(Reuters) -British American Tobacco said it would take a hit of around $31.5 billion as it writes down the value of some U.S. cigarette brands, acknowledging on Wednesday that its traditional market has no long term future.
BAT (LON:BATS)’s move comes as ever stricter regulation and growing awareness of health risks squeeze tobacco companies’ traditional business, driving declines in cigarette volumes in some markets.
The maker of Lucky Strike and Dunhill cigarettes also pointed to economic challenges in the U.S., where some inflation-weary consumers are downgrading to cheaper brands, and the rise of illicit disposable vapes putting pressure on its U.S. cigarette division.
These factors contributed to the around 25 billion pound ($31.50 billion) non-cash adjusting impairment charge relating to some U.S. cigarette brands, BAT said. Its Newport, Camel, Pall Mall and Natural American Spirit brands were affected, a spokesperson added.
It was assessing the brands’ “carrying value and useful economic lives over an estimated period of 30 years,” BAT Chief Executive Tadeu Marroco said in a statement.
It added that it would start amortising the value of its remaining U.S. combustibles brands in 2024 in its first acknowledgement that their value would, over time, reduce.
BAT’s shares fell more than 8% in early trade to 4-1/2 year lows, wiping about 4 billion pounds of the company’s value.
Imperial Brands (OTC:IMBBY) shares were down more than 2%.
Like rivals, BAT has been investing heavily in smoking alternatives like vapes.
On Wednesday, it added a new ambition to generate 50% of its revenues from non-combustibles by 2025 and said it now expects its business from such “new categories” to break even in 2023, a year ahead of its current projection.
James Edwardes Jones, analyst at RBC Capital Markets, welcomed the ambition given the U.S. charge and a “grim” outlook for BAT.
“Goodness, that’s a big number,” he said of the charge, adding it exemplifies the “perils of the industry” and sends less confident signals about the outlook for cigarettes.
BAT said full-year revenue growth would likely be at the lower end of its 3-5% range. It also expected low single-digit growth in revenue and adjusted profit from operations in 2024.
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