Cigarette growth boosts BAT

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The Independent Online
Strong growth in world cigarette sales and a one-off disposal profit helped BAT to a 16 per cent rise in first-quarter profits.

The tobacco and financial services group's shares rose 7.5p to 510p as a result but remained well below the level at which they traded before a landmark legal settlement shattered investor confidence in the cigarette industry earlier this year.

BAT said at its annual meeting last week that it had spent pounds 38m fighting tobacco-related legal cases last year. Yesterday it confirmed that it had "got used to heavy legal costs" as just another part of doing business in the US.

Lord Cairns, chairman, added: "It must be all too easy for shareholders to lose sight of our business successes in the face of all the adverse publicity generated by the highly vocal anti-smoking movement. Despite their claims, nothing has really changed. We will maintain our policy of vigorously defending the opportunistic cases being brought against us."

Despite the cost of defending tobacco-related litigation, profits from tobacco trading rose 9 per cent to pounds 358m, even compared with last year's strong first quarter. Returns were boosted by a 4 per cent rise in cigarette volumes and a 6 per cent rise in exports.

The continued strength of the cigarette arm boosted group profits at BAT from pounds 516m to pounds 600m. Excluding a pounds 34m profit from the sale of the Chilean Malloa food operations, discarded as part of the group's focus on the core tobacco and financial services operations, profits rose 10 per cent.

Less spectacular was a 2 per cent increase in financial services trading profit to pounds 255m, comprising a pounds 139m contribution from general insurance and pounds 116m from life and investment operations. Farmers in the US was a strong contributor to profits and, while underwriting results deteriorated, thanks partly to bad weather, there were encouraging signs for the life industry.

The company said competition in the UK general market remained intense and there had also been a marked deterioration in the underwriting result. Eagle Star Direct, however, continued to grow, reflecting the group's attention to developing its direct distribution channels.

Lord Cairns warned that last year's strong performance would not be repeated: "As I said at the agm, in terms of the year as a whole, the board does not expect last year's exceptional 26 per cent growth to continue. We do, however, anticipate making steady progress."

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