British American Tobacco, Europe's largest cigarette maker, said yesterday it had increased first-quarter profits by 21% on favourable currency movements and higher sales of its premium brands.

The company said net income climbed to £599m, or 29.73p a share, in the three months ended March 31, from £495m, or 24.06p a share, a year earlier. That beat City estimates of £559m. Revenue rose 14% to £2.54bn mainly because of favourable exchange rates.

Foreign exchange gains will probably "moderate" as the year goes on, chief financial officer Ben Stevens said on a conference call. All the currencies that BAT generates sales in are stronger against the pound than at this time last year, with the exception of the dollar, South African rand and Venezuelan bolivar, a British American spokesman said.

In the first quarter of the current year, the pound shed about 8% against the euro, and 2% against the Brazilian real.

London-based BAT said volume growth for its four key "global drive" brands of Dunhill, Kent, Lucky Strike and Pall Mall jumped by 23%.

Kent was the best-performing brand during the period, with volumes up 30% thanks to soaring sales in Russia, Ukraine and Chile.

BAT's share of the UK market is thought to have remained static at around 6%, with its best-selling brand Royals. The group no longer operates any cigarette production facilities in the UK, where its sites include a research and development unit in Southampton staffed by 900 workers and a tobacco processing factory in Corby, Northamptonshire, which employs around 200 staff.

Net profit from US cigarette maker Reynolds American, in which BAT holds a 42% stake, fell 11% excluding exceptional items, the company said.

"The benefits from higher cigarette pricing was more than offset by a number of factors that lowered volumes, including higher prices, wholesale inventory shifts and continuing weakness in the US economy," BAT said.

Richard Hunter, an analyst at Hargreaves Lansdown Stockbrokers, said British American had reported "another extremely strong set of numbers".

He added: "Not only is the group increasing sales in the emerging economic regions to counterbalance the threats to its traditional marketplaces (and at generally higher prices), it is also looking to use the lower cost wages of such regions."

"Its cost-saving programme remains firmly on track, whilst it has also benefited from favorable foreign exchange movements. For the moment at least, the 17% earnings growth is comfortably ahead of its own targets."

BAT chairman Jan du Plessis commented: "While the normal caveats about not reading too much into any particular quarter still apply, the group's unrivaled spread of business between developed and developing markets should continue to serve shareholders well."

BAT shares added 56p, or 3%, to 1994p yesterday and dealers said British American was one of the leading stocks in the London market. The stock has soared in the past five years, gaining nearly 40% in 2007 alone.