BRITISH American Tobacco yesterday said that any move to ban smoking in pubs would have a “negligible” effect on its bottom line, as the world’s second-biggest cigarette maker topped forecasts with a 13.5 per cent rise in third-quarter profits.

The maker of the Lucky Strike, Kent, Dunhill and Pall Mall brands was sceptical that the Government would follow the Irish Republic by introducing a total ban on smoking in pubs. But it said that its small presence in Britain meant that it would easily sustain such a move.

Paul Adams, group chief executive, said: “We are a large enough group to absorb shocks in individual markets like Canada, France and Germany, while seeing positives in Italy, Russia and Reynolds American.”

The tobacco group’s shares fell 1p to 817p yesterday, despite it reporting third-quarter pre-tax profits of £604 million, slightly ahead of analysts’ expectations, and a 20 per cent surge in profits for the first nine months of the year to £1.54 billion.

Strong trading in Italy and Russia offset tobacco tax rises in Canada, France and Germany and the impact of the strong pound.

BAT, second only to Philip Morris in size, said that it was seeing early benefits from its merger with RJ Reynolds and Brown & Williamson. The merger of the companies was announced last year and completed in July.

However, the strength of the pound against all currencies cut BAT’s operating profits in the first three quarters by six percentage points, or £119 million. Paul Rayner, finance director, said the impact of the strong pound could cost the company £150 million in the full year.

Group volume in the first nine months grew 6 per cent to 618 billion cigarettes, largely due to the Reynolds American deal. However, the company’s four core brands grew only 0.4 per cent, due to slowing sales in France, Germany, Japan and Canada. In Canada, tax rises have lured smokers to cheaper brands. BAT has had to sacrifice its margins by repositioning its Matinee brand to take advantage of the switch to cut-price products.

Despite the problems in individual markets, BAT said it would meet its long-term target of earnings growth of up to 10 per cent, after third-quarter earnings rose 6.4 per cent to 21.16p a share. Nine-month earnings rose by 7 per cent to 54.97p, helped by group share buybacks.

The company’s greatest regional profit increases were in Asia-Pacific and Europe.

In the Asia-Pacific region, profits rose by £37 million to £395 million, with strong performances in Australia, Pakistan, Malaysia, India and its duty-free business. Regional volumes of 151 billion were 5 per cent higher than last year.

Jan du Plessis, BAT’s chairman, said the results “demonstrate the real benefit that we derive from our balanced brand portfolio and the geographic spread of our business”.

BAT and RJ Reynolds are among a handful of tobacco companies charged by the US Department of Justice in a $280 billion lawsuit. The companies allegedly defrauded the public about the risks of smoking.

BAT has said that it is confident of defending the case successfully, although the group has admitted that the trial may provide some negative publicity.

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