British American Tobacco Share Plunge Erases $315 Billion from US Cigarette Brands
British American Tobacco suffers a major blow with a $315 billion write-down on US cigarette brands like Camel and Pall Mall This move reflects the company's realization that the future of its traditional market is uncertain
London-based British American Tobacco (BAT) is expected to suffer a loss of approximately $31.5 billion as it reduces the value of its US cigarette brands such as Camel and Pall Mall. The company made this announcement on Wednesday, recognizing the lack of long-term prospects for its traditional market.
This decision by the producer of Lucky Strike and Dunhill cigarettes comes in response to increasingly stringent regulations and a growing understanding of the health risks associated with tobacco. These factors have put pressure on the traditional business of tobacco companies, leading to a decrease in cigarette sales in certain markets.
BAT (BTI) also highlighted economic difficulties in the United States, with inflation-wary consumers opting for cheaper brands and the increase of illegal disposable vapes impacting its US cigarette division. As a result, the company announced that it would be altering the treatment of some US brands on its balance sheet, adjusting their value to have a finite lifetime of 30 years due to the overall decline in smoking.
BAT announced that it will incur an impairment charge of approximately £25 billion ($31.5 billion). The affected brands include Newport, Camel, Pall Mall, and Natural American Spirit, according to a spokesperson. Chief Executive Tadeu Marroco characterized the decision as "accounting catching up with reality."
He doesn't believe cigarettes will vanish in 30 years, but he stated that it was no longer justifiable to assign an indefinite value to those brands, which totals around $80 billion on BAT's balance sheet. BAT also announced that it would begin depreciating the remaining value of its US combustibles brands in 2024, becoming the first major cigarette company to recognize that the value of its tobacco brands has a limited lifespan.
BATs shares fell more than 8% in early trade, wiping about £4 billion ($5 billion) off the companys value.
Imperial Brands shares were down more than 2%.
Like rivals, BAT has been investing heavily in smoking alternatives like vapes.
On Wednesday, it announced a new ambition to generate 50% of its revenues from non-combustibles by 2025.
James Edwardes Jones, an analyst at RBC Capital Markets, expressed his approval of the goal in light of the US charge and a "bleak" outlook for BAT.
"That's quite a significant figure," he remarked about the charge, highlighting how it showcased the risks of the industry and provided insights into the future of cigarettes.
