Cigarettes giant British American Tobacco (BAT) warned it faced a challenging year in 2003 and said pre-tax profits had been flat in the first quarter.

The company, which has one of its main production operations at Regents Park, Southampton, said its operating profit was one per cent lower at £612m, reflecting conditions in the intensely competitive US market and the weakness of a number of currencies.

The Southampton factory bosses said the group results were in line with expectations of what is expected to be a challenging year.

"Our factories in Southampton and Darlington have felt the effects of high exchange rates and the general state of the world economy and production volumes have been lower than forecast but we continue to pursue other opportunities.

"Some new orders have come through and we are working to ensure that we remain competitive in the global market.''

BAT said that at comparable rates of exchange, operating profits would have risen by two per cent. Bottom line pre-tax profits for the three months were £464m compared with £463m for the same period last year.

A share buy-back programme, announced in February, saw 18 million shares bought at a cost of £108m.

The company said the programme would continue after pledging that the buy-back could reach close to £1 billion as part of plans to acquire up to 7.5 per cent of its shares.