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B.A.T's 2nd-Quarter Net Falls 29% After Settlements

London, July 29 (Bloomberg) -- B.A.T Industries Plc, the world's second-largest cigarette maker, said second-quarter profit fell 29 percent after the company paid exceptional costs to settle tobacco litigation.

Profit in the three months to June 30 fell to 268 million pounds ($440 million), or 8.6 pence per share, from 378 million pounds, or 12.2p. The company had exceptional charges of 152 million pounds from U.S. tobacco litigation, and one-time tax credits of 78 million pounds. The shares fell 7.5 pence to 687 amid analyst concern about further charges.

B.A.T's Brown & Williamson Tobacco Corp. and other U.S. companies are facing lawsuits from states seeking to recover the cost of treating smokers. Hefty pay-outs, including a $6 billion settlements in May to Minnesota, have compounded a tough trading situation in the U.S., where price competition is acute and demand sluggish. Chief Executive Martin Broughton said today the legal tide may be turning in favor of tobacco companies.

``Some of the recent legal developments have gone in their favor but it's very much an ebb and flow,'' said David Ireland, an analyst at ABN Amro. ``The stock market is a little bit perkier now but it might turn against them (tobacco companies) again.''

Lucky Split

B.A.T, the maker of Lucky Strike cigarettes is splitting its tobacco and financial-services activities into two companies in the fall following Zurich Insurance Co.'s decision to buy B.A.T's financial-service businesses for $18.7 billion. It expects the split to take effect in September or October.

`People are more interested in the results of the demerger,'' said Tim Young, an analyst at SG Securities. The results ``were completely in line with what we were expecting.''

In the first half, pretax profit fell to 1.06 billion pounds from 1.24 billion pounds. The mean forecast of analysts polled by Bloomberg was for pretax profit before exceptional items of 1.24 million pounds.

B.A.T said first-half tobacco trading profit rose 2 percent to 790 million pounds, excluding exceptional items.

The company said Europe and its division covering Africa, the Middle East and South and Central Asia posted ``good performances'' and second-quarter trading picked up in Asia- Pacific. Still, it said trading in America-Pacific remains ``very difficult,'' with fierce price competition in the U.S. besetting its ``non-priority'' brands.

The company said a 119 million-pound charge of settling tobacco litigation in Minnesota, representing the bulk of B.A.T's tobacco litigation costs, was a ``bitter pill'' to swallow.

Broughton said, though, that there ``appears to be an emerging trend against these huge and unfounded claims.'' He said he doesn't expect any further settlements with individual states or any of the magnitude of Minnesota.

`Pretty Good Shape'

If cigarette companies fail in a bid to reach a collective settlement with attorneys general for the states which haven't yet settled, the industry is ``looking in pretty good shape'' to fight off state claims in court, he said.

``Ongoing'' charges for settlements will amount to 30 million pounds each quarter, said Broughton.

In B.A.T's financial-services division, first-half trading profit rose 2 percent to 584 million pounds. It said second- quarter growth slowed from the first-quarter as investment gains ``weakened.''

The division's performance was ``slightly disappointing,'' said ABN Amro's Ireland. ``It had an extremely good first quarter and possibly people over-egged second-quarter'' expectations.

The U.K. company's financial-services division faces compensation costs for misleading customers about personal pensions. Broughton said he doesn't expect to take further provisions though said it's ``possible'' a government campaign to publicize the second phase of compensation proceedings will make fresh provisions necessary.

Listing in London

British American Plc and Allied Zurich Plc will be listed on the London Stock Exchange in the fall. Existing shareholders have been offered shares in both companies. That will give B.A.T shareholders a 43-percent holding Zurich Financial Services AG, the parent company of Allied Zurich which will be Europe's fourth largest insurer.

Broughton said he hopes the reorganization to get the approval of all regulators involved in August.

He also hinted at interest in a tie-up with RJR Nabisco Holdings Corp., which is looking for a partner for its international activities.

12:34:40 07/29/1998