THE black market for cigarettes, fuelled by high levels of duty on legal tobacco products, has led to a flattening in UK profits at cigarette giant Imperial Tobacco.

The group, which sells brands including Lambert & Butler, Embassy, Superkings and JPS, said operating profits in the UK for the last year had come in at £329m - £1m lower than last year.

Key to the fall was the declining UK market for duty-paid cigarettes, largely because of increased sales of black market contraband - a result of ''unprecedented levels'' of taxation on tobacco products, said Imperial.

Despite measures by HM Customs & Excise to combat smuggling, Imperial said it estimated one in three cigarettes smoked in the UK were non-duty paid, amounting to a yearly loss to the Exchequer from smuggling of around £4bn.

However, the increasing availability of bootlegged and smuggled cigarettes, sold illegally at up to £2 a pack cheaper than UK recommended prices, has seen total consumption of cigarettes remain stable.

But despite this, the group said it had produced an ''excellent performance'' overall over the last year, with its strongest growth coming from its international operations, where operating profits jumped 23 per cent to £231m.

Gareth Davis, chief executive, said: ''Looking ahead, we remain focused on delivering profitable growth for our shareholders."

Overall, pre-tax profits at the group for the year to September 23 were up to £450m, a 13 per cent rise from the £400m reported for the same period last year. Turnover rose 16 per cent to £5.22bn.

The announcement comes less than a week after Imperial workers from its Nottingham factory joined tobacco workers from across the country, including Rothmans workers from Darlington, to highlight the threat of EU legislation.

The workers believe EU plans to ban production of cigarettes with tar levels above 10mg, would threaten around 10,000 jobs in the country.

*Workers from the Rothmans site in Darlington will hold a crisis meeting tomorrow to lobby councillors to pressure the Government over the EU legislation. Rothmans say the law will threaten the futures of more than 500 workers.