Guidelines for Imasco : July 19-88
General
1. The central objective for Imasco should be to achieve returns and
sustained rates of growth in earnings and dividends per share which
compare favourably with other leading businesses in Canada.
2. B.A.T Industries would prefer this to be achieved by maintaining
Imperial Tobacco in a leadership position in its market and by
developing other growth activities within the Croup's main areas of
interest in Retailing, Paper/Pulp and Financial Services, based in
Canada rather than in the USA.
3. In evaluating Imasco's strategies and plane, B.A.T Industries will
apply criteria similar to those applied to the other businesses within
the Group. In particular, each of the businesses within Imas6o should
be operating efficiently and profitably, producing a cash flow which,
after covering central overheads, interest payments and dividends, is
either sufficient to fund sales growth of at least 8% p.a. in real
terms or to give an equivalent cash surplus for investment elsewhere.
Financial Guidelines
4. Dividend& : Based on the present B.A.T Industries Group shareholding,
the minim- dividends expected from Imasco (gross of withholding tax)
are:-
Year to 31st December
1988 1989 1990 1991 1992 1993
C$m 50 57 72 83 97 112
There should also be a target to achieve a minimum 40% payout based on
the profits actually achieved.
S. Returns and Profits : It is recommended that 1wasco should continue to
seek an historic cost return of 26% on net assets (on a B.A.T
Industries' basis) for its commercial activities, with the achievement
of a satisfactory return from People's Drug being a priority. For
Imasco Enterprises, the target should be to achieve a sustained
increase of at least 15% P.a. 0 in after-tax profits.
6. Balance Sheet : A further and major priority is to strengthen the
balance sheet by reducing the level of debt by C$ 1,000 million
compared with 31st December 1987, before the end of 1989.
Specific Priorities
7. The first priority should be to strengthen the balance sheet and in
addition to divesting 33% of C.T. Financial to meet the requirements
of the proposed Financial Services legislation, Imasco should also
consider selective divestments of other activities, especially in
retailing, as indicated below.
8. In Tobacco, the priority should be to reinforce profitability
C:)
thr7o-ug-h real price increases and continued improvements in efficiency
to strengthen Imperial's position as Canada's lowest-cost producer of co
quality cigarettes. Imasco should also seek to continue to improve
market share both through existing brands and through developing and
marketing new products, making full use of developments available from
elsewhere in the B.A.T Industries Group.
BAT Industries document for Province of British Columbia 23 April 1999

9 In Retailing, the first priority remains the achievement of
adequate profits and returns at People's Drug. Progress should be
made towards consolidating the various trading names under a single
People's banner and towards au improved cash flow. If adequate levels
of performance cannot be achieved, divestment may need to be
considered.
10. Plans for expanding and extending Shoppers's Drug should continue to
be developed but the need to achieve satisfactory cash flows should
continue to be stressed.
11. For Hardee's, options should be considered for improving the
profitability and cash characteristics of the business and if it is
not possible to achieve this, divestment should be co" idered .
12. While it is recognised that Imasco attaches importance to retaining
the UCS Croup, it is suggested that its operations should continue to
be restricted to the retailing of tobacco products, confectionery and
reading materials.
13. For Financial Services, the passage of the proposed legislation
which would allow Imasco to retain a 65% interest in C.T. Financial is
of prime importance. The legislation would also give C.T. Financial
(but not Imasco or B.A.T Industries) freedom to make acquisitions in
other sectors of the financial services industry in Canada. However,
the legislation is still restrictive and without prejudicing passage
of the main provisions of the legislation, Imasco should press
judiciously for amelioration of the provisions which prohibit
industrial companies from acquiring holdings of more than 10% in
financial institutions.
14. Imasco should seek to maximiae, within the legal constraints governing
representation on the Board, its participation in the strategic
direction and development of Canada TrustCo. Plans should be
developed for the expansion of Canada TrustCo- to ensure that the
objective of sustained 15% p-a- growth in its after-tax earnings will
be achieved.
15. Through C.T. Financial, plans should also be developed for entry into
complementary activities in the financial services industry in
Canada.
CD
RS /DJA
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BAT Industries document for Province of British Columbia 23 April 1999