Imasco Plan 1989-1993
The CPC meeting to discuss the Imasco 1989-1993 Plan was held on 13 th
January 1989.
Present: Mr. P. Sheehy, Mr. P. Crawford and Hr. &.C. Long.
Mr. B.P. Carraway and Mr. E.A.A. Bruel 1 were unable to
attend.
I
Hr. (;.J. Burgess was in attendance.
1. Mr. Crawford Introduced the Imasco Plan by reviewing the recent
progress of each division and the main issues facing each business.
2. It was noted that Imperial Tobacco had continued to perform well
during 1988, with gains in earnings, returns and market &hare and that
despite the expectation that total market demand will decline by about
4% p.a. , the Plan projects increased earnings based on market share
gains and productivity Improvements. Mr. Crawford said that although
the Plan incorporates an earnings gap of C$0.5 7 million in 1989 rising
to C$44.35 million in 1991, Imasco are confident chat the projected
earnings will be achieved as the Plan has been prepared on
conservative assumptions about price increases and market share
improvements.
3. Hr. Crawford reported that the Tobacco Products Control Act
(Bill C-51) had been adopted in 1988 and that the new regulations
restricting advertising and sponsorship activities will be phased in
over a four-year period to 3 1 December 1992. He noted, however,
that the Government is committed to introducing amendments to the Act
in response to arguments put forward by the Tobacco industry, and that
this would re-open the subject to the Parliamentary process and the
possibility of furcher, adverse amendments.
4. Concern was expressed that the US/Canada Free Trade Agreement would
improve the competitive position of US Tobacco products in Canada, for
although the US products would need to carry the Canadian health
warning, there would be a progressive reduction in the import duty and
the US brands would also benefit from their advertising in the US
media. In particular, the CPC emphasised that the Increased
competitive pressures reinforced the need for Imperial Tobacco to
ensure both that it retained its posicion as the lowtst-cost producer
of quality cigarettes in Canada and that it is able to match the
efficiency of the leading US producers.
5. With regard to Shoppers Drug Hart, Hr. Crawford said that the
business was continuing to perform well, with operating earnings up by
10% in L988 and the expectation that increases of about 15% p.a. can
be achieved over the planning period. Mr. Crawford indicated that the
projected improvements In earnings would be achieved through improved
efficiency, generating additional sales through re-fitting older
stores and extending the extent of the chain through the acquisition
and conversion of independent outlets. In addition, the Food Basket
and Home Health Care operations are expected to increase customer
traffic.
6. Mr. Crawford reported that the UCS Group continued to perform co
consistently, with 1988 earnings above budget, and he emphasised
la&$ co' intention chat the business would be run as a profitable,
self-sufficient operation. He noted, however, thac the business was
also of wider strategic importance to Imasco insomuch as it could be 03
used to support the continued development of the Tobacco division.
This aspect would be increasingly important in view of the
recently-introduced rescrictions on Tobacco advertising.
BAT Industries document for Province of British Columbia 13 April 1999

2
7 It was noted that, commencing in 1989, it is proposed to progressively
replace the trade name used in the majority of UCS stores. though the
new name has yet to be agreed.
8. Mr. Crawford reported that the strong performance by the mid-Atlantic
Peoples Drug Stores in the pre-Christmas period would result in
the expected 1988 loss for Peoples being about US$5-6 million rather
than the US$9 million indicated in the Plan.
4?
9. )(,It Va: no that an oral agreement had been reached regarding the sale
of th Peoples stores in the Atlanta area and that this agreement is
scheduled for completion in late January 1989. At that time, Imasco
will indicate publically that the stores in Indiana and Ohio are for
sale and that the performance of the remaining stores in Regions 11
and III is to be closely monitored. Although a final decision has yet
to be taken, Mr. Crawford indicated that consideration is also being
given to the divestment of the remaining Peoples stores.
10. With regard to the Imasco USA division, it was noted that
significant improvements in performance were being achieved by
Hardees, with improved use of I.T., higher productivity, less waste
and better margins and that the business was well placed to build on
its position as a strong regional chain. Mr. Crawford also reported
that the financial position of the business was being strengthened
through the completion of two sale-and-leaseback deals in February and
December 1988 involving 379 company-owned restaurants for a total
consideration of US$275 million and the proposed sale of 31 Grisanti
restaurants in early 1989 for about US$35 million. He further noted
that Imasco are considering the feasibility of selling an interest in
the Fast Food Merchandisers business, but with the intention of
retaining control.
11. The CPC welcomed the actions being taken to reduce the level of debt
in Ttuasco USA and supported the decision that Ha should
concentrate on building a strong regional network rather than seeking
to establish itself as a national chain.
12. For Financial Services, Mr. Crawford reported chat Canada Trust
had achieved deposit growth of about 141 in 1988 and so increased its
market share slightly. Net earnings in 1988 are estimated by Imasco
to be about C323 2 million (including C$16 million Do-me recoveries net
of tax). with fully-diluted EPS at C$1.95 or above, compared with CT's
budget of CS2 15 million and EPS of Cs Mr. Crawford noted that,
historically, CT's management has tended to underestimate future
earnings growth, and reported that Imasco and other members of the CT
Board were seeking improvements in this regard. However, because of
this conservative approach by CT, Imasco had prepared its own
estimates for future CT earnings and these assumed growth of 6% in
1989 (or 13% after allowing for the Dome recoveries in 1988) and 12%
p.a. in the two following years. One aspect of particular concern to
both Imasco and CT was the pressures on CT's operation costs and Mr.
Crawford noted chat the control and containment of such costs was a
primary objective for the business in 1989. r%J
CD
13. It was noted chat although the CT Plan assumed deposit growth of 102 -
in 1989, action is in hand to improve upon that performance, in 03
particular through a strengthening of the marketing effort. In tNJ
addition. consideration is being given to ways in which the Financial
Services activities in Canada, and in particular in Quebec, might be
extended through acquisition Ln the medium-term. CD
BAT Industries document for Province of British Columbia 13 April 1999

- 3 -
14. Mr. Crawford explained that no allowance had been made in the Plan for
a possible secondary issue of CT Financial Services common shares as
the proposed legislation restricting ownership has not yet been
finallsed. He indicated that when the legislation is re-introduced,
probably in Spring 1989, it may not be as restrictive as previously
proposed, with the commercial links restriction omitted and the
possibility of a limited easing of the 65% shareholding limit.
15. Mr. Crawford confirmed that while both Genscar Development Company and
the Venture Capital business continue to be profitable operations,
neither is central to Imasco's strategic development and they will be
divested at an appropriate opportunity.
16. The CPC supported efforts being made to strengthen the working
relationship between Imasco and CT, emphasising in particular the need
to contain costs, improve organic growth and develop plans for
extending the Croup's Financial Services activities in Canada.
17. With regard to Imasco, Mr. Crawford said that Imasco's primary
focus at the present time was on improving the quality of the existing.
businesses and on strengthening Imasco's balance sheet. In order to
assist in this a number of key senior management changes were being
undertaken, including the appointments of Mr. Mercier as Vice-Chairman
of Imasco and of Mr. Bennett to strengthen Imasco's Financial Services
capabilities and the-recruitment of a Vice-President of Corporate
Affairs.
18. Mr. Crawford noted that although there had been an improvement in
Imasco's debt/equity ratio compared with the 1987 position, the
business remained vulnerable to a rise in interest races as about half
of ics long-term debt was floating-rate debt. He indicated, however,
that the debt/equity ratio was expected to improve substantially aver
X the next few yeadrs and that Imasco hoped to reach their debt/equity
objective of 35/65 ahead of the end-1990 target identified in the
Plan.
19. Mr. Crawford confirmed that Imasco proposed to pay a dividend of
,Z C$1.12 per share@'in 1989 (equivalent to 45% of the previous year's
arnings per share) and that it is Imasco's intention that in future
;ears dividends per share should increase in line with the growth in
arnings per share.
20. In conclusion, the Chairman noted that the Plan had been extremely
helpful in identifying the major issues facing Imasco and its
individual businesses and had facilitaced a cons cruct ive discussion of
those issues. He indicated that B.A.T Industries supported the
efforts being made to improve the performance of the existing
businesses and suggested that the most important issues facing Imasco
are:-
- the need for further strengthening of Imasco's balance sheet,
particularly through a continued reduction of debt;
- to consider the early divestment of the remaining Peoples NJ
stores; C)
- to improve Imas co I participation in the strategic direction and co
development of Canada Trust; N.)
U1
- to seek continued improvements in store-for-store growth of
sales and profits in each of the retail operations, in addition co
to growth through opening new stores. U-1
GIB/DJA 19th January 1989
BAT Industries document for Province of British Columbia 13 April 1999