Guidelines for BATCF: July IM
Gener2l
1. BATCF is responsible for the management and development of the Group's
Tobacco interests in Germany and Italy; for exports from Gernuny; and for
licensing German brands to companies in other markets.
2. BATCF also has the overall responsibility for coordinating sales to former
Eastern-bloc countries, including the CIS, and for negotiating a potential
investment in Poland.
3. BATCF will work on projects as required by the Tobacco Strategy Group and
it will also assist the New Business Development Team of B.A.T Industries in
that body's evaluation of proposals to invest in new markets and to make
acquisitions or disposals.
4. BATCF is expected to participate in the process of developing best
international practice in respect of its environmental policies. There should be
specific plans to ensure compliance with these policies.
Financial Guidelines
5. BATCF should aim at 12.5% growth in tobatto tmdlng profit on the 1992
budget base of DM245 million over the period 1993-1997.
6. Operational Cash Flow should grow from the Plan 1993 base of DM299
million at 12.5 % per annum in line with the increase in trading profits.
7. The minimum dividends expected from BATCF (gross of 5% withholding
tax) are:-
Dam M M 0.9 IM am IM
Dividends 204 230 258 290 327 368
The 1992 guideline approximates to a distribution of approximately 95% of
BA77G's budgeted profit after tax on a German accounting basis. Subsequent
years' dividends should also be at the level of 95 % of distributable earnings.
S. RONA is currently forecast to exceed 40% throughout the plan and shows an
increasing trend. This should remain the minimum return.
S22CMc Priorities
9. Market Share : Thm &could be a continuinS obj=dve to incrax muket
Am in Gemmy by 0.5 percentage points per annum by achieving increased
penetration in the New Lands, by slowing the decline of HB, expanding sales
of Pall Mall, Lucky Strike and other International Brands, and extending the C=@
position in the mild and ultra-mild segments.
L..
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10. Prices : Selling prices should be accelerated to be faster than inflation, and
close contract should be maintained with Government in order to influence tax
policies relating to cigarettes.
II. Cost Structure : The cost structure should be reviewed and plans agreed for
cost reduction so that the cost of goods sold increases no faster than inflation.
12. Overheads should be tightly controlled and there should be specific plans for
a progressive reduction of the ratio of fixed costs to sales.
13. Lower Consumer Price Zone : There should be a specific plan to establish a
stronger position in the lower consumer price zone of the German market
BATCF should also have contingency plans for appropriate counter-strategies
for rapid implementation in the event that a price war develops.
14. ExportstProfitability : BATCF should seek to increase the volume of exports
by 17.5% per annum but should also give particular emphasis to increasing
profitability through higher prices and through sourcing exports in the most
cost-effective way using sources outside Germany (e.g. Brazil) where it is
,appropriate to do so.
15. Export Markets : Priority should be given to increasing market share in
Italy, Greece and the former Eastern-bloc countries, concentrating on
International Brands and on the higher-priced segments of the market.
16. Production : There should be a continuing aim for BATCF to be a fully
competitive, low-cost producer of quality cigarettes, establishing cost
comparisons with other companies and developing specific plans for cost
reduction and for improving the position relative to identified competitors.
17. There should also be specific plans to ensure that the production facilities are
kept up-to-date, that there is a capability to produce brands for BATUKE and
that there are contingency plans to meet levels of demand exceeding the
forecasts by 15%, accepting that there will need to be a further review if this
involves expanding the capacity beyond 50 billion cigarettes per annum.
18. Management : There should be specific plans to upgrade management
effectiveness and capability. Benchmarking should be adopted to raise
standards of recruitment and promotion.
19. Quality : Them should be continuing emphasis on the need to achieve and
maintain smoking quality superior to competitors and to maintain overall
quality at a level such that it constitutes a competitive advantage. A mote
measurable indicator of progress in smearing quality must be developed VA
progress measured against it.
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20. Brand Valuation : The P 1 dy developed brand valution tool, which
monitors die effecdveness of the enhancement of brand value, should be
instituted for 1993.
21. Divers& : 'ne options for Divem should be reviewed and a plan prepared for
rcaUsing the benefits to the Group fi-om this development by end- 1992.
22. ECE Shopping Centre : 'ne options for the ECE Shopping Centre
investment should be reviewed and a plan agreed.
HCB/djs
16th luly 1992
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BAT INDUSTRIES CONFIDENTIAL- CATEGORY 1: MINNESOTA Tom= LmGATION
BAT Industries document for Province of British Columbia 23 April 1999