BAT writes down $31.5 billion from value of US cigarette brands

FE Team | Published: December 07, 2023 00:31:35

LONDON, Dec 6 (Reuters) : British American Tobacco (BATS.L) 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'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.
BAT said these factors, combined with the broader move away from smoking, meant it would adjust the way some of its U.S. brands are treated on its balance sheet, shifting their value to a finite lifetime of 30 years.
This would result in an around 25 billion pound ($31.50 billion) non-cash adjusting impairment charge, BAT said. Its Newport, Camel, Pall Mall and Natural American Spirit brands were affected, a spokesperson added.
Chief Executive Tadeu Marroco described the move as "accounting catching up with reality".
While he did not believe cigarettes would disappear in 30 years, he said it was no longer possible to justify an indefinite value for those brands equating to around $80 billion on BAT's balance sheet.
BAT added that it would start amortising the remaining value of its U.S. combustibles brands in 2024, making it the first of the major cigarette players to acknowledge its tobacco brands' value had an expiry date.
BAT's shares fell more than 8 per cent in early trade to 4-1/2 year lows, wiping about 4 billion pounds of the company's value.
Imperial Brands (IMB.L) shares were down more than 2 per cent.
Like rivals, BAT has been investing heavily in smoking alternatives like vapes.
On Wednesday, it added a new ambition to generate 50 per cent 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 per cent range. It also expected low single-digit growth in revenue and adjusted profit from operations in 2024.
($1 = 0.7938 pounds)