To: Mr. P. Sheehy ,
Mr. B.P. G
Mr. E. A. A.
limasco Plan
The CPC is scheduled to discuss the Imasco Plan a day, I 13th
January.
The Plan in characterized by relatively low rates of growth in sales revenue
(6%-7% p.a., including Inflation) but high rates of growth in earnings per share
achieved through Improved margins (section C, pages 5 and 6). There is a sharp
improvement in cash flow before financing activities in 1989 compared with 1988
(section C, page 9).
There is no analysis for the business environment and, In particular, it is
not clear whether the potential impact of the US/Canada Free Trade Agreement has
been taken into account.
Although the Plan appears to reject further diversification in the near
term, it is unclear whether Imasco have longer-tern plans for such a move.
A comparison of the Plan with the Guidelines (copy attached) shown the
following features:-
1. Dividends: The projected dividend payments are below the-levels
recommended in the Guidelines,-
C$m 1988 1989 1990 1991 1992 1993
Guideline so 57 72 83 97 112
Plan 50 54 59 65 72 79
2. The dividend payout ratio (section C, page 2) in projected to decline from
5OZ (of previous year's earnings) in 1987 to 322 in 1993, below the 4OZ level (of
current year earnings) recommended in the Guidelines and Imascols own 402 target
(section B).
3. Debt and Debt/Equity: With long-term debt projected to decline by about
C$392 zillion between and-1987 and end-1989, the Plan does not meet the Guideline
recommendation that the level of debt should be reduced by C$1000 zillion aver
the period.
4. The debt/equity ratio is better than that projected In last year's Plan and
Is projected to improve over the Plan period (primarily because of the strong
growth in earnings which in assumed). No account is taken of possible receipts
from disposals (e.g. Genstar), further sale and leaseback opportunities at
Hardee's or the reduction in imsco I 5 shareholding in Canada TrustCo.
Gross D/Z t987 1988 1989 1990 1991 1992 1993
Current Plan 135 109 97 83 69 56 43
Previous Plan 133 117 ill 100 87 74
S. Cash flow: The Plan only provides cash flow information for each co
business before taking account of financing costs and dividends. It In therefore r@j
unclear as to whether each of the individual businesses neet the Guideline that Ul
they should produce a cash flow which. after covering central overhead*, interest -
payments and dividends, is sufficient either to fund sales growth of at least rQ
82 p.a. in real term or to give an equivalent cash surplus.
BAT Industries document for Province of British Columbia 13 April 1999

2
6. Imperial Tobacco: The Plan ref lects the Guideline tha't priority should
be gi;en to reinforcing profitability. through real price increases and
improvements in ef f iciency, combined with improvements in market share, though it
is not clear as to bow the af f iciency and market share improvements are to be
attained. The Plan does not address how Imperial propose to overcome the
earnings gap (C$0.57 million in 1989 rising to C$44.35 million in 1991) in order
to achieve their earnings objective (last page of section D).
7. Inanco USA: The cash flow and profitability projections for this
division are stronger than projected in last year's Plan. It is proposed that
the 31 Grisanti restaurants are divested in 1989, but there is no follow up to
the possibility raised in last year's Plan of Fast Food Merchandisers Inc. being
divested.
8. Shoppers Drug Hart: The Guideline suggestion that Iaasco should seek to
expand and extend Shoppers whilst continuing to stream the need for satisfactory
cash flows is reflected in the Plan. Bowever, the degree of confidence in the
projections is undermined by the failure of Shoppers to meet a number of its 1988
objectives (section P, page 1) and the deterioration in cast flow In 1988
compared both with 1987 and the 1988 budget.
9. People's Drug Stores:- Despite the proposed divestment of assets in
Atlanta, Indianapolis and Toledo, the projected return on funds employed and the
cash flow remain weak.
10. UCS: The Plan envisages aggressive pursuit of sales opportunities in
gift and souvenirs (along with confectionery and news), though the Guidelines
sugs:eted that UCS's operations be restricted to the retailing of tobacco
products, confectionery and reading mate ri al a.
11. Financial Services: The Plan does not address either the development of
plans for entry into complementary financial services activities in Canada or the
prospects for the proposed Financial Services legislation (in particular for the
amelioration of the provision which would prohibit industrial companies acquiring
holdings of more than 10% in financial institutions).
12. The projected increases in Canada TrustCo.'s net earnings are lover than in
last year's Plan and do not meet the Guideline of at least L5% p.a. growth. It
is unclear what steps are to be taken to improve that growth.
13. The Plan does not cover Imascols intentions regarding the reduction in its
shareholding in Canada TruetCo. Also, Imancols intentions regarding the possible
divestment of the peripheral financial services activities are unclear.
14. Board Summary: The Plan does not contain a self-contained summary
Sul tion to the Board. Such a summary is being prepared by
Finance Department.
.............
G.J. burgess
co
r".)
GJB/DJA LT1
9th January 1989
BAT Industries document for Province of British Columbia 13 April 1999