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. Last Updated: 07/27/2016

B.A.T Industries Reports Profits


LONDON -- British tobacco and insurance company B.A.T Industries reported a nine percent rise in nine-month profits on Wednesday but conceded U.S. tobacco litigation was the dominant issue affecting its share price.

Profits in the nine months rose to ?2.04 billion ($3.3 billion) from 1.87 billion last time. Profits in the third quarter rose to ?714 million from ?680 million.

Trading profit from financial services rose by three percent, and profits from tobacco were 7 percent ahead.

Overall cigarette sales rose by three percent, although volumes were lower in the United States, a market where total industry sales were flat, the company said.

Chief executive Martin Broughton told a meeting for share analysts, "the dominant issue affecting the share price for B.A.T Industries currently is U.S. litigation, regulation and indeed science."

The growing pace of litigation claims against the company's U.S. tobacco subsidiary Brown & Williamson, and the U.S. industry in general, continues to unsettle investors and hurt B.A.T's share price.

B.A.T shares have fallen from a high of 585 pence on Feb. 2 to around 434 pence, shedding nearly four billion pounds from the company's stockmarket value along the way.

But Broughton said the company did not see value in demerging the group into separate tobacco and financial services companies.

He told Reuters that a recent strategy review showed "there was no value we could see that would be generated from a demerger."

Chairman Lord Cairns said in the results statement that the company had never kept from the public any conclusions showing that smoking causes diseases.

Broughton, responding to a recent paper in Science Magazine in the United States which claims a direct link between smoking and lung cancer at cell level, told analysts the company had no internal research which proved that smoking caused lung cancer, or that smoking was addictive.

He said there was still a lack of understanding of the mechanisms of diseases attributed to smoking.

Turning to the business results, B.A.T said the seven percent rise in tobacco trading profit to ?1.27 billion was helped by strong sales growth in the Asia Pacific and African, Middle East and Indian subcontinent regions.

In financial services, B.A.T said its U.S. unit Farmers continued to have an excellent year. Farmers can now offer earthquake coverage to private individuals in California as a result of a state initiative that established a public-private sector partnership in this area.

The growth in profitability at Farmers outweighed a decline in earnings of Eagle Star in Britain, where the company faced fiercely competitive conditions. Eagle Star profits fell to ?162 million from ?194 million.

The life insurance and investment business reported a five percent increase in profit.

Trading profits from the group's financial services activities grew by three percent to ?846 million.

"The numbers are almost exactly in line with expectations, in fact if anything towards the top end of the range," said BZW analyst Nyren Scott-Malden. ()