British American Tobacco Faces $31.5 Billion Write-Down as US Cigarette Brands Decline

London – December 7, 2023

British American Tobacco Faces $31.5 Billion Write-Down

In a significant move reflecting the shifting landscape of the tobacco industry, British American Tobacco (BAT) has announced a staggering write-down of approximately $31.5 billion in the value of its US cigarette brands, including Camel, Pall Mall, Newport, and Natural American Spirit. The decision, unveiled on Wednesday, underscores the company’s acknowledgment that its traditional market is facing existential challenges amidst increasingly stringent regulations and a growing public awareness of health risks associated with smoking.

BAT, the maker of renowned brands like Lucky Strike and Dunhill, cited a combination of factors contributing to this financial adjustment. Ever-tightening regulations and rising health concerns have led to a decline in cigarette volumes in certain markets, while economic challenges in the United States, where consumers grappling with inflation are opting for cheaper brands, have added to the pressure on the tobacco giant.

The company also pointed to the rise of illicit disposable vapes, posing a threat to its US cigarette division. In response to these challenges, BAT stated that it would modify the accounting treatment of some of its US brands, assigning them a finite lifetime of 30 years. This adjustment will result in an impairment charge of around £25 billion ($31.5 billion).

CEO TadeuMarroco characterized this move as “accounting catching up with reality.” While he expressed doubt that cigarettes would disappear entirely in 30 years, he stressed that it was no longer justifiable to assign an indefinite value to these brands, which currently stand at around $80 billion on BAT’s balance sheet.

Notably, BAT’s decision to start amortizing the remaining value of its US combustibles brands in 2024 marks a groundbreaking acknowledgment within the tobacco industry. This move positions BAT as the first major player in the cigarette market to recognize that the value of its tobacco brands has an expiry date.

In response to the announcement, BAT’s shares experienced a sharp decline of over 8% in early trade, resulting in a loss of about £4 billion ($5 billion) in the company’s overall value. The impact also reverberated to Imperial Brands, whose shares were down more than 2%.

BAT has been actively investing in smoking alternatives such as vapes, and on the same day as the write-down revelation, the company announced its ambition to generate 50% of its revenues from non-combustibles by 2025.

Analysts, acknowledging the industry’s challenges, interpreted BAT’s move as a significant signal about the outlook for cigarettes. James Edwardes Jones of RBC Capital Markets commented, “Goodness, that’s a big number, exemplifying the perils of this industry.”

BAT’s sales in the United States have faced headwinds due to economic pressures and a shift toward vaping among smokers. Marroco envisions that by 2035, half of the company’s sales will come from non-combustibles, reflecting a broader industry trend away from traditional tobacco products.

As regulatory scrutiny intensifies, and consumer preferences continue to evolve, the tobacco industry finds itself at a crossroads, with major players like BAT compelled to adapt to a changing landscape.

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