BRITISH American Tobacco has stubbed out fears that a drop in profits of more than a quarter threatened its factory in Southampton.

The tobacco giant employs more than 1,500 people in the city on a 26-acre site in Millbrook.

As reported in later editions of yesterday's Daily Echo, BAT, the world's second largest cigarettes company, reported a 26 per cent fall in profits after a "highly significant year".

The group, whose brands include Kent, Dunhill, Lucky Strike and Pall Mall, said profits for 2003 were £1.57 billion, down from £2.11 billion as it faced up to higher restructuring costs and losses from the sale of operations.

BAT racked up one-off restructuring costs of £437m during the period, including the closure of its factory in Darlington and through the overhaul of its manufacturing business in Canada.

The closure of Darlington - leaving just the Southampton headquarters, Corby and Dundalk in Ireland - resulted in the loss of about 500 jobs.

Much of its manufacturing work was shifted to Southampton where the company says it is "building a sustainable future".

During the year, BAT announced a deal to merge its US business with RJ Reynolds while it staged an overhaul of its operations.

The £1.63 billion acquisition of Ente Tabacchi of Italy was also completed as BAT looked to close the gap on world market leader Philip Morris.

Sales volumes grew by two per cent to 792 billion during the period, with the company's four leading brands achieving overall growth of 13 per cent. Operating profits before one-off costs were three per cent higher at £2.78 billion.

Corporate affairs manager Tom Roberts said: "2003 was a particularly turbulent year for our UK and Ireland operations and its employees with the announcement that we would have to cease production in our Darlington factory by the end of June this year with the loss of about 500 jobs.

"Consolidation of production in Southampton is now proceeding according to schedule and gives us the opportunity of building a sustainable future to the benefit of the group and UK manufacturing."