Blow as BAT warns on profits

SHARES in British American Tobacco tumbled today as it warned that the strong pound and a big fall in profits in Canada will 'significantly affect' its full-year figures.

The group - the world's second-largest cigarette manufacturer with the Dunhill, Rothmans and Lucky Strike brands - suffered an £82m hit from the strong pound over the first half. This left operating profits for the six months to 30 June just 1% ahead at £1.35bn, excluding goodwill and exceptionals.

At the pre-tax level, however, profits were sharply higher, at £941m against £755m. Chairman Jan du Plessis said the contribution from Canada fell by £44m to £169m and profits also fell in key markets such as France, Germany and Japan. In Canada, profits will remain under pressure in the second half, reflecting the group's decision to slash the price of its Misty cigarettes.

Despite the warning on profits, du Plessis said he had confidence in the underlying strength of the business and the half-time dividend was up 8% to 12.7p a share.

Tomorrow shareholders in rival US tobacco group RJ Reynolds meet to vote on the proposed £2.6bn merger with BAT's US subsidiary Brown & Williamson.

If the deal is approved, the merger will go through at the end of the month, leaving BAT with a 42% stake in the enlarged business. BAT has said it expects cost savings of as much as £500m within 18 to 24 months of the merger.