BRITISH American Tobacco, one of Southampton's major employers, has revealed the impact of the strong pound on its business.

Profits at the seed-to-smoke giant, which has 1,500 workers at its factory at Regents Park, near Millbrook, slipped three per cent to £454m for the first three months of the year.

The group, whose brands include Kent, Dunhill, Lucky Strike and Pall Mall, said weakness in nearly all of its key currencies had offset a five per cent improvement in volumes to 192 billion cigarettes.

At an operating level, profits before exceptional items were ahead three per cent at £640m, although this would have been nine per cent higher at constant exchange rates, the company added.

The trading performance was driven by the impact of acquisitions made in Italy, Serbia and Peru during 2003, coupled with three per cent growth in BAT's frontline brands, particularly Kent following strong demand in Japan and Russia, and Pall Mall after the brand achieved "outstanding results" in Italy.

Chairman Martin Broughton, who is due to leave the company for British Airways in the summer, said: "We expect our real momentum to continue, although these results clearly demonstrate the extent to which good progress can be masked by the impact of the strength of sterling on the translation of our profit."

Earlier this year, BAT announced a 26 per cent fall in annual profits to £1.57 billion as it faced up to higher restructuring costs and losses on the sale of operations. As reported by Business South, BAT completed the £1.63 billion acquisition of Ente Tabacchi of Italy and announced a deal to merge its US business with RJ Reynolds last year.

The company also racked up one-off costs of £437m last year, including from moves to close its factory in Darlington. However, total profits were up £17m to £153m in Europe due to the inclusion of the acquisition of Ente Tabacchi.

It is the second time in a week that BAT has made headlines. Last Thursday Business South reported how Mr Broughton had hit out at "unreasonable" health regulations he claimed socially excluded smokers.