BAT profits from rise in smoking

TOM STEVENSON

City Editor

Soaring sales of BAT's 250 brands of cigarettes pushed profits at the tobacco to financial services conglomerate to record levels last year. Growing numbers of smokers around the developing world more than made up for the damage still being inflicted on the group's financial services arm by alleged mis-selling of personal pensions.

New chairman Lord Cairns, who recently took over from Sir Patrick Sheehy, dismissed talk of a possible demerger of the two sides of BAT but left the door open on a rumoured takeover of Hanson's tobacco subsidiary Imperial.

Describing 1995 as an outstanding year for BAT, he warned that growth this year would not match the underlying 21 per cent rise in group profits in the 12 months to December. He also heralded an imminent shake-up of the financial services division where teams are currently reporting on ways to reduce duplication of resources between life insurer Allied Dunbar, general cover provider Eagle Star and the newly formed Threadneedle Asset Management.

There was no indication of potential job losses in financial services but the company admitted there would inevitably be further cuts following the recent axing of about 700 staff from a combined workforce of 13,000.

Buoyant sales of cigarettes in Brazil, together with the acquisition at the end of 1994 of American Tobacco, led to a 54 per cent rise in profits from the tobacco division from pounds 1.02bn to pounds 1.56bn. Even excluding a pounds 191m provision in 1994's result to cover reorganisation of American Tobacco, profits rose 29 per cent.

That boosted a more modest 7 per cent rise in insurance returns to give a 26 per cent rise in group profits from pounds 1.89bn to pounds 2.38bn. Shareholders were rewarded with a 10 per cent hike in the full-year dividend to 24p.

During the year BAT sold 670 billion cigarettes, 100 billion more than in 1994, taking its share of the global market from 10.7 per cent to 12.4 per cent.

BAT hit out yesterday at attempts by the American Food and Drug Administration, the US watchdog, to extend its jurisdiction to the cigarette market and to attempts by a number of states to recover the cost of providing smoking related healthcare from the tobacco industry.

Lord Cairns said: "As a result of these novel manoeuvres the sound and fury of publicity has increased. We remain confident however that, while there may be some procedural setbacks, our opportunistic adversaries should ultimately make no significant progress."

Despite the lack of obvious synergy between BAT's tobacco and insurance activities, he also poured cold water on expectations that the group would follow Hanson down the demerger route to shareholder value.

Profits from financial services broke through the pounds 1bn barrier for the first time with profits from Eagle Star in the UK and Farmers in the US strongly ahead. Allied Dunbar, which provides the bulk of BAT's life assurance sales, saw its contribution fall 28 per cent to pounds 153m.