To: Sir Patrick Sheehy
Mr. B.?. Garraway
Mr. M.F. Broughton
b.c.c. Mr. D.P. Allvev
Mr. R. E. Lomax
Inasco Plan 1992-1996
The CPC is due to discuss the Imasco ?Ian for 1992-1996 at a meeting
arranged for 11.00 a.m. on Monday, 13th January.
A copy of the Guidelines sent to Imasco at the end of July 1991 is
attached.
Planning Department comments on the ?Ian are as follows:-
1. Section I _: Objectives
(a) The mission is more general than is proposed in the Guidelines
(paragraph 2) which suggests that Imasco should have a strategy
based mainly an tobacco and financial services.
(b) it is not clear how the target of a 15% return on equity
(paragraph 6) relates to achieving 15% p.a. growth in earnings
par share.
(c) It might be suggested that the target for achieving a 28% return
in commercial businesses (paragraph 7) should be split into a
target for tobacco and a threshold of acceptability for other
commercial businesses, related to the target for 15% P.A.
self-f=ded growth.
W The proposed use of the Alcar approach would not be inconsistent
with the Group's objective that each business should produce a
return sufficient to pay au appropriate dividend and to finance
growth at a minimum of 15% P.a.
2. Section 2 : Current Performance
(a) The table on page 10 shows that, following the downgrade frois
the plan to the May forecast, the EPS projection is- now slightly
higher at C$2.47. However, Hardee's, UCS and CT Financial
Services are all down an the Hay forecast, while Hardee's and
UCS are also down on the preview.
(b) The reasons for the improved cash flow relative to the 1991 Plan
(page 12 - mainly working capital and equity income not received
in cash) are not clear.
3. Section 3 : Economic Overview
ro
Except that the OECD and Canadian Business Forum are forecasting lower
inflation (below 3%), the imasco environmental assumptions are broadly
in line with the consensus view.
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4. Section 4 : Imasco Forecasts
(a) A comparison of the Earnings per Share forecasts in last year's
plan and in the preview is shown below:-
C3/Share 1989 1990 1991 1992 1993 1994 1995 1996
1992-1996 Plan 2.87 2.25 2.47 2.91 3.63 4. ZS 4.92 5.63
Preview 2.87 2.25 2.45 2.91 3.47 4.04 4.57 5.16
1991-1995 Plan 2.87 2.43 2.81 3.74 4.72 5.37 6.48 -
(Actuals 1989 : 02.87 1990 : C$2.25)
The reductions in the forecasts in 1991 covered all the
constituent businesses.
(b) The table on page 11 shows that the underlying growth in
revenues is generally forecast to be modest. Earnings growth
(page 12) depends on improved margins and, more particularly, on
recovery in CT Financial, Hardee's and UCS in 1992 and 1993.
(c) The figures for other costs and administration on page 13
include significant Contingency Provisions as detailed ou pages
7 and 9.
(d) Although Cash Flow is shown on page 15, it might be helpful if,
in future plans, an analysis similar to that given in Section 2,
page 12, could also be included. In addition, it would also be
helpful to have an indication of what is considered to be an
acceptable level of cash generation for each business.
5. Inverial Tobacco
(a) The 71-72% tax component of Consumer Cost shown on page 2
compares with 31Z for the USA (Pull Revenue Brands), 30% for
South Africa, 52% for Australia and 572 for Spain but is
generally in line with the UK (75%), Germany (71Z), Switzerland
(70%) and is still significantly below Der-ark (84%).
(b) In view of the high specific tax, it is not clear where there is
scope for lower-priced products (page 5). The forecast for
sticks (page 7) has been substantially reduced compared with
last year's plan in which volume was forecast to reach 3.9
billion by 1993.
(c) The 1991 estimate for exports appears to be particularly good,
bearing in mind that Philip Morris owns the ?layers trade mark
in the USA.
r1i
6. Hardee's CD
NJ
The Guidelines (18) called for plans to be developed for a withdrawal
from the US East-Food market. However, this is not mentioned in the
T.masco plan. NJ
(A
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7 Shopperls Drug
The projections appear to meet the main Group objectives for returns
and for cash generation. However, the table on page 12 suggests that
the potential for growth may be limited. In addition, the business
may be vulnerable to environmental factors (page 5).
8. UCS
At the preview, it was suggested that some restructuring of the
business was under consideration. However, this does not appear to be
reflected in the plan.
9. CT Financial
The Guidelines (13) called for a defined plan to optimise the method
and timing for the reduction in the shareholding in Canada Trust but
this is not considered in the plan.
10. First Federal
The results for First Federal are shown separately but it is not clear
how the forecasts compare with the projections made at the time of the
acquisition.
11. I.E.1
The Plan shows the disposal of the Venture Capital and Mortgage
Banking activities in accordance with the agreed strategy. However,
it might be questioned whether there should now be a plan to dispose
of more of the peripheral activities listed in Section 4, page 7
(Guideline 17). It might also be asked what the long term plans are
for Genstar Development and for Fins Co.
12. Board Presentation
As in previous years, a summary of the Imasco plan will be produced
for the presentation to the B.A.T Industries Baird. This is scheduled
for 14th January.
R. Salter
R-S /DJS
7th January 1992 Enclosure
BAT Industries document for Province of British Columbia 12 April 1999