[Intl-tobacco] BAT in Talks to Expand in China; 1st-Qtr Profit Falls

[Robert Weissman]

BAT in Talks to Expand in China; 1st-Qtr Profit Falls (Update2)
by David Altaner
Source: Bloomberg News, Wednesday, 5/2/01

London, May 2 (Bloomberg) -- British American Tobacco Plc, the
second-largest tobacco company, said it is in talks with the Chinese
government to start a joint-venture company and open a factory in the
world's largest tobacco market.

The company, which also said first-quarter net income before one-time
items fell 23 percent, said the government agreed to secure land for a
factory in Sichuan Province in southwest China. An agreement is due to be
signed this month, it said.

The maker of Lucky Strike, Dunhill and Benson & Hedges is expanding
outside the U.S., where it faces litigation and declining consumption for
some brands. It bought Rothmans International in June 1999 to expand in
Europe, Asia and Africa.

`` They're about expansion,'' Jonathan Fell, an analyst at Merrill Lynch,
told Bloomberg Television. ``The news about them going into China could be
very significant.''

China has 300 million smokers and accounts for a third of the world
cigarette market, the company said.

BAT shares rose as much as 13.5 pence, or 2.4 percent, to 573.5p. They
have risen 11 percent so far this year.

Earnings

Net profit before one-time items fell to 191 million pounds ($274 million)
from a restated 247 million pounds because of the size of one-time charges
in the year-earlier period.

``For the full year, we expect to achieve a good increase in both
operating profit before exceptional items and adjusted earnings per
share,'' BAT Chairman Martin Broughton said in a statement on the
Regulatory News Service.

The previous first quarter included one-time charges of 18 million pounds
for the absorption of Rothmans, 69 million pounds to restructure its newly
purchased Imasco distribution company, and 83 million pounds to account
for sales to a company it subsequently bought.

This year's first quarter included a 35 million-pound gain on the sale of
a business.

The number of cigarettes sold rose 1.3 percent in the quarter to 195.2
billion.  Sales declines in the U.S. and Japan were offset by gains
elsewhere.

BAT has ``a lot of emerging market exposure, Fell said. ``It is doing well
in all those markets. It's also doing well in more mature markets such as
Europe and Canada.''

Including one-time charges in the year earlier-quarter, net income almost
tripled to 226 million pounds from 77 million pounds, a year earlier.