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r"TRIAL TOBACCO I.M. C. ANA T) A
T. N.C. MF.FTTHr. - MAY 11/94
In.,%.I NO. 2t
MARKET UPDATE
April 25, 1994
Market Overview:
The key issue in the marketplace has boon the impact of the tax rollbacks that took
place on February 8, 1994. The federal government reduced the excise tax an
cigarettes by $5.00 per carton of 200 directly, and provided for an additional
reduction of up to $5.00 per carton to match any provincial tax reduction in excess
of $5.00 per carton. Similar excise tax reductions were applied to manufactured
tobacco (fine cut), tobacco sticks and cigars.
Since the federal government initiative, five provincial governments have followed
with tax rollbacks of their own. The result of which is a considerably different tax
environment in these five provinces; Quebec, Ontario, Now Brunswick, P. E. 1, and
Nova Scotia, compared to the rest of the coun".
Suggested Retail Prios (All Taxes Included)
Carton (200 cigarettes)
Newfoundland $53.64
British Columbia 49.43
N.W.T. 4e.65
Saskatchewan 48.6.3
Manitoba 46.83
Yukon 43.44
Alberta 40.87
Nova Scotia 34.21
New Brunswick 34.21
P.E.I. 32.42
Ontario 24.96
Quebec 23.76
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W. PAR: .5- 3-54 12:27 0712224034;*20/30
T. S. G. MUTING - MAY 11/94
ITEM No.i 4ft)
The result of these actions tis that we are witnessing considerable movement of
volume from the DFX portion of the industry back to domestic. In addition, there has
been a slight shift from fine cut in total to tailor-made In total as tailor-mode has
become relatively less expensive compared to fine cut since the rollback in some
provinces-. notably Quebec.
category performance;
As of March, the contribution of domestic tailor-made to the total CTMC reported
industry stands at 78.9% an a three month basis (up from 55.6% In January). This
growth is attributable primarily to Quebec and Ontario, where sales of domestic tailor-
made to date represent 213% and 132% respectively of the previous years' volume
over the same time period.
Like domestic tailor-made. the contribution of domestic fine cut to the industry has
also grown, albeit not as quickly (9.0% on a three month basis in March vs. 8.2% In
January). This growth is the result of a shift in volume to traditional 200 gram and
"25% more" bonus fine cut options primarily from business that was in DFX fine cut.
The contribution of low-weight fine cut to the domestic fine cut industry has declined
somewhat since the tax rollbacks.
Following the governments' actions, the DFX portion of the Industry has been
dramatically reduced. To March, DFX tailor-made represents 8.8% of the CTMC
industry on a three-month basis versus 29.S% in January, while DFX fine cut has
declined from 5.3% of the industry in January to 2.1 % in March an a three-month
basis.
CTMC INDUS I RV COUTPOW101 MI
12 Me 3 Me
SI 92 93 94 Mar. 94 UN.
Om. T.M. 71.4 68.5 58.7 43.1 78.9
83.5 04.4 83.4 $3.9 $7.7
0FX T.M. 12.1 1 5.9 20.9 22.8 8.4
Oern. F.C. 10.8 10.5 8.6 0.4 0.0
14.3 14.3 13A 12.1 11.1
DFX FC 4.3 4.7 2.1
Saw= Mwtry Euhu*e
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BAT Industries document for Province of British Columbia 23 April 1999

5- 3-94 12:28 0712224034:-21/30
n-
T. S. G. MEETING - MAY 11/94
rM NO. t 4(i)
Total IndusIty Volume,
To March, total CTMC industry volume stands at 51.5 billion cigarettes on a twelve
month basis. This represents growth of 1.4% from March 1993. What we are
witnessing is a greater portion of the total industry being accounted for by the CTMC
companies, particularly since the measures taken to reduce taxes. With major
Canadian trademarks now available at reduced prices, other non-CTMC products such
as generics and raw leaf have become even less attractive to consumers. We
anticipate the total industry (non-CTMC and CTMC) to decline 2.2 % in 1994, to 52.8
billion cigarettes. with the CTMC portion of the industry accounting for 49.5 billion
cigarettes.
Once again the market is experiencing dramatic change. The movement to products
offering a price advantage, that took place following the large tax increases of -1 989
and 1 99 1, has essentially been reversed since the tax rollbacks. Even though not all
provinces have rolled back taxes, the availability of lower priced tailor-made in half of
the country suggests we are unlikely to witness again a situation of smuggling
tobacco products from the U.S.. or elsewhere, into Canada in the short term. if
anything, inter-provincial smuggling will likely satisfy any demand for 'cheaper"
products in the areas of the country that have not introduced tax rollbacks.
CTMC INDUSTRY SHARES
(Total Tobacco)
1994 112 Mos. 1994 (12
1991 1992 1993 Marchl Mos. March)
ITL 58.5 56.6 58.5 57.7 59.9
RSH 24.6 25.9 24.5 23.6 23.0
RJR 1 18-9 1 18.5 1. 19.0 1 18.7 17.1
Source: Industry Exchange
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X FMR 5- 3-34 ; 12:23 .,,,,07 2224094;#22/30
T. S. C. )MITI= - MAY 11/94
rm NO. I 4(i)
in share terms, ITL finished 1993 back where it left off In 1991. Following a loss of
share in 1992, ITL rebounded by making its major trademarks available in smuggled
channels in the second half of 1993. As the majority of the tobacco bu3iness has
now returned to the domestic tailor-made portion of the market In 1994, ITL is
enjoying accelerated share growth due to the competitive strength of our trademarks,
particularly du Maurier and Player's. We anticipate finishing 1994 with a share of
59.7% of CTMC total tobacco. RBH and RJR have both seen their shares decline as
the bulk of the business that had shifted to DFX channels in '92 - '93 returns to the
domestic portion of the market. RBH's strength remains in low-weight fine cut with
its Superall options, while RJR enjoys steady performance from its Export trademark
in domestic tailor-made and bonus and premium fine cut.
Total jailor-Made:
This is where the bulk of the business now lies. After losing business to fine cut as
prices rose steadily from the mid 'so's through the early '90's, tailor-made has grown
in contribution since November 1992. At first it was the increased availability of
smuggled tailor-made at cheaper prices that caused some smokers to leave fine cut
and return to tailor-made. now with 'legal' tailor-made available at prices reminiscent
of the early '80's, smokers are returning to tailor-made in increasing numbers.
TOTAL CTMC TAILOR-MADE
(Domestic & DFX)
1994 (12 1994 (3
1991 1992 1993 Mae. Mos.
Match) March)
Volume 45.2 43.0 43.9 ".2
(bins)
-8.3 -5.1 +2.0 +2.5
Change
ITL Share 61.6 59.8 60.4 61.7 63.3
RBH Share 22.0 24.6 22.9 22.0 22.0
RJR Share 18.4 15.5 1 6.8 .16.2 14.7
Source: Industry Exchange
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W. PAR: 5- 3-94 : 12:30 0712224034;923/30
%^Lwo t. i ii .iliss2o%
T. S. C. XMING - MAY 11194
IM KO.t 4(1)
Although ITL's share in DFX tailor-made was steadily growing to levels similar to
those in domestic tailor-made. It still lagged approximately 7 share points behind by
early 1994, as a result of our late re-entry Into smuggled channels and the wide
availability the opposition enjoyed as a result. Now that more of the tailor-made
volume has shifted to the domestic market, ITL's strength. our share of total tailor-
made is experiencing solid growth in the short term: primarily due to continued strong
performance by du Maurier, and a rebounding In share terms by Player'$. By year and
we anticipate ITL's share of total tailor-made will reach approximately 68%.
In terms of the opposition, RBH share has declined steadily from its peak of activity
in DFX markets in 1992. In the short term its share is holding fairly stable, at par
with this 1991 level. Essentially what appears to have taken place with RBH's tailor-
made trademarks is that their wide availability in smuggled channels, helped to
generate some increased levels of trial; the result of which has been an overall
stabilizing, of what was prior to 1991, a long term trend of decline. We will be
monitoring these trademarks closely over the next few months to see whether they
return to their historical trend.
RJR. on the other hand, shows signs of solid growth in domestic volume but overall
is declining through the-first three months of 1994 due to the virtual disappearance
of DFX volume. As a result they are experiencing share declines in the short term.
Certainly because of the recent nature of the activity in the marketplace, we will
continue to monitor any now developments very closely over the next few months.
In the short term at least, ITL appears to be benefitting from the strength of our tailor-
made trademarks, and apparent lack of loyalty on the part of smokers towards some
of the key opposition brands that they were purchasing in smuggled channels.
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N. PM: 5- 3-84 ; 12:31 0712224034;-24/30
V"
T.S.G. MUTING - MAY 11/94
I TEX NO. I 4Q)
Tallor-Made Consumer Share*;
TRADEMARK SHARES M
(Total Smokers)
1990 1991 1992 1993 1994
(YTD)
du Maurior 25.3 28.5 29.8 30.S 32.2
Player's 21.2 22.7 22.4 23.0 25.1
Export 12.6 11.7 12.2 12.4 11.3
Rothmans 5.4 5.0 6.0 5.9 5.8
Matinee 6.3 5.6 5.4 5.4 5.0
Craven 5.2 4.9 4.8 4.7 4.9
B & H 4.6 4.3 3.9 3.9 3.3
Source: CMA
I
As we sea from the chart, du Maurier and Player's we showing strong growth In early
1994 due to their continued ability to meet the needs of smokers. As noted, the
major opposition trademarks,- with the exception of B & H. experienced growth or
slowing of a declining trend in 1992 due to their participation In snw9gled channels.
In 1994, as business moves back to domestic we sea Export back In decline.
However, of interest has been the ability of Rothmans and Craven to hold stable at
levels very close to 1992.
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BAT Industries document for Province of British Columbia 23 April 1999

NV. PAR' 5- 3-34 12:31
0712224034:*.25/30
TXPZRIAL TOBACCO LTD. CA MD A
T.S.G. =TING MAY 11194
IM
TRADEMARK SHARES 1%)
IT < 215)
1890 1991 1992 1993 1994
(YTDI
du Mauder 38.3 42.2 44.3 47.3 48.3
Player's 26.0 25.2 25.8 24.1 24.6
Export 19.1 16.9 15.5 14.8 13.9
Rothmans .8 .8 1.6 1.2 1.9
Independent .2 .1 .4 1.8
Source: CIVIA
If we look at performance with the key target group of srnokers < 25, we see some
interesting trends. Again, it Is noted that Rothmans is holding onto share gains
experienced in 1992, and Independent brands (Generic-9) have increased in popularity
in early .1 994. In terms of the 'Big 3' trademarks, Player's and Export are declining
in share; both losing to du Maurier. While Export is declining overall, Player's Is aging
(Its share Is now largest with smokers 25-34). du Mourler has veen very successful
in providing smokers with better levels of smoothness, taste and flavour relative to
Player's and Expert. Player's has suffered somewhat recently due to a perceived lack
of taste relative to strength. In addition, Player's Madlurn has been ineffective in
competing in the rn*dium strength segment which accounts for 20% of the market.
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W. PAR: 5- 3-94 : 12:32 0712224084:.'26/30
nA &ILA.A" AV&M%,V%0 A-L&O .
T. S. G. X=NG - MAY 11/94
ITM No., 4Q)
TOP 6 BRANDS M
(T < 25)
1992 1993 1994 (YTD)
du Mourier 27.3 27.6 29.7
Player's Light 16.9 16.5 1 e.2
du Mourier Light 9.7 12.1 11.7
Expert Medium 5.4 0.5 5.6
Player's Filter 3.9 3.3 3.7
Source: CMA
in terms of Individual brands, du mourier continues its dominance in consumer share
terms with smokers < 25. Player's Light continues a slow trend of decline. du
Maurier Light has grown due to strong performance with F < 25, while Export Medium
remains a competitive threat due to its exceptional performance In Quebec.
Total Fine Q=
As noted previously, the contribution of total fine cut to the Industry is down to
1 1. 1 % on a three month basis through March 1994 (vs. 13.5% in January). The
dynamics of this are a large decline in DFX volume, while domestic volume remains
relatively stable.
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W. RAR: 3-84 : 12:33 0712224OS4;:27130
IMPERTAL TOUCCO LTD. CANADA
T.S. C. KEITTN - MAY 11/94
IM Mt 4(j)
TOTAL CTMC FINE CUT
(Domestic & DFX)
1994 (12 1994 13
1991 1992 1993 Mon. Mon.
March Match)
volume 7.8 7.2 6.9 6.8
(bins) +30.0 -7.7 -4.2 -1.4
% Change
ITL Share 34.4 35.9 35.5 35.7 40.0
RBH Share 32.3 28.8 30.2 29.7 26.0
RJR Share 33.4 37.4 34.3 34.6 34.0
Source: Industry Exchange
Excludes Sticks
As premium and bonus fine cut account for slightly larger portions of the domestic
business since the tax rollbacks (we anticipate the split between premium/bonus and
low-weight fine cut to be approximately 65-46 in 1994), ITL has seen its share
increased somewhat In the short term due to our strong presence in these categories.
We anticipate ending 1994 with a share of approximately 39.5% of total fine cut.
Similarly RJR's share has remained solid; its strength also lies in pren-dum and bonus.
Conversely, RSH is experiencing a share decline in fine cut as low-weight accounts
for a smaller proportion of overall volumes. RSH's share has been impacted Primarily
due to a disappearance of its DFX business for low-weight.
Relative to tailor-made, fine cut has become more expansive since the tax rollbacks.
The chart below shows the now relative price of fine cut options compared to tailor-
made in the largest flne cut market, Quebec.
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BAT Industries document for Province of British Columbia 23 April 1999

3-94 12:33 07122240%;$28130
EMPER UL TOBACCO LTD. CANADA
T.S.C. KZ=IW - MAY 11/94
ITEK NO. i 4 0 I
QUEBEC MCES
1200 Cigaroto Equivalents)
Fob. 7, % of Tailor- Feb. 9, % of TaRor-
1994 Made Price 1994 Mad* Price
Tailor-Made $46.99 100% $21-97 100%
Premium Fine Cut* 32.84 89.9 20.93 95.3
135 Gram Fine Cut 24.41 51.9 16.34 74.4
StIcks 34.66 73.7 18.00 72.8
1 10 Gram Fine Cut 21.02 44.7 14.32
90 Gram Fine Cut 19.18 40.8 13.38 60.9
Raw Leaf 10-85 23. 7.60 34.1
uwnwm@
Includes price of tubes (brand name)
Includes price of tubes (generic)
Source: Price Survey
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NY. 3- 3-54 ; 12:34 0712224084:929130
Tmpz;,AL 'TOBACCO LTD. CANADA
T. S.C. MUTT= - MY 11/94
Im NO., 4(t)
Fine Cut Consumer Shares:
TRADEMARK SHARES
(Total Smokersl
1991 1992 1993 1994 (YM)
Player's 27.2 27.8 29.2 31.0
Export 23.8 28.1 29.0 26.2
Independent 2.3 2.9 5.3 8.6
Craven 8.0 5.0 5.4 7.4
selvedare 6.0 7.0 5.9 5.3
Number 7 2.1 2.0 3.3 4.6
Matinee 5.4 5.7 4.3 3.2
Source: CMA
Overall, ITL's performance in fine cut continues to depend on Player's. (Matinee is
steadily declining). Player's Is particularly strong In premium and bonus; however it
continues to underperform in the low-weight portion of the market (22.2% share an
a 3 month basis) where the RBH Superoll brands dominant. Export's performance
virtually mirrors Player's. and it remains the key opposition trademark in fine cut.
Summefy:
Thera is no question these post few months have once again brought dramatic change
to the market. As things settle, we will got a clearer picture of where the industry will
be heading for the remainder of the year. In the meantime. ITL remains well
positioned due to the strength of our trademarks domestically.
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BAT Industries document for Province of British Columbia 23 April 1999

Interim paper for TSG on Sub Continent exports to CIS.
1. Rationale
* The group strategy on exports to the CIS/ FSU has hitherto been confined to
addressing the premium segment with full international IFB's. Segments below this
have not been fully tackled. partly as a result of the high manufacture costs of the
European and American factories.
- The group has an advantaec in being able to source from the sub continent
manufacturers where the conversion costs are below that of major competition.
Additionally, these countries have trade links that facilitate the entry of cigarettes
into Russia and a number of the republics.
* These advantages allow the establishment of a proper distribution structure and
entry into sub premium catepones wiih quality filter brands and it is recommended
that proper thought be eiven to planning the building of a limited range of BATCo
brands in the region in these categories.
Z Background:
The Commonwealth of independent states (CIS) includes Russia and the 14
former Soviet union (M-1 republics. Latvia, Lithuania and Estor@a are more
closely aligned to their Scandinavian neighbours:
Western Group The Baltics The Caucasians Central Asian
Russia Lar--ia Armenia Kazakstan
Ukraine Lithuania Azerbaijan Uzbekistan
Moldavia Estonia Georgia Kirgistan
Belorus Tadjikistan
Turkmenistan
Approximately 1.4 billion cigarettes were exported from the subcontinent
companies. mainly ftom India. The main volume is Capstan. There has been to date
no attempt to co-ordinate these exports or rationalist the brands involved.
The sub continent manufacturers are distinguished by the ability to produce at very
low cost. aJlo%ing FOB pricing on 20's HLC KSFT product of circa USD 4,00
,Alth acceptable return. In India. export incentives improve margins further. This
is seen as a major tactical advantage upon which the group can capitalist.
Additionally, several bi lateral arrangements are in place between sub continent
countries and CIS states. mainly relating to repayment of loans from the former
Soviet Union. These have facilitated trade links not available to other group N)
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Table I Shipment volumes (nOle) RNIMA
Afanu I Counny Brand 1993 1994 rM
ETC Russia Classic 9000 0
ITC Russia Capstan filter 657600 169000
MC Russia Commonwealth 1600 0
rrC Russia Houston 68000 68000
rTC Russia Wills NmN Cut 20000 0
rTC Russia Shire Leaves 4000 0
ITC Russia Dakota 19200 0
VST Russia Charminar 42336 0
VST Russia Charms 31480 8100
VST Russia Gold Filter 4 0
VST Russia Jupiter filter 4800 0
Sub total 901210 214000
ITC Kazzks= Dak-om 173000 0
ITC Kazaks= Tir 145190 0
rrc Kazakstan N 810 0
Sub total 319000 0
rrC Belarus Shirc LaaNes 32000 0
Grand Total 121522 10 214
Table 2. Shipment volumes (mille) PMUSTAN
.WaAm Country Brand 1993 1994 YTD
PTC Russia [la % ana 2000 0
FTC Russia Polo 10000 0
FITC Russia RMchmood 4000 0
Sub total 16000 0
PTC Uzbekistan Polo 29000 0
PITC Uzbekis= Richmond 20000 0
Smb total 49000 0
Grand Total 63000 0
Bangladesh have confirmed the arrangements that are in place with Russia
regarding counter trade under which they have initiated exports of Jeans KSFT
These exports commenced in 1994.
A summary below indicates surplus capacity in various formats from each of the
sub continent manufacturers. these indicate that the KS capacity is constrained in
cenain instances although capacity exist in regular size, and Shen & slide formats.
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BAT Industries document for Province of British Columbia 23 April 1999

3. Objectives of
a Recommendations on suitable brands for CIS from the sub continent representing
optimum portfolio with long term stratezc importance and warrantinS investment.
# Recommendations on manufacturing source.
a ReNiew of standardised pricing on agreed range of products.
0 Estimation of contribution i mifle for BATCo and subcontinent companies.
0 Recommendations on initial target countries.
4. Basis of evaluation:
Given that the brands that %ill be recommended will be in the BATCo portfolio of
trademarks, maximisation of LIK income will be a factor in evaluating the different
mechanics that can be pursued.
Contract manufacture on our behalf bv the sub continent manufacturers would
ensure the necessary level of control. allow BATCo to handle the end country
marketing and provide the margins directly in the UK -that could make such an
effon cost effective. The constraints imposed by bi lateral trade agreements may
restrict this approach and need to be investigated further.
An underlying assumption is that any brands for CIS will be of international quality
and that . although low price. %NiU be 20's HLC KSFT, There is. however, limited
surplus capacity at this format (see Table 3). Smaller size products with cheaper
pack styles are available from the sub continent with greater capacities and there is
potential to address sub %TM segments in CIS.
The difficulty in obtainine at this time reliable information on the consumption.
incidence. segment categories in the CIS countries is acknowledged. The initial
information available suggests that a 20% segment share of the VFM and Economy
segment of the Central Asian republics could be 27 billion cigarettes per annum. It
is this potential that the PLBU feels should be addressed initially.
S. Current status of sub continent actit-ity:
Below is a summary of exports from sub continent countries, by brand and
manufacturer into the CIS. (see Table I & 2).
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BAT Industries document for Province of British Columbia 23 April 1999

CTC currently have limited capacity for their own domestic and Middle East
requirements. In addition, their conversion costs are si@cantly higher than Other
sub continent companies (Table 4) and they have therefore been excluded from this
analysis.
Table 3: Appro.,dmate surplus capacity in ffwLV month:
Packi*size I Pakistan Baneladesh ITC VST
KS 20's HI 66 20 50 130
KS 20's SC 60 30 - 40
RS 20's SS - - - 20
P'S 1 O's SS 140 --- 300 210
Total 266 50 350 0@
Table 4-. Conversion costs per rrOc in I sterling :
1993 ActuW IM Plan
ITC 0.54 0.52
VST 0.49 0.43
BTC 0.95 0.97
CTC 1.53 1.41
PTC 0.53 0.49
BATUKE 1.65 1.59
BATBEN 2.62 2.47
5. Trade Mark:
0 Of the brands exported from the sub continent in 1993, the only protected marks
are Capstan in Russia (BATCo mark) for which ITC pay a commission, and the
VST marks that are held by VST in the end territories.
* A check with GIPS has revealed that none of the above were approved for export
to CIS
0 Bangladesh has started exporting 'Jeans' to CIS wef 1994. Again, there is no trade
mark protection for the brand.
A preliminary check indicates that both Capstan and Embassy are MY protected in
BATCo registrations in the CIS republics and Ns is being confirmed.
6. Export incentires and trade arrangements: FIQ
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A surrunary of the tax benefits and export incentives for each of the sub continent
manufacturers is attached, excluding ITC indicating the varying levels of benefit. N)
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BAT Industries document for Province of British Columbia 23 April 1999

Under the framework of the Economic Co-operation Organisation (ECO), trade
protocols exist between the Govemments of Pakistan. Iran, Turkey and all the
Central Asian republics. The benefit of this protocol is in the form of free trade
between these countries and also assistance is provided in joint vennires within the
ECO network. There is no restriction on consumer goods in the other states of the
FSU.
BTC started the export of Jeans KSFT through a barter arrangement between the
Goverriments of Bangladesh and Russia. The cigarettes are sold through a local
agency and 101/6 of the CEF price is received in USD and the balance converted to
Tika at the agreed Bank of Bangladesh exchange rate. The 101% retention is under
review and may be increased in the future.
The Indian Government signed a protocol in early 1993 for a 10 year period with
the Russian Federation against debt repayment. The CIS countries are also covered
through the Russian Federation The exchange rate agreed was Exed at I rouble
equivalent to 19 Rs. Although Tobacco, Tea, Medicines, Textiles and leather
products are covered, the original protocol does not include cigarettes. There is
lobbmg being undertaken and this may be amended in the 1994! 95 list due at the
end of Mav 1994.
7. Information on large countries:
The recentIv announced Customs Union (Uzbekistan, Turkmenistan and
I
Tadjikistan) opens a market estimated currently at 45 / 50 billion per annum. It is
anticipated that the demand will rise to 65 billion cigarettes over the next five
Turkmenistan is a desirable export market, having no domestic cigarette
manufacturing and little tobacco farming.
Turkmenis= and Tadjikistan market combined estimated currently at 14.5 billion.
In common with the other FSU states the major segment remains Plains
(approximately 25 % currently but expected to decline in the face of imports and
probable domestic manufacture start ups).
Below this segment, papirossi represents apprommately 3% share and will
disappear completely in the next few years.
The Economy segment domestic filter brands are poised for growth. Share in this
segment is currently 2 Wo and expected to increase rapidly to 38 %.
T'he VFM segment of the market mainly represented by imports of good quality
I
filter brands such as IVusting (i.e. quasi - international brands) is forecast to remain
ro
stable at around 34%. The group has the marks that can effectively be bu@t in this C)
category and the suggested development brands include Embassy, Horizon and NJ
Capstan.
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BAT Industries document for Province of British Columbia 23 April 1999

An examination of the trade mark register indicates that all these brands me
kiniversafly registered in the FSU and although the final decision %%ill be subject to
debate, we believe the principles should be tabled.
The final. premium IFB segment in which our Lucky Strike, SE555, Pall Mau and
Kent compete will grow from an estimated I 8 to 20*/* SoM.
Recommendations:
The above information suggests that the comapny should look at the establishment
of a unit to tackle the problems of distribution in the end markets to puli through
the identified brands and establish proper marketing for the long term future.
The WM segment of QIFB's and sub I is the target segment which can be
effectively addressed from the perspective of the sub continent manufacturers.
Embassy. Horizon, Capstan and BeWr are representative of the brands that could
be utilised in this segment which have tactical significance in the group. This is not
to indicate that they are the only choices and consumer research would be
required to finafise the best options
ITC, VST and PTC all have the capacity and the low conversion cost that can
pro,@ide the basis for this strategy. Of these. only PTC currently has the necessary
trade protocols in place but there are hopeful prospects for the Indian companies.
BTC has a capacity constraint that,wiD only be addressed by the end of 1994
early 95. but this could be addressed by morning to 3 shift working.
6 More detailed irdomation is required on the import duty structure applicable in
the various republics to pin down the selling prices that can be applied to this
trade. It is important to note that the low volumes that have been shown by the
Indian companies in 1994 are the result of the introduction of duty deposits (200"'s
of messed duty) in Russia required from the importers.
0 The examination of the cost structures of the sub continent manufacturers would
then need to be addressed to obtain the brand contributions. These could be
available for the next TSG meeting.
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Tax Export incentives-
PAKISTAN TOBACCO CO. LTD.
a) Customs Duty and Sales Tax draw back on imported material for use in
cigarette exports.
b) Exemption from Custom Duty and Sales Tax.
C) 3 M cheaper finance facility av"able from Financial Institutions against I-C.
d) Lower Income Tax rates on export profits.
V. S. T. P;
a) TAX BENEFIT - Profits realised on Cigarette "ports is exempt from
Income Tax. The profit percentage to be appJed shall be profit before
tax/gross tumover of the company as a whole, which involves both domestic
and export business. This rate will be applied on export turnover for arriving
at the exempt profits.
b) Concessional Import duty (duty savings on making and packing machines -
2211,18) on capital goods is available subject to all "port obligation of 4 times
the CIF value of the goods imported.
C) Duty free imports of %NNS (cigarette paper. PBT, FT Rods, Foil, BOPP
SCPL or HLF. CBGs) subject to an export obligation of minimum mice the
CIF value of imports.
d) AU cigarette exports are exempt from local taxes and central excise duty.
BANGLADESH TOBACCO CQ.NtPANT
a) A drawback of all import duties suffered on the raw materials used in the
cigarettes exported. TMs is currently equivalent to a USSO.60 per Mille.
b) For corporation tax purposes the profit (effectively Gross Contribution - but
we need to clarify in this yeaes tax assessment) is charged at 2011,16 rather than
the normal rate of 4 Vlo.
l9th April 1994
C)
N)
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BAT Industries document for Province of British Columbia 23 April 1999

-7
2. Tobacco
2.1 Objectives (1993 objectives are shown in brackets)
2.1.1 B.A.T is the most international Tobacco company. It has the number one market share
position in excess of 35 countries and a leading position in many more countries. Its
objective is to retain and develop this position by growing:
volume and share in existing domestic markets,
exports-,
through investments in new markets;
through other expansion opportunities, such as acquisitions.
2.1.2 The overall objective for B.A.T Industries is to be the premier Tobacco company.
2.1.3 Premier means:
meeting the needs of today's and tomorrov/s customers with particular respect
to brands and products-,
being in a leadership position in terms of having the fastest growth in profitable
market share,
- outperforming the competition by being the low cost provider, with superior
quality, imagery. ingenuity and originality:
- organising ourselves for maximum competitive advantage to leverage the
Group's weight.
- exerting our leadership in the industry by optirmsing our external relations and
meeting the needs of the communities in which we operate;
- attracting and retaining only the highest quality people and developing and
training them.
2.1.4 The volume objectives are to achieve overall growth of 6.0% p.a. (7.5 % p. a.).
Rationale: 77te 1994-190 A Im, t projected volume growth of 4.2% Pa. This resulted in
B.A. rs world market share hehig projected to rise from 10. 4% in 1993 to 12.8% in
1998. These figures exclude the whime from the acquisition of American Tobacco.
BA TCo projected that Philip Morris' vohime would grow at 3. 1% P-a over the Plan
period. taking their marketshare front 12.4% to 13.9% if B.A. T wished to equal Philip
Morris' market share br 199R (avsitming that we complete the acquisition of American
Tobacco and that we take, market share from the other competitors). volumes would ro
need to grow of S.5% p-a lit order to obtain similar efficiencies of operation as Philip
,Worris, it is dourahle that B.A. Tshorild close the gap between its volume and that of
Philip Morris, which Hill be achieved AY the 6. 0Y6 objective.
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BAT Industries document for Province of British Columbia 23 April 1999

2. -Tobacco
2.1.5 It is an objective to increase market share steadily in existing domestic markets by
increasing profitable volumes by 1.5% p.a. (2.0%pa) from a 1993 base.
Rationale: Our domestic markets are projected by BA Mo to decline by a weighted
average of (0. 6) % p. a o ver the plait period The 1994-1998 Plait projected domestic
voltime growth of 1. 2 % p. a, implying an overall market share increase of 1. 8 % p. a.
The markets where we have market share in excess of 70% are projected to grow at
2. 0 pa. while our other domestic markets are projected lo decline by (1.3)% pa. If
we contime to asmime that our volume grows at the same rate as the market in those
markets where we have a market share in excess of 70916, our other domestic markets
must grow by a weighted average of 0.8% pa. over the plan period (against their
current projeclion of 0.3% p.a.) to achieve overall growth of 1.5% pa. ie. a market
share increase of 2. 1% p.a. againsl that planned in the 1994-1998 Plan of 1.6%p.a
The objective was reducedfrom 3.5% p. a to 2. 0% last year. It has been reduced again
to 1. 5% p. a. and isstill very challenging.
2.1.6 It is an objective to increase exports by I 0. Wo p.a. (IZ5%pa) on average over the five
plan years from a 1993 base; -
Rationale: Our current export markets are projected by BA 7Co to grow by a weighted
average of 1.0% pa over the plait period. 7he 1994-1998 Plait projected export
voInme growth at 13. /?/a p. a hut this is heavily dependent on gaining share in China
and eastern Europe.
2.1.7 It is an objective to become established as a domestic producer in two (unchanged) new
markets on average each year, with an objective of increasing volumes by 3% p.a. on
average.
Rationale: 7he work within New Business Development continues to result in a large
inimber of opportunities. Approximately a dozen negotiations are expected to be
conducted during 1994. with more opportunities with a longer time scale. II is expected
that a); average of at least Avo of these a year can be converted into investments,
although the member nray be higher in the earlier plan years then tailing off. 7he initial
rohime in Hungary was ahout 10hn and the Ukraine is expected to be about l4bn
eventually. An objective of 3% is equivalent to two investments of about 8bn each.
2.1.8 1.5% p.a. increase in existing domestic volumes combined with I 00/6 p.a. increase in
exports and 3% p.a. increase from new markets would result in 6.0% p.a. growth
overall.
2.1.9 Running through all three of these sources of volume growth is the objective to grow
International Brands by IO/* p.a. (ifitchmiged). This growth objective would be
increased if we changed our strategy on licensed manufacturing. C:)
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BAT Industries document for Province of British Columbia 23 April 1999

2. Tobacco
Rationale: 77k, marketfor 1Bs is projected by BA TCo to grow at 3.5% pa., and B.A. T
has beer) outgrowing the market by 3% to 4% pa. (with the excepfion of 1993). A 10%
objective ass-times that performance retunis io that of ihe early 1990s based on the
strength and range of our I& 7he market shares of our Intentational Brands in the
largest markets of the world are shown in Tables I and 2. Thev show that our brand
shares are not high in any market, and we have Pro IB wah a world market share of
more Than 0.5% (compared with 6.6%for 11arlboro, or 5% excluding the USA). These
are volume shares. Valtie shares would be higherfor the frill revenue 1Bs but would Plot
change The picture substamially.
2.1.10 Although they have not been built into the volume growth objectives'. there are
expansion opportunities in addition to those in the new markets:
Markets where we have a business which is too small for the priority of the
market, for example, France, Italy and Spain.
Markets where we have either an Associate company or where there is a
significant minority shareholding in our subsidiary.
Markets where we could gain or increase our presence through the acquisition
candidates that are currently available, such as the recently announced
acquisition of American Tobacco.
Each of these opportunities will be addressed by a project team.
Rationale: We are under-represented in malty of the worlds largest and most profitable
markets, as shown in table 3. but Mere are now specific opportunities in many of these
markets. Erpansion in developed markets would balance the risk of investing in
developing markets, particularly with respect to remittable earnings. where there is a
minority or ever; majority third party shareholding. we may be able lo buy a greater
share of the bushte.Lv at afitsfiflable price. and this is being evaluated.
2.1.11 Cost objective: The business will enhance its global capability as a low-cost provider of
goods and services by reducing unit costs in real terms each year by a minimum of 5%
(unchanged). This objective will be converted into specific, measurable productivity
improvements for each area of the business. All investment programmes to achieve cost
reduction must demonstrate an adequate return. and must not compromise the quality of
the products and services. The ultimate cost objective can only be determined by
benchmarking our costs against our competitors.
Rafinnale: If B.A. T is the low cast provider in its major markets it will he less
vribierable to price wars. The 1994-1998 Operating Group Plans rawhide specific
prodixtivity improvements for each area of the business, some above and some below
5Y6. ln general, j% p.a. is accepted as a realistic overall target by the operating
management. but thisshould be rested against competitive benchmarks.
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BAT Industries document for Province of British Columbia 23 April 1999

2. Tobacco
2.1.12 Snancial objectives for the Group's Tobacco activities over the next five years are to
achieve an average 101/4 P.L increase in net turnover (unchatiged) and a IO'/'* p.a.
increase in trading profits (unchanged).
Ratio?h7le: The 1994-1998 Plwi showed turnover increasing at 6% p.a. atid trading
profit increasing at II Yo p. a. (excluding the brands exchange). 7he operating groups
were therefore expecting to increase margins stifficiently to accounifor an adMional
5% p.a. trading prnfly growth. Given a Volume objective of 7. 5% pa., and i?#7ation of
3% to 4% pa. the 10% lurnoiter objective implies a small decrease in.real prices
atmilor mix changes, domestic substitittion for export markets. or new markets at
initially low prices. 7he objective remains at least to maintain real prices, although in
some of our markets this is currently unrealistic. Ecopromies of scale and a real unit
cost reduvion should lead to a trading profit increase higher than the increase in
turnover. although this hay riot been huilt into the objective.
2.1.13 Leaf. There is an objective to increase profitable Leaf exports.
Rationale: A Ithmigh the total world market is likely to remain in over-supplyfor at least
another opie to two years, %which will continue to depress Leaf prices, there is expected
to be a shortage of high quality Tobacco. Ais is as a remill of the consumer shift to
higher quality cigarettes in the new, markets. the increasing quality of VFM products,
and the growth of IBs. High quality Leaf and the provision of advice tofarmers, is one
of B.A. rs key competitive strengths. particularly when negotiating positions in new
markets. The Group is alreaA, a major supplier to the world market and has started to
improve the intentational coordination of its business and to use one Leaf dealer
wherever possible exienialty. It is therefore expected that the volume and profits can be
grown.
2.1.14 Other Commercial Activities: There is a continuing objective to reduce the
involvement in other commercial activities except where these are directly supportive to
the tobacco business.
Rafimiale: As we have no particular strengths to offer in these businesses, it would be
better to foctis our available fiiiancial twid management resources where we do have
strengths.
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BAT Industries document for Province of British Columbia 23 April 1999

> Table I
B.A.T USIB Market Sion s Largest Markels
CL (markti-Am 2M
C
1993 Actual
1 1998 Plan
CD 1993 1993 Lucky Kool Kent Viceroy Pall Capri Lucky Kool Kent Viceroy Pall Capri
0 Market B.A.T Strike Mail Strike Mail
CL Size Volume
0 USA 484.0 50.6 - 3.o - 1.0 2.4 - 0.3 0.6
0 0.6 -
C Japan 331.3 13.5 1.2 0.2 2.6 - - 0.1 1.3 0.3 3.0 - - 0.1
-3 Russia 220.0 7.7 0.1 - - 0.1 0.3 - 0.4 - - 0.6 0.4 -
CD Deny 164.5 24.2 1.7 - - 1.1 - 4.1 - - 0.5 -
Brazil 129.7 95.1 0.2 - 3.1 1.2 - 0.3 - - 0.1 3.9 -
811 South Korea 105.5 0.5 - 0.2 - - 0.3 - - 0.5 - 0.5
Italy 99.6 4.0 0.4 0.6 0.8 - - 0.8
Poland 94.7 0.4 -
France 93.6 1.6 1.2 0.2 2.8 0.2
0
< UK 88.1 0.0 - -
Turkey 86.0 0.3
India 81.1 60.7 - -
(D
Spain 74.2 3.2 2.6 0.5 4.5 3.3
Philippines 66.8 0.3 - - -
CD Mexico 54.6 0.5 - -
Total World 5262.4 548.3 0.29, 0.30, 0.34, 0.36, 0.16, 0.081 0.58, 0.221 0.46 0.42 0.18 0.08
3MM-1 OATCo Tobacco Market Information database. 1"3 figures are the latest estimates in the 1"44"s Plan
0 Noles: USA market size has been load-adjusted; unadjusted figuic was 461.4bn.
0 China - market size 1647 bn, l"V93 projected market growth 1.4%.1998P)3 projected D.A.'r growth 13.5%
Indonesia is not included in the list above as the White market site is 20 billion. although the total market size including Kicicks is 160.6 billion
Cr
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696MUZ

Table 2
CL
C D.A.T UK and Other IB Market Shares in the Wol: d's Largest Nlarket 
W (ma[kci size oyer 50 WHO Lill.19211
r+
CD
0 1993 Actual 1998 Plan
CL
0 1993 1993 State Denson John Barclay Kim Holly State Benson John Barclay Kins Holly
0 Markel B.A.T Express & Mayer wood Express & Player wood
Ske Volume S55 Hedges Gold s5s [ledges Gold
Leaf Leaf
CD USA 484.0 50.6 0.1 0.0
Japan 331.3 13.5 - - - - -
Russia 220.0 7.7 <0. I - <0, 1 0.3 7 ?
Gemiany 164.5 24.2 - 0.9 7 - -
Brazil 129.7 95.1 - - 14.1 ?
0 South Korca 105.5 0.5 - -
Italy 98.6 4.0 0.7
Poland 94.7 0.4 -
CD Frdnce 93.6 i.6 <0. I o.7
UK 88.1 0.0 - - -
0
Turkey 86.0 0.3 - 0.9 1.0
India 81.1 60.7 - - -
Spain 74.2 3.2 -
Philippines 66.8 0.3 -
Mexico 54.6 0.5 - - -
0
0 Total World 5262.4 548.3 0.431 0.271 0.211 0.091 7 1 0.371 0.701 0.311 0.27 0.15 ? ?
E,
3 SUKU: DATCo Tobacco Markel Information database. 1993 Figures art the latest estimates in the 1994-1998 Plan
Cr Notes: USA market size has been Wad-adjusted; unadjusted fl8ura was 461.4brt.
China - market size 1647 ba, 199SJ93 projected market growth 1.4%,1998/93 projected B.AT growth 13.8%
Indonesia is not included in the list above as the White market size is 20 billion, although the fut2l market size Including Kreicks is 160 6 billion
W
066EZLZOZ

CL Table 3
B.A.T's Market SharftL In the World els
market size yver So billion in 19931
Q
CL Market Share % Actuals Market Share % Forecasts Projected
0 m 1994-1998 Plans %
0 1993 fro Growth
C 1998193 1998193
3 B.A.T 1988 1989 1990 1991 I"2 1"3 1994 1995 1996 1997 1998 Market B.A.T
CD Volume
Growth Growth
USA 484.0 50.6 11.0 11.4 103 11.2 1 1.9 10.3 10.7 10.0 9.5 97- 9.3 -3.0% 4.8%
Japan 331.3 13.5 2.8 3.2 3.3 3.7 3.9 4.1 4.3 4.5 4.7 4.8 4.9 0.2% 3.9%
Russia 220.0 7.7 0.0 0.0 0.1 0.2 0.7 0.7
Germany 164.5 24.2 17.7 17.1 17.4 19.3 19.4 0.8 0.8 1.0 J.0 1.2 0.3% 0.0%
18.8 19.7 20.5 21.0 21.9 22.8 -2.0% 4.8%
Brazil 129.7 95.1 79.4 79.7 81.9 83.7 83.0 79.7 80.5 80.5 80.5 80.5 80.5 3.0% 0.8%
0
< South Korea 105.5 0.5 0.6 0.9 0.7 0.7 0.5 0.5 0.6 0.6 0.7 0.7 0.8 -0.1% 9.8%
5' Italy 98.6 4.0 2.7 2.7 2.9 3.1 2.9 2.5 3.5 3.6 3.7 3.8 3-8 -1.5% 71%
0 Poland 94.7 0.4 0.2 0.3 0.4 1.2 1.0 0.4 0.4 0.4 0.4 0.4 0.4 1.0% 1.0%
(D France 93.6 1.6 1.7 1.6 1.6 1.5 1.5 0.9 0.6 0.7 0.9 1.0 1.2 -1.4% -5.9%
0 UK 88.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ao 0.0 0.0 -1.0% 0.0%
03 Turkey 86.0 0.3 0.3 0.4 0.5 0.3 0.2 0.3 0.3 0.3 0.4 0.4 0.5 3.0% 14.1%
India 81.1 60.7 67.9 68.5 71.1 72.2 73.8 74.9 73.3 ".8 74.2 74.3 74.3 4,8% 4.6%
Spain 74.2 3.2 6.8 6.5 5.3 5.5 5.4 4.7 69 7.8 8.4 &9 9.0 0% 13.8%
(A Philippines 66.8 0.3 0.0 0.1 0.2 0.3 0.5 o.4 0.4 0.4 0.4 0.4 0.3 0.8% -3.9%
:r
0 Mexico 54.6 0.5 59.9 2.4 1.4 0.9 0.2 1.0 1.0 1.0 1.0 1.0 1.0 2.2% 0.6%
0
Total over 2172.7 262.6 12.1
50bn
Cr Total under 3089.7 285.7 9.2
50bn
W Spume: BATCo Tobacco Market Information database. 1993 rlgufcs M the latest estimates in the 1994-1996 Plan
Notes: USA market size has been load-adjusted; unadjusted Figure was 461.4bn.
> China - market size 16-47 bn. 1998193 projected market growth 1.4%. 1"&93 projected B.A.T growth 13.9%
Indonesia is not Included above as the White market site is 20 billion, although the total market size including Kreteks is 160.6 billion
to
to
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166MUZ

Tobacco Strategy Group
Terms of Reference and Objectives
1. Terms of Reference
The original Terms of Reference for the Tobacco Strategy Review Team, established in
1984 and last reviewed in 1988. are set out in Appendix 1.
In recent years, the formation of regional trading blocs, the opening up of monopoly
markets, the spread of communications, the accelerating popularity of international brands,
and the consequent growth of exports, have combined to create new conditions in the
global cigarette market. The Terms of Reference of the TSG need to be amended to
optimise the Group's position in these new conditions.
Proposed new Terms of Reference for discussion at the TSG meeting on the I I th May 1994
are set out below:
(i) To agree the strategy. objectives, policies and priorities for the Tobacco business.
and to review its performance;
(ii) To agree the marketing strategies for the International. Regional and major
Domestic brands as proposed by their brand owners;
(iii) To agree which management team has the responsibility for each market under the
principle of end market control,
(iv) To receive appropriate management information to be able to manage the Tobacco
business by end market.
(v) To agree marketing strategies for the resulting regions or zones of influence as
proposed by the responsible management team;
(vi) To agree the priorities for new business development;
All the above areas will be reviewed periodically.
(vii) To cgef'd`inate Group-wide long-term production capacity planning;
(viii) - To coordinate Group-wide product quality initiatives.
(ix) To -.C. the use of Group-wide R&D and Technical resources, and agree
priorities;
(x) To co;qdnate the Group strategy on Leaf.
(xi) To co
.o;@@inate the Group's approach to purchasing;
C)
(xii) To ensure that a sufficient cadre of international managers is recruited, trained and
developed-,
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BAT Industries document for Province of British Columbia 23 April 1999

(xiii) To co-9;din"ate the Group's unified approach on smoking issues,
(xiv) To ensure that optimum protection is given to the Group's trademarks;
(xv) To ensure that "best practice" in all operational areas is communicated and adopted
across the Group.
(xvi) To resolve any conflicts that arise between Operating Groups which cannot be
resolved bilaterally.
2. Tobacco Objectives
The follo%ring objectives for the Tobacco business were established as part of a Group level
discussion of objectives for B.A.T Industries in February and March 1994.
There is a continuing objective to achieve growth in volume and profits in tile Tobacco
business, building on the Group's world-wide strengths and establishing leadership positions
in selected profitable markets. The aim is to have a high and increasing proportion of the
business in leadership positions in profitable markets and segments. This will be achieved by
growing market share in domestic markets, continuing to grow exports. investing for the
medium term in new markets. bv strengthening the competitive position of International
Brands, and by improving intra-Group co-operation.
The recent recession and difficulties in the Tobacco business have highlighted the need to
ensure that we provide products that meet consumers' needs and add value to those
products through branding. We need to strengthen our brand equity particularly in our VFM
brands and to maintain the value of our mature franchises.
There will be particular emphasis on upgrading products and processes and on cost
reduction concentrating on indirect as well as direct costs.
Recognising the central importance of management, there will be specific plans to improve
the quality of recruitment and of management training and development.
The priority aims for 1994 are:
(i) To grow volume and market share:
For all cigarettes (budget: volumes +3.5%-, strategic objective: volumes
+7.5%),
For International Brands (budget: volumes +1 1.5%-, strategic objective:
volumes +IO%)-.
(ii) To improve the Group's competitive position in the major mature domestic
markets of the US and Germany, and to safeguard its position in Brazil and in r%j
some key BATCo markets. C)
PQ
(iii) To tackle the Group's weakness in Lights,
JZ1.
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BAT Industries document for Province of British Columbia 23 April 1999