B.A.T MOSTRIES' Gmains - JMT 1986
Introduction
1. The purpose of the Guidelines is to specify the dividends expected
from Imasco and to indicate B.A.T Industries' preferences for the
directions of strategic thrust which Imasca might follow.
2. The Guidelines will be used as the basis for the CPC discussions of
Imascals Strategies and Plan in November 1966 and February 1987.
General Background : B-&-T Industries Objectives and Strategies
3. The objectives and strategies for the Group were reviewed by the B.A.T
Industries' Board in July.
4. It was agreed that there should be a continuing commitment to growth
and that the central objective for B.A.T Industries should be to
increase dividends per share by a mini== of 4Z pa in real terms
(i.e. after allowing for inflation).
5. To support this growth in dividends there will need to be comparable
rates of growth in profits and in sales turnover. There will be
particular emphasis an seeking to achieve this growth organically, by
positioning the Group in growth markets and by seeking to achieve
above average growth through increased market shares.
6. The used for innovation and for the Group's businesses to achieve
leadership positions within their respective markets will continua to
be stressed. In this context, there is concern that the management
capability and Organisation structure needs to be strengthened at
Operating Group level in order to provide a more effective development
thrust. Operating Groups will therefore be asked to give special
consideration to this issue in their plans.
7. It will be important for each business within the Group to achieve
returns on the funds employed in the business which are sufficient to
make a full contribution to Group overheads, dividends and interest
payments and which can also provide funds for investment in future
growth at a minimum of 4% p.a. in real terms.
S. Operating Groups will be asked to give a high priority to considering
ways for improving the performance in any businesses which are not
achieving acceptable returns. In cases where it is not possible to
achieve this improvement within a reasonable time period (usually 2-3
years --tam) divestment should be considered.
9. Group development will continue to be centred on Tobacco, RetailinS,
Paper/Pulp and Financial Services but opportunities for Agribusiness
and other developments will also be pursued where appropriate,
within those countries where the opportunities for developing the
Group's main activities are restricted.
10. Although growth will continua to be sought in Tobacco, it is accepted
that the overall real rate of growth in the Group's Tobacco activities
is unlikely to exceed 1-2Z P.&. Thus, it is important for Operating
Groups to seek rates of growth significantly faster than 4% P. a. In
other activities. It is also Important that the cash flow from
Tobacco is maintained in order to assist in funding the growth in the co
Group's other activities. rQ
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Specific Priorities for Imasco
I. It is suggested that the central objective for Image*, which is
reflected in the financial guidelines at the end of the note, should
be to achieve sustained real growth in dividends and earnings per
share at rates significantly in excess of 4Z p.a.
2. The longer term aia should be for Imasco to have a portfolio of
businesses established in leadership positions in growth
markets/market segments so that the required growth in earnings can be
achieved largely through organic growth in the sales and profits of
theme businesses. Acquisition should therefore be considered as a
means for establishing a basis for future growth rather than as a
source of growth In itself.
3. In evaluating laascols strategies and plans, B.A.T Industries will
apply the same criteria as are applied to the other businesses within
the Group. There will be particular emphasis on ensuring that each
individual business within Izasco in able to earn a return sufficient
so that. after making an appropriate contribution to central
overheads, interest and dividends, the generation of cash is
sufficient both to offset inflation and to provide funds for
investment in future growth at at least 4Z p.a.
4. Issues which B.A.T Industries will wish to resolve with Imasco, in
discussing their longer term strategies will be:-
(a) The main directions of strategic thrust both industrially, where.
B.A.T Industries' preference to for developments in Tobacco,
Retailing, Financial Services and Paper/Pulp and geographically,
where B.A.T Industries would prefer the main emphasis to be on
developments in Canada rather than the USA.
(b) The plans for funding new investments where there is a preference
for as much as possible for this funding to be generated
Internally. Despite this, however, participation in share issues
made in connection with new investments is not excluded and the
current intention is to maintain B.A.T Industries' shareholding
in Isaac* at a minimum. of 40%.
5. Following the Genstar acquisition a first priority (which is already
being monitored by B.A.T Industries) should be to complete the agreed
divestments of the industrial interests which It is not intended to
retain.
6. Par the Financial Services interests the immediate priority is the
consolidation of the arrangements for managing this activity.
Following this, plain should be prepared for the future development of
Imascols interests La financial services covering both the continuing
operations of Canadian Trustco and any extensions to these that are
envisaged. The plans for the development of Canadian Truatco will be
reviewed by the CPC in October 1986.
7. For Tobacco, the immediate priority should be to bring the price war
to a satisfactory conclusion and to re-establish the profitability of
this business.
S. There should also be continuing emphasis on improving the market share co
and on enhancing the level of creativity within the business.
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9. There should be continuing support for industry representations to
Federal and State governments on taxation and an smoking issues.
Experience should be shared with other Group companies regarding the
effectiveness of different approaches to these issues.
10. For Hardees priority should be given to action that might be taken to
improve the profitability and cash flow from the existing outlets and
improve the rates of sales growth within individual restaurants.
11. Further consideration should be given to the optimum rate for
expanding the Hardees chain and to the contribute= which might be
made, by Mama Grisanti and by projects similar to the contract to
supply Southlands 7/11 stores.
12. For Peoples Drug the immediate priorities should be to consolidate the
control over the warehouse operation and to strengthen management.
13. In developing the plans for this activity, further consideration
ket.
1 . :hould be given to the impact of deep discounting in this mar
4 or Shoppers Drug further consideration should be given to bow the
current franchising system might be modified or supplemented (e.g.
through the addition of warehousing and distribution services), taking
into account the scale of investment that might be required for any
extension in the range of Imasco owned components of the total system
and the returns that might be earned by Imasco from the investment.
In addition, the potential advantages to franchisees of a development
of this type should also be taken into account.
15. For UCS, the main issues to be clarified are the prospects for this
activity and its place in the longer term strategy for Imasco.
Financial Guidelines
1. Dividends Based on the current B.A.T Industries Group shareholding
the minim= dividends expected from Izasco (gross of withholding tax)
will be as follows:-
Y"rs to 31st 1986 1987 1988 1989 1990 1991
March
36 41 50 59 71 94
However, since this represents a relatively low proportion of
earnings, it is suggested that a higher level of distribution should
be considered. This will be discussed with Imasco when the full
impact of the Canadian Trustea acquisition has been evaluated.
CD
RS/DJA
24th July 1986 co
N)
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BAT Industries document for Province of British Columbia 23 April 1999