0 1 A F T
Guidelines for Souza Cruz : July 1987
General
1. The overall strategy for Souza Cruz is to maintain the growth and
profitability of the Tobacco business and to use this activity to
generate a flow of funds which, af ter payment of an appropriate dividend,
can be invested In a limited number of other business" of substantial
size which can achieve leadership in their markets and which are capable
of providing growth sustainable over the longer term future.
2. The current priorities 'for Souza Cruz are:-
(a) To negotiate with Government to maintain cigarette prices and
profitability at levels where it is possible to earn profits
sufficient to pay dividends and to provide funds for Investment in
other activities.
(b) V. I" . r bk d'! & IPML_ avers" Souza Cruz plan for leaf
exports.
(c) To formulate action plans and strategies resolving the
uncertainties regarding:-
(i) Pulp and Paper.
(ii) Fruit Juice.
(iii) Bioplanta.
(iv) Options for developing Downstream Agribusi=*ss activities.
(V) Polo.
Financial Guidelines
The following ?Lnanclal Guidelines are provisional and will need to be
reviewed when the economic and inflationary prospects for Brazil become
clearer. IIL- 4@ evvv Z_dAow&a'%-- r4riW-j 44.0.8 V-f ?,W.'
C, M. qWL&L" Z. t _w r.,
u- vw@ L..,- j,
Returns on Inves t . Soiaza, Cruz should aim to siblave an4lovera.11
return an investment of 16Z (based on local management accounting
conventions and including investment income), with Tobacco providing a
higher return than the diversified businesses.
4. Dividends , Dividends expected from CONTAB (gross of 25% withholding Tax)
are:-
1907 1988 1989 1990 1991 1992
US$U 28 31 35 39 49 C
These assume that the dividends paid to the UX by MNUB should be the
maximum allowed under tbs Toraign Registered Capital CM) regulations
but that they will be restricted by limits to the availability of cash
resources and distributable profits. it is also assumed that Souza Cruz
will distribute a minimum of 602 of attributable profits se measured an a
Brazilian accounting basis. In view of the current high level of
inflation and devaluation, the latest estimate of the divide" for 1987
is US$28m, whIch is significantly, lower than the isa-1-un Which would be
allowed under the nC regulations. The remaining years represent a 122
p.a. Increase ($Z p.a. real + 4Z p.s. inflation) but tbA &la shoWA be
to restore dividends to the full amounts allowed under the nc rl%j
regulations.
S. Debt/Equity : Souza Cruz should aim to have no borrowing at the year
and, other than that resulting from the use of small subsidised
short-term borrowings.
job
BAT industries document for Province of British Columbia 23 April 1999

2
Specific Priorities
6. For Tobacco, there should be a continuing &in to maintain a dominant
position in the Brazilian Cigarette market In term both of market share
and of the strength of distribution. Nowever, the Imadiace priority
must be to negotiate with Government for an increase in the profitability
of the market.
7. Thera should be continuing emphasis on ap@lyiug resources to product
quality, ahead of any increases in the media spend.
S. Plans for a now factory should be prepared In good time to ombla the
company to react quickly If a favourabla sales trend should become
established.
---"@Ixparts should continue to be $Ivan a high priority, and a strategy
9. taaf
developed for the integration of Tabasa.
10. For Paper, the existing plant should be upgraded from
60,DOO tous p.a. to 100,000 tons P.&. capacity subject to reasonable
assurances on pulp supplies. Opportunities should be sought to Introduce
Carboulass and possibilities for purchasing additional facilities to
provide the necessary production faciliti" should be kept under review.
11. For Pulp, the first priority should be to associate a revised
shareholders' agreement allowing Souza Cruz to continue to influence key
decisions in Axacruz - Subject to reasonable assurances an this, Souza
Cruz should Siva favourable consideration to the plan to Increase the
capacity of Aracruz.
12. While accepting that, under current conditions, there are unukaly to be
immiediate opportunities to acquire new Uper/Pulp activities at
acceptable prices, it Ls still important to build up in-depth knowledge
of the sector and its component companies so that if an opportunity does
arise to make an acquisition or to acquire specific facilities from
another company, Souza Cruz is In a position to prepare a proposal frm a
good base of knowledge.
i3. For Fruit Juice, the LimsadLata priority should be to Improve the
performance of M&Suary and to %stab"Job a firm base Joe consideriat the
potential for expansion. We-14-
14. For Polo, the ultimate aim should be divestment, once multiple
sources of supply for polypropylene film have been developed In Brazil.
Souza Cruz should aim to maintain the positive cash flow planned for this
business even if, as a result, the proportion of the equity shareholding
held by Souza Cruz Ls reduced.
13. For Bioplanta, there should be a continuing aim for the business to
achieve a position cash flow by 1989. Rowever, it is also important that
the company should operate ar. a level where it is possible to assess the
opportunities for Souza Cruz to set up a profitable activity 'downstream'
in Agribusiness. If NPI do not wish to subscribe their share of the
Luvescmant requLred foc the expansion of 3ioplanta, It should ba
suggested to them that they should either let the proportion of equity
bold by tbm be reduced or should consider a complete dssolutLaa of the
joint venture arrangement.
16. Financial Services should continue to be considered as a possible new
activity in which to Invest and Souza Cruz should be prepared to move
rapidly if there is any relaxation of the current limitations on foreign
participation in the sector. -4
RSIDJ& 20ch July 1987 %D
(Jr.
BAT Industries document for Province of British Columbia 23 April 1999