BAT's COMPETITIVE STRENGTH MARKET TYPE COMPETITION STRONG IN USA AND EUROPE COMPETITION IN STAGNANT OR DECLINING MARKETS BAT STRONG WHERE PROBABILITY OF FUTURE VOLUME GROWTH HIGHEST BRANDS BAT's STRONG NATIONAL BRANDS IMPROVED INTERNATIONAL BRAND PORTFOLIO SHARE BAT HAS 19.4% OF FREE WORLD MARKET SHARE INCREASED lN 1984 MANAGEMENT STYLE LOCAL TRADITIONS MD REPUTATION STRONG LOCAL MANAGEMENT DECENTRALISED, LARGELY AUTONOMOUS, MANAGEMENT STYLE NEW MARKETS CHINA, SPAIN, JAPAN, TURKEY cc BAT Co LTD - MINNESOTA TOBACCO LITIGATION FREE WORLD CIGARETTE MARKET INTERNATIONAL FILTER SEGMENT 123-4 TOTAL SEGMENT 340 BNS VIRGINIA 36% UST 64% ANNUAL GROWTH RATES 1977-82 1982-84 1985-90 TOTAL 3.3% (0.2%) 1.6% VIRGINIA 2.7% (3.9%) 1.0% UST 3.6% 2.0% 2.0% VIRGINIA SUBSEGMEHT WILL RECOVER BUT UST WILL GROW TWICE AS FAST czar %_0 BAT Co LTD MINNESOTA TOBACCO LITIGATION COMPETITIVE OUTLOOK 1986 /1990 NO MAJOR ACQUISITIONS MORE FIERCELY COMPETITIVE COMPETITION FIERCEST IN HIGH PRICE AND CHEAPEST SEGMENTS INDUSTRY MAVERICKS CONTINUE HEAVIER PRESSURE TO BE LOWEST COST PRODUCER OF HIGH QUALITY PRODUCTS TO PRESERVE MARGINS BAT Co LTD MINNAOTA TOBACCO LITIGATION COMPETITIVE OUTLOOK 1986/1990- MONOPOLIES AND NATIONAL COMPANIES WILL DECLINE BUT POSE THREAT IN DOWNTRADING MARKETS PHILIP MORRIS MAJOR THREAT TO BAT -USA BASE OF STRENGTH -LONG TERM INVESTMENT STRATEGY -SMOKING QUALITY -MARLBORO AND OTHER INTERNATIONAL BRANDS -AGGRESSIVE AND INTERNATIONAL RJREYNOLDS BIG THREAT TO BAT -USA BASE OF STRENGTH BUT SHARE DECLINE -LOWEST MST PRODUCER IN USA -AGGRESSIVE PRICING -CAMEL TURN DOWN IN GERMANY -LIMITED GEOGRAPHICAL SUCCESS ROTHMANS NOT GLOBAL THREAT TO BAT -MIDDLE-EAST - WHERE LINKED WITH PM, DANGEROUS -NO US BLENDED RANGE 00 lLn BAT Co LTD MINNESOTA TOBACCO LITIGATION FREE WORLD CIGARETTE MARKET COMPETITOR SITUATION INA SALES MARKET MARKET BILLIONS SHARE SHARE B.A.T. 550 19.4% 20.5% PHILIP MORRIS 487 17.2 15.4 REYNOLDS 272 9.7 10-2 REMBRANDT 175 6-1 6.7 BIG FOUR 1484 52.4 52.8 OTHERS 1349 47.6 47.2 ANNUAL AVERAGE GROWTH RATES 1181 12U JU 3 123A 1985-.9Q B.A.T. +1.9% (2-6) (4-8) +0.5 +1.5 PHILIP WIRR IS +4.7 +1.2 +1-4 +4-2 +2-0 REYNOLDS +3-3 (1-9) (6-4) +O-4 (0-3) REMBRANDT (0-8) (0-4) (2-3) (3-9) (0-5) BIG FUR +2-7 (1-1) (2-9) +1.1 +1.2 BAT Co LTD - MINNESOTA TOBACCO LITIGATION FUTURE OUTLOOK 1986/1990 KEY ASSUMPTIONS N-1 ECONOMIC BROAD STABILIT Y IN OIL AND OTHER COMMODITY PRICES US BUDGET DEFICIT REDUCTION GRADUAL WEAKENING OF US DOLLAR CONTRACTION OF US BALANCE OF PAYMENTS DEFICIT INTEREST RATES MODERATE ONLY SLOWLY CONTINUING THREAT OF MORE PROTECTIONISM DEBT COLLABORATION NOT CONFRONTATION ENVIRONMENT UNEMPLOYMENT, PARTICULARLY YOUTH UNEMPLOYMENT, MAJOR CONCERN WORLDWIDE ADVERSE MEDICAL AND SOCIAL PRESSURES ON .r INDUSTRI HIGH TAXATION OF CIGARETTES LITIGATION FURTHER ADVERTISING RESTRICTIONS BAT Co LTD - MINNESOTA TOBACCO LITIGATION FREE WORLD CIGARETTE MARKET 1384 TOTAL MARKET 2833 BNS MONOPOLY 35% NON-MONOPOLY 65% DEVELOPED 59% DEVELOPING 41% ANNUAL GROWTH RATES 1980-84 1985-90 TOTAL MARKET +0.1% +0.5% MONOPOLY +(.9% +1.2% NON-MONOPOLY (0.7%) (0.3%) DEVELOPED (0.4%) (0-31) DEVELOPING +-0.3% +1.5% co BAT Co LTD MINNESOTA TOBACCO LITIGATION WORLD CIGARETTE MARKET ANNUAL GROWTH RATES COMMUNIST 1883 BNS 1984 B LOC (40 Z WORLD MARKET 4716 BNS FREE WORLD 2833 BNS (60% ) 1982 1983 1984 1985-90 COMMUNIST+1.7% +3-8 +2-8 +6-4 +2-5 FREE WORLD+1.2% (0-7) (1.1) +1.1 +O-5 COMMUNISTBLOC WILL CONTINUE TO GROW MUCH FASTER THAN FREE WORLD BAT Co LTD MINNESOTATOBACCOLITIGATION THE MARKETING VIEW PRESENTATION SCHEMA WORLD MARKET TRENDS AND FUTURE OUTLOOK MARLOW CONCLUSIONS AND ACTIONS KEY MARKETING ISSUES AND CONSUMER NEEDS COMPETITIVE INNOVATION AND MARLBORO MARKETING AND R&D COMMUNICATIONS cx:> ---4 C-- BAT Co LTD MINNAOTA TOBACCO LITIGATION A BAT COMPANY ANNUAL REPORT 1984 RESEARCH AND DEVELOPMENT OBJECTIVES MAXIMISATION OF PRODUCT QUALITY CO-ORDINATION OF RESEARCH PROJECTS WITH ACTUAL CONSUMER REQUIREMENTS AUTOMATION OF METHODS OF ANALYSIS "SPECIAL ENCOURAGEMENT WAS GIVEN TO CO-OPERATION BETWEEN VARIOUS DEPARTMENTS ON MARKET-ORIENTED RESEARCH PROJECTS. SUCH CO-OPERATION ... PROMOTES THE PRACTICAL APPLICATION OF RESEARCH RESULTS ... (AND) ENSURES R&D ACTIVITIES REMAINED GEARED TO ACTUAL REQUIREMENTS" CD %@o CO __.j C=) BAT Co LTD I TOBACCO LITIGATION