British American Tobacco, the cigarette giant whose portfolio includes Camel and Lucky Strike, said Wednesday it would write down its brands by 25 billion pounds, or $31.5 billion, due to the slowing economy and of the tendency of smokers to vape.
The company told investors that it had reassessed the “useful economic lifespans over a period estimated at 30 years” for certain brands, mainly in the United States. A company spokesperson said the affected brands were Camel, Natural American Spirit, Newport and Pall Mall.
Essentially, the announcement reflects an overpayment for Reynolds American, which the group acquired in 2017 in a $49 billion deal, creating the world’s largest publicly traded tobacco company. The impairment, described as a “non-cash impairment charge”, is primarily an accounting matter with no effect on its day-to-day operations, but investors reacted negatively to the message about its long-term prospects: British American Tobacco shares in London fell to its lowest level in more than 10 years.
British American Tobacco’s U.S. sales have fallen as high inflation and other economic pressures have pushed smokers to cheaper brands and what the company describes as “illicit” vapes. .
Tadeu Marroco, chief executive of British American Tobacco, said that by 2035, half of the company’s sales would come from vapes, e-cigarettes and other “non-combustibles” from its brands like Vuse and Glo. About 10 percent of the world’s billion smokers currently use these products, offering “vast” growth potential, he added.
The U.S. Food and Drug Administration is moving toward a ban on menthol cigarettes and has proposed reducing nicotine levels in cigarettes to make them less addictive. This led tobacco companies to shift away from cigarettes and toward other nicotine products, as evidenced by marketing slogans such as British American Tobacco’s “Build a Smokeless World” and British American Tobacco’s “Unsmoke Your World.” Philip Morris International.
On a call with investors, Mr. Marroco said the writedown reflected a shift “from an indefinite life to a limited life” in the economic value of its U.S. brands, which it will begin to write off over the next 30 years. “In this period, there is certainly no way to justify the presence of the brands,” he said.
There are more than 28 million adult smokers in the United States, according to the Centers for Disease Control and Prevention, and smoking-related illnesses are responsible for one in five deaths annually. About 10 percent of high school students reported using e-cigarettes, according to a recent CDC survey, compared to less than 2 percent who reported smoking cigarettes, a record low. About 40% of people who use e-cigarettes are under the age of 25, and the majority of them never smoked before vaping, the CDC said.
British American Tobacco said it expected revenue growth of a low single-digit percentage this year, which would outpace global tobacco industry sales, which it said would decline by 3 percent. hundred. But it was the depreciation of more than $30 billion that attracted the most attention.
“This is a non-monetary and ‘exceptional’ number,” wrote analysts at RBC Capital Markets, “but boy is it an important number that illustrates the perils of this industry and sends signals that confident about the outlook for the cigarette sector.”
