Guidelines for Um : July 1999
I. BATUS is responsible for managing and developing the Group's Tobacco,
Retailing, Paper and Financial Services subsidiaries in the USA,
optizising the performance of the activities mid achieving sustained,
profitable growth.
2. In view of the importance of the Group's interests in America, there
should be particular emphasis in BATUS, which should be dealt with as
a specific issue in the Plans, in ensuring that the management and
systems are of a standard to provide the abi-14 ty to add value to the
individual businesses, to maintain adequate controls and to provide
accurate an-,: forecasts tc S-L.7 1--,@uszries.
3. A hig- priorizv Should be given to developi=g stracegies and pla=s frr
Farmers acw.1 co ensuring that the company is fuZly integrated into c'_-e
SAT-US management and control systems.
Financial Guidelines
4. Returns : EMS should aim to achieve an historic cost R.OXL on a
UK accounting basis of at least 25% (equivalent to 18-20Z on a CCA
basis) on an asset base including receivables. Individual businesses
should achieve a minim= return of 20%, calculated on the same basis.
The purpose of this obejctive is to ensure that each business
generates enough cash to be able to pay a dividend and to fund
profitable growth. Each separate retailing business should be
measured against this fundamental criterion and consideration should
be given to setting separate objectives for the returns required from
the property component of the total investment in retailing,
distinguishing theme objectives from those for the returns expected
from the trading activities of the businesses.
5. Dividends : The minimum dividends expected from BATUS (gross of 5%
withholding tax) are:-
1989 1990 1991 1992 1993 1994
million - 320 370 425 490 560
It should be noted that the 1989 dividend was valved as part of the
Farmers funding arrangements. However, the divIdends requirement for
the subsequent years have been increased compared with last year's
Guideline.
6. Debt/lquity : The proposed guideline is based an the SATUS plan
for 1989-1993:-
OX Accountina) 1989 IM 1991 1992 1993 1994
Gross DI& M 205 165 L30 100 so 65
Not DIE (Z) 200 160 125 90 60 35 N;
CD
The" levels may be reduced as a result of the current asset
productivity review. -.4
%-0
BAT Industries document for Province of British Columbia 23 April 1999

2
Soe@Lfic Priorities
7. Tobacco : It is particularly important that N=S should achieve
the profits, returns and cash flow from the Tobacco business forecast
in the 1989-1993 plan. This requirement should be reflected in the
plans for 1990-1994.
B. There should be continuing emphasis on reversing the adverse trend in
the share of the market for full-priced brands, through initiatives to
rebuild the market share for Kool, through building on the success
achieved with Capri and through pursuing other Innovative
developments.
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of :'-.e
10. There should bd clear objectives aza strategies !or each of the major
overseas markets being targeted by BW= with particular emphasis on
the plans to optimise the penetration of the major Asian markets.
There should also be specific plans for improving the profitability of
the export business.
11. There should be continuing emphasis on the need to achieve competitive
advantage both through product quality and through being the lowest
cost producer of quality cigarettes.
12. BATUS should participate fully in the work of the Tobacco Strategy
Review Team and should contribute with the other Tobacco operations in
the formulation and implementation of a Group-wide R&D progr
13. For Paper : the immediate &in mist be to achieve the results
currently forecast for the Carbonless activities, moderating and if
possible reversing the adverse trend in market share experienced in
1987-1988.
14. There should be continuing emphasis on ensuring that Appleton has a
competitive advantage in the market through quality, by being the
lowest-cost producer and by concentrating on providing superior
service in the market.
L5. la view of the increasingly competitive market conditions, it will be
necessary to be particularly rigorous when considering justifications
for increased capacity.
16. The plans for Thermals should be shown separately and should include
specific provisions for improving the profit a bi Li vy of the activity.
Consideration should also be given to action necessary to ensure that
Appleton has the capability to compete both with the leading Japanese
companies in the fiela ana with otb&r companies who have Unks with
the Japan@".
17. In view of the uncertainties about the way in which technical
developments in the customer industries (i.t. the development and Salo r1J
of plain paper facsimile machines) may affect the demand for Thermal C)
papers, it Will be necessary to have coutlap"7 pla= for alternative
uses for the relevant manufacturing facilities.
BAT Industries document for Province of British Columbia 23 April 1999

3 -
18. There should be continuing embasis an the health and safety and
environmental "pacts of Carbonless and Thermal products and
processes, ensuring that they, met the relevant regulatory
requirements and also considering whether any capability that can be
developed significantly to exceed these requirements might be used as
a positive selling point.
19. Although the main emphasis in Paper should be to optimise the
performance and positioning of the existing activities, Appleton
should also aim to build-up the management strength of the business co
provide the capability to formulate viable options for business
rezewal strategies, ai=iag to presezz proposals for tl@esa -4-,;.ri=g :he
first half a 1990.
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v&lue to the individual -@ @, S@ , -w-raiz I
21. A priority concern for the businesses themselves must be to develop
plans to reach and maintain a situation where they earn returns and
generate cash sufficient to pay-a. dividend to BATUS and to support
self-funded profits growth of 15% p.a. Proposals for capital
investment should be subject to rigorous examination to ensure that
refurbishments and other investments can be justified financially.
There should also be particular emphasis on actions to increase gross
margins and store-for-store growth.
22. For Saks and Marshall field'&, tha priorities will be the successful
laplementatlou of the plane already agreed for refurbishment and for
actions to improve the profitability of the businesses. further
consideration should also be given to ways in vhich the expansion of
the businesses might be accelerated, bearing in mind the need to avoid
any dilution of the Saks image and the difficulties in building on
Marshall Field's reputation outside the region around Chicago.
23. For Ivey's mid Breumers, the first priority must be to achieve the
turarauud planned in 1989 and to for=lata plans for the longer term
development of the companies. Altaraative plans for the divestment of
these businesses should also be considered.
24. For Irarmrs, the priority aust be to develop a first five year
plan which can then be developed further during 1990.
U/DJA NJ
17th July 1989
co
BAT Industries document for Province of British Columbia 23 April 1999