FILE NOTE
Imasco, Plan 1989-1993
Summary of points &rising during the CPC meeting held on 13th January
to discuss the Imasco Plan were:-
Imperial Tobacco
- 1988 cigarette volume up on target and budget.
- The Plan estimate of C$306 million operating earnings for 1988
will definitely be achieved: could be around C$310 million.
- Tobacco Products Control Act (Bill C-51 ) is effective from
January for Print and Newspapers; Billboards have a dollar limit;
Promotions continue to be allowed. The Government is committed to
introducing a clean-up bill (which the Tobacco manufacturers have been
pressing for), but this re-opens the subject to the Parliamentary
process.
1988 estimated market share of 56.3% (versus 54.6% In 1987 and a
target of 56.2%): could have been higher (c.572), but Imperial Tobacco
deliberately slowed shipments down in December.
- Earnings gap : The 1989 gap should be overcome as the 1/10/88
price increase was 3c per 20 rather than the 2c assumed in the Plan -
as a result, 1989 operating earnings now expected to be c.C$330 milion
rather than the C$323 million shown In Plan. For later years, the
earnings Sep should be overcome as Imperial Tobacco have a marketing
objective of increasing market share by one percentage point a year
but the Plan assumes much lower gains (+0.8% in 1990; 0.3% in 1991).
In addition, there could be scope for raising prices ahead of
inflation (say 1.5 times inflation rate). Imasco are confident that
the earnings gap can be closed.
- US/Canada Free Trade Agreement : Reduction in duty (12JZ-15Z) on
US imports will be over about 6 years; imports from USA will have to
carry Canadian health warning; US manufacturers will be. free of the
Canadian advertising restrictions. Imperial confident;.that their
manufacturing costs match those of the US manufacturers (but Mr.
Sheehy suggested they might like to compare themselves with Brown &
Williamson).
- Marketing : New du Maurier pack introduced. Players Medium
doing vary well. Two recent launches in the Matinex pack (aiming to
rebuild the Matinez trademark).
Shoppers Druz Hart
- Good December sales. 1988 operating earuing* up 1OZ on 1987 (up
6Z in real terms). Excluding Rovies, SuperX and Pharmaprix/Carnaval,
operating earnings would have been up by about 15%. Plan assumes a
15% increase in 1989.
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- Strong management teas under David Bloom.
- Food Basket experiment (in Halifax and Ontario) -has led to
increased traffic (which was the &in). Aim will be to introduce ILt to
about 100 stores. 'IC
BAT Industries document for Province of British Columbia 13 April 1999

2 -
Home Health Care experiment (Thunder Bay, Ontario and Toronto)
has not really taken off, but is not losing money. Possibility of
having one NBC in each major ceutre with satellite SDK stores having a
HHC catalogue.
- Still scope for increasing the number of SDX stores (+100-150),
mainly by buying up independent outlets.
- Mr. Sheehy noted that the real leverage In retailing comes from
growing *xl stores and changing the product six. Mr. Crawford
noted that most of SDM1m growth has come from acquiring independent
chemists, with the effects of the ro-styling, etc., making the outlets
profitable very quickly.
-UCS
- Strategically valuable to Imperial Tobacco, especially given the
now advertising restrictions.
- But aim is also to run UCS profitably. 1988 earnings will be
above Plan.
- Well run business.
- Not yet decided on new name for UCS. Will probably do so during
course of 1989.
Canada Trust/Financial
- 1988 EPS of CT likely to be nearer C$2.00 than the C$1.82 shown
in the plan (but note that it Includes C$16 million Dome recoveries).
- 1968 deposit growth likely to be about 14% (af ter slow first
half), implying a slight rise in market share.
- Cr Plan is usually very conservative. Currently their Plan is
prepared 'by a technician' and then objectives and strategies are set
to 'beat the plan': thus it Is beating-the-plan which Arives the
business rather than the Plan itself. Isasco, and ot"re on the
Executive Committee, are suggesting Improvements to this approach.
- CT proposing to strengthen their marketing team In order to
improve on projected growth rate.
- CT are very couservativ* in that they will not hold junk bonds
or third-world debt.
- Constructive dialogue taking place between CT and laasco, but CT
value their independence. Imasco encouraging CT to be quicker at
implementing ideas and to introduce incentives at branch level.
- Imasco have hired John Bennett (frou 6th February). who wiltl ]be
raponsible for Financial Services. Bennett will be put on'the'luasco C;1
Operations Advisory Committee. It was agreed that arrangements should
be made for Bennett to visit B.A.T Industries (including Eagle Star 00
and Allied Dunbar). NJ
Ln
Will progressively work off Mortgage Banking Group losses.
BAT Industries document for Province of British Columbia 13 April 1999

3
Financial Services legislation will be ro-introdur-ed in
Karch/April 1989. Imasco are making representations. There in a
possibility that the provision restricting the shareholding of new
entrants will be dropped. At best, the 65Z shareholding limit will be
eased to about 70%, but there will be no change in principle.
- Reduction of Izascols share-holing in CT will reduce Imascols
attributable profits, but increase liquidity/reduce debt.
- Consideration being given to extending CT through acquisition of
a bank operating mainly in Quebec, but It is unlikely that anything
will happen on this in 1989.
- A major objective of CT is to control expenses.
- Genstar Development Company (Land Division) is profitable.
Imasco's six is to sell the business If/when a suitable price can be
obtained. The business has substantial land holdings in Alberta and
could be very profitable if the Province's economy improves.
- Venture Capital business hit by October 1987 share price fall.
No long-term aim to-retain the business.
Imageo USA
- Soft Q4 performance, so 1998 operating earnings might be
c-US$106 zillion rather than US$108 million in Plan.
Score-for-store growth of over 6% for the 9 months through to
September 1988 (real growth of 2%-3%), but this is likely to drop back
In Q4.
- Hardee's share of customer traffic has improved.
- Gri sa at i's to be divested. A number of interested parties
(including Mr. Grisanti) . Expect to get US$35-40 zillion compared
with a book value of USOO million.
- Fundamentals at Hardee's are very good.
- Fast Food Merchandisers is a very efficient manufacturer and
distributor. Strong marketing hiss. which stem* from the Chief
Executive. Imasco thinking of selling part of ?FM (to raise. say,
c.US$200 million) but retaining control. M are not aware of this
possibility.
- Hardee's strategy now is to be a strong regional chain rather
than a national chain.
- Hardee's margins are improving. Also improving technology; I.T.
is outstanding. Reducing waste.
- Imanco USA Plan contains a small (c.US$5 million) earnings gap
in 1989.
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Xn February 1988, the sale and lesseback of 279 company-owned N)
restaurants was completed (for US$200 million). This reduced
operating earnings, but am interest expense also fell (as debt was
paid of f ) the of f ert on the overail incous statement was negligible.
The cash characteristics of the business have been improved since the
previous Plan.
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Move to nutritious food consumption in USA likely to benefit
Hardee's as it is less dependent an burgers than Its competitors are.
Hardee's in now using a vegetable-based oil for cooking.
- Burger King still a significant competitor in the Hardee's
localities (but lose than it used to be). In the 200 or so relevant
TV markets. Hardee's Is No. 1 or No. 2 in about two-thirds of them,
whereas Burger King is No. 1 in about 10 and Wendy's No. 1 in only one
location. Takeover of Burger King by GraudMet in likely to
stronger competition from Burger King (but unlikely to occur in 1989
and it will require considerable Investment in new cooking equipment
if they shift towards chicken meals).
Y, - Imasco are likely to make Bill Prather Chief Executive Officer
of lansco USA (possibly in Fall 1989).
- Plans to change location of RQ away from Rocky Springs have been
delayed as Prather should be responsible for deciding upon the new
location. No dif f iculty in hiring top management, but the problem
lies In recruiting middle managers. The new location is likely to be
Raleigh (or possibly Charlotte).
Peoples Drug Stores
- Plan projects a lose for 1988 of US$9 million, but a good
Christmas period in the aid-Atlantic region means that the lose nay
turn our to be US$5-6 million.
- There is an oral agreement to sell the Georgia units (which will
involve a lose of about US$5 million an book value). It is hoped that
this agreement will be signed in the week beginning either 16th
January or 23rd January.
- When the Georgia deal is signed there will be a public
announcement that the other underperforming regions are for sale. The
announcement will also may that the remaining regions (DIET) had a
trong Q4 and that their performance will be closely monitored the
strong an will not say auyching about selling or not selling the
remaining regions.
- DIET (i.e. the remaining regions) have a value between US$260
million and US$345 zillion (the difference being goodwill). There are
several parties showing an interest.
- The DIET business has a good management team (though its
overhead expense needs to be reduced from US$40 million to US$28
million. If Imasco can obtain a satisfactory price, the present
thinking La that DIET will be sold, but the DIET management have been
told that the performance of the business will be evaluated.
- imascols year-end accounts will probably treat the Georgia
business an a discontinued business (from January 1989) and possibly CD
tbatof the mid-want region. No decision yet regarding the treatment
of the DIET business as Imasco do not yet wish to signal that the 00
business might be available and no final decision as to its future has rQ
yet beau taken.
C=)
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Imeco
- A number of positive personnel changes; appointment of John
Bennett to Imasco; Roger Ackman moved to Imperial Tobacco; Jean-Louis
Mercier appointed Vice-Chairman of Imaeco; Roy Schwartz to head up the
Legal function; and Annette Verachuran recruited to VP Corporate
Development (Initially reporting to Roy Schwartz). Ray Guyatt has
done very wall. Torrance Wylie very bright and supportive.
- At 1988 year-end, Imasco, will have about C$2.1 billion long-term
debt and C$2.4 billion equity. The debt/equit7 position will only be
slightly better than that for 1987. The various divestments
(Grisoutils, Peoples and, possibly, FM and Genstar) will bring in
cash, but Imasco do not anticipate selling any shares In CT in 1989.
Debt position is vulnerable to any rise La Interest rat" an about
half the long-term debt La floating-rate debt. The Plan identifies a
debt/equity of 35165 by end-1990, but Mr. Crawford would like to
achieve this earlier.
- Plan projects dividends per share to rise from C$1.04 In 1988 to
C$l .12 In 1989 (45% of 1968 BPS or 39Z of projected 1989 earnings).
It was pointed out that the Plan showed dividends growing at a slower
rate than earnings, but Mr. Crawford said that the Plan was being
over-cautious and that he anticipated dividends growing in line with
earnings.
- imasco confirmed that they are not considering an equity Issue
and that the main focus is on Improving the quality of the existing
operations and Improving the balance sheet.
SumsaEz
- Mr. Sheehy summarised by suggesting that Peoples (DIET) would
have to be divested and that it would be helpful if this could be done
during 1989. The sale of Peoples would also be helpful insofar as
Bloom will have more time to concentrate an SDM- Imperial Tobacco
performance is good.
- Mr. Sheehy noted that the Plin was the beat ever sent to B.A.T
Industries by Imasco, and that It was a great help in the discussions
with Imasco. Mr. Crawford said that Mr. Guyatt and Mr. Wylie prepared
the Plan.
GJB/DJA
-16th January 1989 rQ
CD
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BAT Industries document for Province of British Columbia 13 April 1999