potential, of offering an opportunity to achieve a clear
competitive advantage and whose implementation could be shown to be
feasible.
In order to do this it might be necessary to reinforce the management
resource dedicated to the difficult task of identifiying evaluating and
implementing development projects of the quality required. This was still
a weakness at present and it was vital to the future development of the
Group that efforts should be focussed on identifying which of the many
options for development are of a quality to justify a major investment by
the Group.
This was the principal challenge which had emerged for the meeting and it
was essential that there should be substantial progress on this over the
next year.
4th June 1987
PQ
-4
0%
-4
L4
00
Ln
BAT Industries document for Province of British Columbia 21 April 1999