BAT still on acquisition trail: Cigarette group announces 20% rise in first-quarter profits to pounds 488m

BAT Industries, the cigarettes and financial services group, is still keen to buy a building society or a Continental European insurer, despite last week's dollars 1bn ( pounds 667m) purchase of American Tobacco.

Martin Broughton, BAT's chief executive, said: 'We continue to look at financial services and if the right transaction comes along, we would not be inhibited from doing it.' BAT had no immediate deal in prospect, he said.

Any acquisition would have to be strategically right and good value, Mr Broughton added. BAT - which was a potential bidder for the Cheltenham & Gloucester Building Society - had been offered several strategically right deals but not at the right price.

BAT yesterday reported a 20 per cent increase in first-quarter pre-tax profits to pounds 488m. Despite the price war in the US tobacco market, profits from US cigarettes more than doubled. Most of the improvement reflected a rebound from last year, when profits were hit by BAT's elimination of trade loading - selling large volumes of cigarettes to distributors shortly before a price rise. Even leaving this aside, Brown & Williamson, the US arm, had a 'good start to 1994'.

The Clinton administration intends to impose a 75-cents-a-packet tax on cigarettes as part of its health reforms. Mr Broughton said this was a 'worst-case scenario'.

BAT believes a large tax increase will have a substantial short-term effect, but the longer-term impact is more uncertain. A similar measure in Canada produced a sharp fall in sales followed by recovery.

BAT's profits from tobacco rose 13 per cent to pounds 268m. Exports from the UK rose substantially, but Souza Cruz, BAT's large Brazilian company, fell to a small loss. Profits from financial services, which includes the UK insurers Allied Dunbar and Eagle Star, increased 16 per cent to pounds 220m. The loss from mortgage indemnity insurance fell to pounds 13m and there was no further loss from Eagle Star's discontinued financial insurances.

Mr Broughton said Allied Dunbar had turned in a fine performance by increasing its contribution by 19 per cent to pounds 44m.

However, Farmers, the usually dependable US insurer, made a slow start to the year with profits flat at pounds 126m. Higher costs and reduced investment income reduced the profits from Farmers' life business.