Tobacco Documents Online

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® SECRET NEW BUSINESS DEVELOPMENT TSRT PROGRESS REPORT A Sale and Purchase agreement between BATCo and the SPA for the acquisition of s majority sial= in the Pecs Tobacco Factory was signed on 13th December 1991. The legal process of registration is cxpecmd to be complct~l by the end of February 1992. In addition to the inltial acquisition cost of some £18 mn, there will be a capital injection of some £8.7 mn in 1992, which will contribute to the company's capital expenditure requirements over the n=xt 3 years in modcrnising and increasing production capacity. BATCo's final shareholding will be around 90%. The signing ceremony is being arranged for the 9th March but the earliest this can be confirmed is the previous week when it is hoped that the Court of P~gistration will approve the process. Mr. Rembisz=wski has taken over Director r~sponsibility for BAT-Pccs and the expatriam management team is now resident in Hungary. One of their fast tasks is to prepare updated for~z~ for 1992 and 1993 for presentation to the Group Chairman on the day of the signing ceremony. BULGARIA The recently formed government under President Zhelev is still formulating proposals for new legislation regarding foreign investment and privatisatlon in g~nentt and the tobacco industry specific~ly, and once these lmvc been established a visit to Bulgartabac to discuss areas of mutual interest will be arranged. CZECHOSLOVAKIA The total Czechoslovakian market is 28 billions split between the Czech Republic (Tabak) 19 billions, and Slovakia (CSTP) 9 billions. The situation regarding the priv~sation process in r~spect of both production monopolies remains unclear, particularly as regards the timing, the mex.hanics and the decision-making process. Although BAT Industries' initial attention late: last year was focussed upon Tabak, in view of their long-standing business relationship with PM and the feeling that they will always be prepared to offer more than BAT, our prcferenee has now switched to CSTP. BAT Industries document for WHO 5 March 1999 r,,J o

-: o -2- However, the timetable for CSTP's privatisation process has met with some delay. The original timetable envisaged that an information memorandum and questionnaire would be sent to prospective investors by the 7th February. This document has not yet been received but it is now e~ to be available by the 21st February. The impact this delay w~l have on the rest of the timetable is, as yet, unclear although it is likely that an indicative offer will be requix~ by llth March with our formal tender (which we understand will be required to constitute a binding contract upon acceptance) to be received by CSTP by the 23rd March. As regards Tabak in the Czech Republic, BAT is slill interested in psrticipeting in the tender process although we are not prepared to submit any bid based on the limited information currendy available to us. The prlvatisafion process and timetable remains unclear and Schroders have been in regular contact with Tabak's advisers, Nomura, to try to progress the situation and arrange the timing for a BAT visit. However, as they have had little succ~ in this respect, the Chairman sent a le~r to the Minister for Privatisation on 6th February seeking formal clarification on the status of Tabak's privatisafion. We await a response. YUGOSLAVIA The long term objective for Yugoslavia will be to acquire at least one, and poss~ly both, companies With which the Group has trading relationships; Makedonija Tabak in Macedonia and NIS in Serbia. Mr. Watterton held introductory talks with the Makedonija Tabak management on 9th January. The meeting was conducted in a friendly and positive atmosphere; they expressed interest in a joint venture with BAT involving the leaf and cigarette operations and with a BAT majority share.holding and undertook to discuss this with the relevant authorities. They also offered to prepar~ and send to us an "information pack" on the industry and they agreed to receive a multi-functional BAT team to review their activities and discuss possibilities for future collaboration. Laza_nis and Coopers & Lybrand have been appointed as our advisc~ and a multi-functional visit with advisers is being arranged for the first week of March; Coopers & Lybrand will, however, be making an initial visit to Skopje during the week commencing 17th February. BAT INDUSTRIES CONFIDENTIAL. CATEGORY [: MINNESOTA TOBACCO LITIGATION r~o o Do Do Po .,.,j E~ U'I BAT Industries document for WHO 5 March 1999

-3- POLAND There has been little progress made in recent weeks regarding BATCF's negotiations to establish a joint venture with the Augustow cigarette factory. These am still "on hold" pending recommendations arising from Morgan Grenfell's study on the proposed re-structuring of the industry. Morgan Grenfi:ll have submitted their report to the Ministry of Pr/vatisation but is unclear as to when any decisions may be expected. MOLDOVA Following the leaf visit in September 1991 a multi-functional BAT team visited the Kishinev factory between 20th and 23rd January. The prime objectectives were- (i) to assess the quality of tobacco for a possible barter arrangement between the State Tobacco Monopoly (Tutun) and BATCF, aimed at helping Tutun obtain acetate filters. to progress the 1992 leaf development programme in accordance with the outline plans agreed last September. to gain more detailed information on their cigarette manufacturing facilities. seek their views on establishing a closer business relationship that could lead to an eventual BAT investment in the leaf and cigarette business. Moldova is considered to be of strategic importance, within the CIS context, both for the quality, and potential development of its leaf crop (currently the major supplier to the Ukraine with some 18,000 tonnes in 1991 as well as being the main tobacco producer in the former USSR) and also because the clgaretm factory is considered to be one of the be.st in the CIS. Although the domestic cigarette market is small (approx. 4 bns), significant growth opportunities could arise if Moldova reunites with Romania, thus forming a market of 30 million people. C2 O BAT INDUSTRIES CONFIDENTIAL- CATEGORY 1: MINNESOTA TOBACCO LITIGATION BAT Industries document for WHO 5 March 1999

-4- However, in view of the prevailing political and economic unc~rtalnties and the lack of legislation on prlvatisafion and foreign investment (which is expected during this year), BAT strategy at this time is essentially to strengthen links with Tutun, through a letter of intent, granting BAT exclusivity, following which leaf trials would be commenced, payment for which would be in the form of leaf. UKRAINE BAT is very keen to participate fully in the future development of the Ukranian tobacco industry. With flds aim, and following various discussions with the 13kranian authorities, a Letter of Intent is expected to be signed on 24th February giving BAT exclusivity to prepare a Business Development Plan, to be completed within 3 months, based on a joint enterprise which encompasses cigarette production at two selected factories t'Priluck-7 and Cherkassy) and tobacco processing at the Monastirriska plant. RUSSIA The outline proposal for developing a greenfield factory on the site of a former military industrial complex, possibly involving oH-barter arrangements, is being finalised, fonowing which a Russian partner win be sought. Separately, the preparation of an outline proposal for establishing a joint venture investment based on an existing cigarette factory in the Republic has been delayed. The continued turmoil in Russia has made it difficult for BATCF to make significant progress on this project. ESTONIA AND LATVIA At the Sandwich meeting it was agreed that Suomen Tupakka (STOY) would investigate the situation in Estonia and Skandinavisk (STK) would be allowed to proceed with their discussions in Latvia. Discussions are currently taking place between BAT/STOY and STK to decide the most appropriate future course of action. BAT INDUSTRIES CONFIDENTIAL- CATEGORY 1: MINNESOTA TOBACCO LITIGATION PO .! C) Po PO r~ cD BAT Industries document for WHO 5 March 1999

-5- EASTERN EUROPEAN LEAF TEAM As part of the leaf temn's recommendations following their visits to Poland and Hungary earlier this year, two Souza Cruz technicians visited the leaf processing plants in these two countries between the 9th and 27th November 1991 to review their operations. A brief summary of their findings is as follows: O) The Nyirigyhaza GLT plant in Hungary was the best of the three facilities seen in terms of equipment, product quality aM the attitude of management, although the amount of stem in lamina was high. An estimated US$2 million would be required to improve standards. The Szolnok GLT in Hungary was deemed the sex.end best facility, although standards of safety and hygiene and management attitude are below those of Nyirigyhaza. An estimated US$3.2 million would be required to improve standards. The Augustow combined C&C/Primary consists of mainly locally manufactured components and improvment of standards would be more complex than for the Hungarian GLT's. Cost estimates for proposed upgrading would exceed US$3 million. These reports have been sent to BAT Pecs and to BATCF (Augustow) for progressing as considered appropriate. VIETNAM A future s~gy paper was discussed at the Sandwich Strategy meeting. This proposes a four stage, phased investment approach, encompassing leaf growing, marketing " and trading and cigarette manufacture and ultimately envisages a BAT majority controlled joint venture producing by the year 2000 some 21.6 billion cigarettes per annum and 24,000 tonnes of leaf, both for the ' BAT INDUSTRIES CONFIDENTIAL- CATEGORY:].".MINNESOTA TOBACCO LITIGATION d r~J o Do Do ..,,j c) L,rt BAT Industries document for WHO 5 March 1999

-6- joint venture and for export. The total investment between 1992 and 2000 is envisaged to be of the order of £45 - 60 million. Due to the difficulty in obtaining from V'mamba the level of information required to progress the completion of the business plan/investment proposal, it is now u~ly that our target completion data for this of 30th March will be achieved. We have been informed that the government responsibRily for Vinataba has switched from the Ministry of Food and Agriculture Industries to the .]~.finistry of Light Indus~es. STC are trying to de~ne the implications, if any, arising from this change and planned to discuss this with Mr. Thuy (President of Vinataba) during his recent visit to STC. An SIC delegation has been invited to visit Hanoi from the 25th February to 3rd March for introduction to the new Minister. In addition, a multi-functional BAT team will be visiting Ho Chi Minh City to progress detailed joint ventm-e discussions, particularly relating to a strategy for leaf and th¢ poss~I~ participation of Intabex. A Souza Cruz finance manager is soon to be seconded to Singapore for a period of between one and two years to assist the s'rc team in progressing the Vietnam and other Indo-China projects to completion. MYANMAR A future strategy paper has been discussed with the TEC andnoted by the CPC. BAT will investigate further, with the appropri..ate government ministry and with SUTL, the possibilities for Group majority participation in a combined joint venture involving the total cigarette manufacturing industry. In parallel, BAT will also investigate the posdbility of estabfishlng s leaf development joint venture with the government which may, or may not include SUTL. It is anticipated that these studies and a proposal will be submitted to the TEC within six months. In this re.spect, a multi-functional BAT team will be visiting the Pakkoku cigarette factory and leaf operations from 17th to 24th February to assess current activities and discuss possibiliHes for furore co-owa'afion and development. BAT INDusTRIES CONFIDENTIAL- CATEGORY l: MINNESOTA TOBACCO LITIGATION 0 c2~ L71 BAT Industries document for WHO 5 March 1999

-7- CAMBODIA" An Early Warning Note has been submitted to the TEC advising them of an opportunity for a majority stake in a joint venture with Tay Choon Hy¢ and the Cambodia Tobacco Company, the sole dgarcttc manufacturer in the country, which is state owned and produces approximately 3 bn dgarettes per annum. As with the Vietnam project, the timetable is behind schedule but a multi- functional team will bc visiting from the 24th to 27th February to conduct a preliminary assessment of production fadiifics and leaf growing potential. MEXICO At the Sandwich Strategy meeting it was agreed that, although BAT has a long- t~rm objective to become fully re-established in the Mexican market, any proposal should tak~ account of the development of the North American Free Trade Agreement and, that appropriate arrangements can b¢ se.ctu~ to ensuring an acceptable business operating environment. B&.W are in the process of evaluating the possibility of re-introducing KENT to the market, possibly by Ticensing La La'benad to manufacture product from imported blend components ex Chile. However, it has been establhhed that the importation of a cased blend ex Chile would not benefit from preferen~ tariffs and may require import and health pormits. In view of this B&W arc looking at some other a]ternativ~ for a re-entry to the market. D.S. WATTERTON P_bJ='k im Sir Patrick Sheehy Mr. B.D. Brandey Dr. R. Salter Mr. G. Burgess - BATCo DSW/DET 21st February 1992 • BAT INDUSTRIES CONFIDENTIAL- CATEGORY I: MINNESOTA TOBACCO LITIGATION 1",.3 O r'~ ...,4 O rj~ O', BAT Industries document for WHO 5 March 1999

. . --i J At the meeting of the Tobacco Strategy Review Team on 2nd December 1991, members were asked to consider whether there might be grounds for initiating an antl-dumping action against JTZ. Back~ound The criteria for initiating this type of action are that:- (a) An imported product is being sold at a price that is less than the 'normal price' at which it is sold in the expott~nE country or country of oclgln and (b) the imports cause or threaten to cause material injury to the indigenous industry. The process for establishing that dumping is o~currlng varies £=om one country to another but is generally protracted. The remedy if dumping is established is the ~,nposition of an anti-d~ping duty to cotmteract the effect of the dumping. Couclus ion There vere no countries identifled where Croup companies felt that they might have a case for initiating an anti-dmupinE action. The posslble vulnerability to similar action in respect of exports groin the USA miEht also need to be taken into account before starting this type of action. RS/DJS 20th Tebruary 1992 0 ~J 0 BAT Industries document for WHO 5 March 1999

1 We suggest handlin~ this subject with the help of focus gTOUpS. Therefore we have developed the followlng question guide. It can also be used for individual in-depth-interviews. The basic principle of the question guide is to start in a general way - where the participants can react spontaneously - and then it moves to a more focussed and aided procedure. It is important to find out, in which stage negative or positive opinions occur, especially in reaction to the advertising. This helps us to determine their perceptions, both on a conscious and on a subconscious level. We propose the following groups: Inhabitants of larger cities of middle and highe~ social class. One third of each group should be female. Smokers of Marlboro KS: Smokers of Full Flavour Ciqarettes ex¢l. Marlboro: 18 - 24 years = 1 25 - 30 years - 1 18 - 24 years = 2 25 - 30 years = 2 Countries of interest are: Switzerland, Spain, Italy, Hungary, Holland, Greece, Germany. CD O t/l Co BAT Industries document for WHO 5 March 1999