IMPERIAL Group is clawing back a little of the British market which it had been losing to Gallaher. That helped raise domestic profits slightly in the first six months, but a greater impetus came from overseas expansion where they were up a quarter to #45m.

That left the group pre-tax total 2% ahead at #146m, with the #185m acquisition early last year of the Rizla cigarette paper business reflected in higher interest charges.

Chief executive Gareth Davis said that once the #652m purchase of the Douwe Egberts hand-rolling business was completed in July, well over 30% of profits would come from outside the UK, with Imperial dominating the world's fast growing hand-roll sector.

Against the background of a 4% drop in annual cigarette consumption in Britain, Imperial has seen its share rise month-by-month in the half-year to March back to 38%.

The growth is coming from the low-priced end of the market, where the Lambert & Butler brand is fighting off Gallaher's Sovereign quite effectively, although the UK market is being undermined by increasing flows of bootlegged hand-roll tobacco from Belgium.

Davis reckons this costs the Chancellor #750m in lost duty annually.

Imperial has pushed through prices increases totalling 8p for 20 cigarettes, equivalent to about 2.5% on retail prices but a 9% gain as far as it is concerned with the difference due to the duty element.

Unlike some competitors, Imperial will not set up new cigarette manufacturing plants outside the British Isles.

It is benefiting from the large number of British tourists overseas buying its products. Davis does not appear too concerned about the loss of duty-free facilities in Europe, as 80% of tobacco sales would be ''repatriated'' to Britain. In any case, duty-free sales are just 10% of turnover.

Also profit margins in the UK, excluding duty, are a remarkably high 47% and increasing. After allowing for the effect of the strong pound, they are 10% above those in international markets.

Full-year profits seem set to rise about #20m to #327m.

The interim dividend has been lifted 6% to 7.6p.

Davis said health litigation would not pose as serious a threat in Britain as in the US. The first case will probably not be heard until autumn 1999.