British American Tobacco to Write Down $31.5 Billion on U.S. Cigarette Brands
British American Tobacco Acknowledges Decline of U.S. Cigarette Brands
British American Tobacco has announced a write-down of approximately $31.5 billion, recognizing the diminishing value of certain U.S. cigarette brands. The company admitted on Wednesday that the traditional market for these brands has an uncertain long-term future.
Stringent Regulations and Health Awareness Affect Tobacco Companies
This move comes at a time when tobacco companies are facing increasingly strict regulations and a growing public awareness of the health risks associated with smoking, leading to a decline in cigarette volumes in various markets.
Challenges in the U.S. Market and Impact on BAT’s Brands
BAT cited economic challenges in the U.S., including consumers downgrading to cheaper brands due to inflation and the proliferation of illicit disposable vapes, putting pressure on its U.S. cigarette division. These factors contributed to a non-cash impairment charge of approximately $31.50 billion for certain U.S. cigarette brands, affecting brands such as Newport, Camel, Pall Mall, and Natural American Spirit.
Assessment of Brands’ Economic Value
The company’s Chief Executive, Tadeu Marroco, stated that BAT is assessing the carrying value and useful economic lives of the affected brands over an estimated period of 30 years.
Market Response and BAT’s Strategic Shift
Following the announcement, BAT’s shares dropped more than 8% to 4-1/2 year lows, leading to a reduction of approximately 4 billion pounds in the company’s value. As a response to these challenges, BAT has been investing heavily in smoking alternatives such as vapes.
Future Revenue Projections and Focus on Non-Combustibles
BAT aims to generate 50% of its revenues from non-combustible products by 2025 and expects its business from these “new categories” to break even in 2023, a year earlier than previously projected. The company anticipates full-year revenue growth to be at the lower end of its 3-5% range, with low single-digit growth in revenue and adjusted profit from operations in 2024.
Overall Implications and Industry Outlook
This substantial write-down signifies the ongoing challenges faced by the tobacco industry and raises questions about the future of traditional cigarette brands. The overall impact of BAT’s strategic shift and the evolving regulatory landscape will continue to shape the industry’s trajectory in the coming years.
