Imasco Plan ?review 1994-1"8
A CEC meeting to discuss the Preview of the Imasco Plan for 1994-1998 was held on 20tb
October L993 inNiontreaL
Present: Mr \I F Broustntan. Mr U G V Herter. Nir D P kUvcv Mr P Czwibrd. Mr B L
L.-ArL Nir R &uvart. Nfiss H C Barran r Secr=ary)
1993 Forec2st
1. The Quarter -' resuit to be cubashed on :9t@ 0clober will show eamings per share up 7's
Thecashilowiss-aong.
Canada Trust
N-fuch work '-.u been done in C-,-ada Trisi ; C`7) on cost control and arcductivirv. There
are fewer smff now tan there, were two yel-13 22o and nurnbers will comi=ue to be driven
down in 190-4. So far. the staff reduction has be= achieved throuah natural wasme but it is
possible thu there may need to be a manage-d voixunary Md=&ICV and e3n-v -reti-rem=
,-rog=z,-e soon. A.1y one-off cost or such a proprznzme is not inciuded in the Neview
4-2ures. The on-aoinst -.ost savinsts &om. the suff number' reduc:ion is be:Lnz used to
growttL for cmampir. :0 new brarc.-es have ,e= opened ana Webaniang i=oducecL
7he Canadian --ju indust@-- has been consoiidazinsr and it is assurned that Niontresi Trust
t.NM and National Tr= (N.7) %%-W be soid it some time in :he future.
1--xzsco has NfT but :h-,, --I-e vusLnesss is unlikely to be wcr.:i an-ch more
than CS--CO= althouab Bell has invested CS 1' -n in it. MTs main francluse is the corporate
::,.=bus-'.-ms-A,-,u'r.:i,srot-.-erv,arcntat)ie2naL,ar.orwn=.wassoidto.@,f;-'W-vC'7. NG has
'business outside' Nfontr=J and is therefore of UrJe interest to
iO brmrc;-es xith little de--osit
CT.
N-L s *wc:-jse :s in smaller ,owns and the.---@ore @t his @ow growth Drosve-cs. It @zs I 2ood
rame gn the -.e-sonai weakh trustee business. -ihe businm does not ha,;@ su:Sciem S=e as
a sund-alone operation and it has not invested in irdbrmation technoiogy. However it does
not have asset quiliry problems. The acquisition of NT would build CT's market share.
presence and scale Mi Ontario par:iculariv and also in Albem and British Colombia. There
would be cost reduction and svre-2v oocorrunities, It is Probably worth CSS00rn to
CS900m. or CS15bn assets. NT is owned bv Ntr Jackman. the Lieutcnant-GenerxL of
Ontario. who mav be interested in seiUst NT :'or a mixture of cash and Imasco equity
and
may possibly be interested in havina a seat on me board of Imasce.
6 Imasco tned to accuLre bank starus for CT but withdrew in the face of government rQ
CD
opposition. CT is alre3dv a prunir., clearer 3rd part of the banking establishment. however
iE does not suffer from the generally negative consumer percqxion of banks. but it does
suffer from the cercen-tion of failure tied to -i-e trust industry. Inuisco is aware of at le=
two banks wnici would be interested in acouirmir CT if it were for sale.
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7. CT is refocusing an its core retail banking business and getfmg out of some peripherw
businesses. such as property. In 1992 CT updated its ;ii@g approach based on
custorner se;=en=on,, and now it is mantaiiing its market share having Ion share for the
past thres. years. It has been mx=sfW in attracting r:heque ac== Co=wmid leading is
also beirt de-emnnasised with a move to =ustical assessment rather than cr=lit
assessmm
S. Sales of -numai @jnds have been good. CT's muruai fiinds invest in equities and bonds rather
than -nortgages and money market instruments. They are 'sought' rather than 'sold'
produce& and the role of the branch statE reWbrced, by their incentives. ii w provide
service anc idonniation. The mutual fimas are 'no load' products with All/& fee Chiarameed
rerum produms am also said which guarantee 2 1% return plus @A. of any equity
9. CT has a oen-9crs ==adv @usiness %iiicia %%U crooably not be competitive @n the i=.ire
with -.he zicoai zurrodians. The other 1=c Canadian custoti;an is -R-ovai Trust which is now
oar, of the Rcyraii Bank CT -,vrill put :oge,-her a proposal over the next ffew months to =CM
their bu=--ss -xith r-',= of Roval Trust and Roval Bank in order to ==e a business of
iziobal scaie. 7-c quesfion et control wouidneed to be ilesolved.
10. Telebanidm :s woricins weil and the-e 3re now about 2-9. 000 c-ustomers. The:v. is a plan to
ocan a seccnd :enwe in New Brunswick which %;,-W ;rovide disaster recovery and has the
acvan,.ueorol-armjwemciove--s..%frC.-awford%%iUsendto.'virBrouLz'mona.--.vor-,anthe
ulzis proJec: when it is avaiiabie.
7-.e !e-.-ei or-non-pen.ormmg ioans is -e=c:m and the 'lame cases have been resolved. T`-e
parle-n c,@ :rc%isiors in 1993 is CS45m in Qi, C345m in Q2 and CS40m in Q3. lmasi:a is
much more =,:ident about the nrcie-ced Sl=r. orovision in the 1994 P-.L-Aew than -t -x=
about -6e CS100m :rovisicn in :he 1993 11!= and it does not ex.-ect the 199! rovWcr. :o
I-, In surnrzr.,. :.@e =dcr-,,`j= :rends for C7 are vasitive.- provisions are expectea to be lower,
conomv -NW be recoverin& and the mong
expenses -xill ;ower. the e _nc maricet is Uktiv
InIcroVe. rlcwr"
e, -6or the ;onsr run 2 zrowEh :arzet of I 51116' mav be unrealistic with low
e .- e! S 0 f
First Feder-jJ
1.3. First Fcdr--ai Rr--i has been reoriented from survival to growth. It has always had tight
excense controi and is now ccrisidcruist ;is positioning, segmentation. and which customers
are beiniz lost anc whv. The mortgage pordblio has recently been churning at 3014 p.a. as
clistome's lle=zrce their borrowings at lower interest rates. Bad debt excenence since
1989 has beer: zcca.
14. The only other C=Adian bank .hat is e.-cpanding its US presence is Bank of Montreal. F.--s
CxPzns1cn i.-to the US is important to Imasco because there is scope for growth. FrF is -Ij
seeking to szre-aThen Its position in New York State. Buying branches mom buying
pr.-mi-ses. st=- 3no deposits. It is not a major drawback when buying branches if the IT C)
svstans are :-.et te sime. This is more imDcrr=t if whole companies are being bought. co
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15. Imasco is not interested in aquiring Confederation Life's b i ess in Canada. it has a lot of'
real estarr- is unde.-reserved. has no sales force. and is dependent on Inge group cases that
&M low mar= and volatfle.
Gtnit2r
16. 7ne =minas of G=star are very difficuit to forecast It is & loniz mde business, the results
this vev devend on decisions madeaz Is= five vem ago. The long term Vowih prosocc.-s
are reasonably good rather than =Citin& It his a balanced par=' Ho and -the plani am
construc.ed on a very conse.,vanve basis. It is a verv fbcuse& smnd-alone business with 70
employees. It provides a good mmm only once in the lasi: six years ba it been cash
negative. it is ao distrac:ion to Imasco-s rnarme:nent. and it is unlikely that it could be sold
for ;:S tr.:c vaiue.
I 7, The pe.=ons ii6crmit case has been serded. Lmasco hm pro-wrided CS50m am-tax C542 net
of-,a-,L whicl- =v be an :hehdah side. 7his pro-vision was taken in BATL's 11 092 kccounts.
VCS
S. L:CS has _400 Iccarions f 150 of which are cailed Woolco. and there is i Varietv of otium-
names. inciumnj which scg tobacco. magazine& T-shirts. e-.c. Tobacco is a
decreasin; -roccracri of the bu smiess as a resuh of the growth of=ukt. C_-rs hrm WI-aca
-educ- h reormwit-rioa. 'shrink:' has been tackled. and sto w lo
ad res hich se monev are
beir.2 -c-ose--i Den icr Men. which is responsfolc ior approximately CS2m of the total UCS
loss of CS:.-'m rore= ,or 1993. wdl be closed as soon as voss&e. Durv Free business is
bei:= bu;-;t with i snov overi:-:2 in V==uver airoart later in 199--.
Shoppers Drif Ntzr-
9 1--.e sales :.-i-( is c@anzinr as Tobacco Wes iU is a restift of _@e growth of' transit.
Prescniancris accourt for about 3 0019 of sales and are inaeasine by about I percentage point
mmum. Shocre-s is the oniv nitional brznd in healthcare. However. that are severe
mamn pressures or the prescnation business. 40116 is go,@wament fimded =d a Mah
ed bv comoaziies. Both the stovernmew and corrinanies
proponicri cr me remainder is rund
are se,-Jong 1.0 re-_ucc their costs in this are& ihoppers has lo=-'ons near most employers
and -s considering the introduction of a management service fhr wnpiovers; to help them to
control the drugs cost for their employees.
:0 Non-per-for-Ing stores. in malls and fre-e-suoding, are being closed. Niew locations and
indeae-dent. stores are beirm acquired. Post Offices are being opwed within stores. The
direc-'. profit an tilus is sna @ut the -min obiec=' e is to increase the traffic in the stores and
.he ciLdlence is to generate e-ara profirs ;5rorn this traffic.
PQ
I Shoppers is vhe biggest tender of cosmetics in Canada by far. hence the shops are oriented __4
towards wcmcn, Buiding on arms. camr--jence foods have been Wed and hours have been 1.4
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The i=odu=on of private bW has been success3U though Life more so than Rialto.
Private I" is much less imporunt in Canada dun it is in UK supermarkets. Shoppers aim
is to cam the rvo too brands and one private label.
:.1. Point of safe tecmoloev is compiex because of the 1-00 dinchise uniE& %'here it has been
'&bour CO' to
limaed. =2= and sts have be= imo ved. However it wig not be roiled out
quickly until the stratesdc.-eview has been corrivicted.
The objeczve of the strategic review is to make the existing business more prciduc:ive ana
eEcient. with resDe%-. to the buvinv_, d='hbudon and orpAisarion of the stores. The
ocerations are currentiv dec=-Alised. including the book-keez:iing and the buying. The
review is beirz -cnduc-e-_ %ith.1,4onitor 3na:s cuem @e comajeted Q" 1994.
Imperini Tobacco
'f. The underim than in the US. ovenaid with
one-off dies from t&,c incre2ses followed @v a pwiual recovery. Smuggling is c!o3e to 50%
of the marke: !n some ---c. In Ontario it 1:s Zills and zvwinjL' 1==W Tobacco (ITL) his
been =iaini= :o the Uerzis the problems ansing from the growth of the underground
econcmv and has been iobbvin them to roll back toba=o mm. However tobacco
an extrwrew xwortznr Dan of ;ov==m_-_ revenue, and in view of the deEcits of the
federal and oro%indW aeverriments. are =,.;x--iy :C Ce The =zin p-..6w#e:r. is the
daTerermai berxeen US -ta Canadian mus. Tlmrecre the skrumon in Canaca wig be
inioroved ifUS mbacco w-tes are increased. akhou&, a 75 ==, increase would be co small
:0 make .-e-.- -much differ=2.
-6. ITL was ciemse-C4 :o cot= ';e-,ve to acce:d to the ;uoreme Court of C-inada aLminst the
Tobacco P-cd"--: Cantrot Ac,. However a -,=s:c:: c,. wn acodcazion to the C.--,;r !, stav
C
Airther regulations under :be Act is needed soon. or MT will start to it.= cor. on the
c.,2=2cs urd,_-,me Drenosed remaiations.
:7@ rM is forecast:ng that it wiil, achieve -,iin in 1993 as as share of emporr busine&s has risen
&om 30% to _K1 a. aithoupt :his is still !ower :han its domestic mark.m. si@are. A 7% price
C.-else was UK= in i993 A 4U.1her 4% to 5,11* is ciaznuned for 1994 against 3n irilation
forecast of Nir Hens:- connmenmd that --%'s pn'cing strategy might be dangerous as it
rnizhi drive -nore :eovie to buv transit oroducts.
:3. ITL will be conducting a *or strategic re%iew over the Em half of 1994. Since M's
dorninant preoccLoadon has alwavs been rnamr. share. this review wig focus on costs. for
t.,carrivle. cost bv oroduct and distribution costs. It Mil also consider the profitabiliry of the
smaller producers xid whether it is necessary to Keep even the second manumc-mrinff Pi3nt to
produce them.
:9. -Joe other maior Issue in ITL is its c-_-:-ure =d rrxiagernew process. The .4--Mionai
oriw@sation his 2--een fairly slow to respond in the p= and has forced all trade-off.e-misions
to the too. As tle market is moving more quickly now and the situation is more
Complicated. the croccss n-..-s to be chanized so thar the whole senior mar=emera :C= is
involved in inmor decisions. C=)
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BAT INDUSTRIES CONFIDENTIAL- CATEGORY 1: MINNESOTATOBACco LrnGATION
BAT Industries document for Province of British Columbia 13 April 1999

30. T'he DEET plant has be= suspe:ided as the marka demand has fallen with the growth oj
tr=sit pmd=. It nay be resuzTv--ed ax some point in the finzwe to provide producr for aU
the Canadian rnanti&czurers but only if there is & good financW can fbr this. rM has ius:
made an investment in its leaf processing pi&nL "Ar Herter noted thu there is spare cap
Way
in the very rnodem piant in Wilson which may be of use to M-
ffardees
31. Hardees has outperli med Imasco s expectall in 'I 1093. with addi onal contribution from
new products and reduced corcemr: overhead c0sm although the gross margin in the
restaurants is down.
Imasco considers tat tlv--e is srW :otenz:W to -.-:rove Hardees profits &om approxirciz@
CS100m to CS150m over the net. --Vo vc.,zs. A sC=.,W.MU0n Mer63C is being camed out
to enable more sophisticated marke-ig to be used is a result of a better understanding of
the target c-=Omers. In addition work will 'e done in the am haff of 1994 on cosM
production methods and locaziors. The nrccosais from this work will be tested in the
second half of 1994 and roiled out --'- 1995. Th:is snouid provide a UR to the profits.
ii d the
3. 29% of rev,,,=zs are co-owne- :-6: rest are *anc. se . It may be possible to seil
co-owned restaw-Lits to the 5wc@,_-'sees a= :Test ::a cacital released where penetration is
low
j FFFM produces a consistent and re:=_ I't has highly efficient distribution and
manufac-mres in three plants. It be poss:bie -.n the luture to ouLwurce and release
capital from these plants. It,-My :e --ossible to scat (u=oution from manufacnning and seii
both carts cr -he business secamte:v. -.,,irh a @O;n the restaurants.
Pre-eress ar2inst lonr te-m- abiecrives
3.'. Imasco continues to outne.-Tom ;:s '--en:chmarks --or sharcholder return. It is expemed that
the dividend MO continue to increwe at least as ran as the consumer price indat. W
Broughton commented that this cbie-_:@ve is iess; de:nandiniz than BAT's dividend obiecrive.
The target 1.4010 arowth Ln earni:nzs De- share -A-0 not be achieved in-'1993 but 14% is
projected for 19.04 and 17"o for 199-4. IP',, is ;Imdengiaa at low levels o-finflazion. It mav
be better -o set a ",re3l' obiec:ive. 1: expec.-ed @x th; Cash' Bow objective will be achieved
in 1993 and 1994 The deovequir.@ ratio tends to improve each year towards its targm but
occ:-i0n-aHv to be ser back aesin bv a manaste-nent action such as an acquisition or the
action in 1993 to refiind CS:00m or pre enzi shares with debt. Proeress will be made
towards the 151116 return on equx-- -2rze- .4ur.-2 1994 and it is expected that it will be
ac.1iieved bv the end of 1995.
NJ
C@
H C Barton
10th December 1993 CD
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BAT INDUSTRIES CONFIDENTIAL- CATEGORY 1: MINNESOTATOBACCO LMGATION
BAT Industries document for Province of British Columbia 13 April 1999