BAT writes off $31.5 billion worth of US cigarette brands

BAT writes off $31.5 billion worth of US cigarette brands

The illustration shows BAT (British American Tobacco)

A woman stands holding a cigarette in front of the BAT (British American Tobacco) logo in this illustration taken on July 26, 2022. REUTERS/Dado Rovik/Illustration/File Image Courtesy of License:

  • American brands include Newport, Camel, and Pall Mall
  • Full year revenue will likely be at the lower end of the 3-5% range.
  • It wants 50% of its revenue from non-combustible materials by 2035
  • BAT shares are at the lowest price since 2010
  • Shares of Philip Morris and Altria also fell

LONDON, Dec 6 (Reuters) – British American Tobacco (BATS.L) said it would lose about $31.5 billion as it wrote down the value of some U.S. cigarette brands, acknowledging on Wednesday that its traditional market did not need long-term growth. future.

BAT shares fell as much as 10.2% in London to their lowest levels since September 2010. US-listed tobacco stocks were also affected. Altria (MO.N) shares fell 3.4% while Philip Morris (PM.N) shares fell 2.1%.

BAT’s move comes as tougher regulation and growing awareness of health risks are putting pressure on tobacco companies’ traditional businesses, leading to lower cigarette volumes in some markets.

The write-down marks the first time a major global tobacco company has written off the value of its traditional cigarette business in a major market like the United States and underscores the need for the industry to focus on alternatives.

The maker of Lucky Strike and Dunhill cigarettes pointed to economic challenges in the United States, as some inflation-weary consumers turn to cheaper brands, and the rise of illicit disposable e-cigarettes.

BAT said these factors combined with the broader move away from smoking mean it will adjust the way some of its US brands are treated on its balance sheet, shifting their value to a specific life of 30 years.

The company said this would result in non-cash impairment charges of about 25 billion pounds ($31.50 billion). A company spokesperson added that its Newport, Camel, Pall Mall and Natural American Spirit brands were affected.

CEO Tadeo Marrocco described the move as an “accounting attempt to keep up with reality.”

Although he does not believe that cigarettes will disappear within 30 years, he said that it is no longer possible to justify the indefinite value of these brands, equivalent to about $80 billion on the balance sheet of British American Tobacco.

Anti-tobacco lobby groups welcomed the decline in cigarette sales in the United States but said the industry continues to spend billions of dollars to market the products.

“No one should profit from death and illness,” Erica Soward, assistant national vice president of the American Lung Association, said in a statement.

BAT added that it will begin amortizing the residual value of its combustibles brands in the United States in 2024, making it the first major cigarette company to acknowledge that the value of its tobacco brands has an expiration date.

Like its competitors, BAT is investing heavily in smoking alternatives such as e-cigarettes.

On Wednesday it added a new ambition to generate 50% of its revenue from non-combustibles by 2035, and said it now expects its business from these “new categories” to reach breakeven in 2023, a year earlier than its current forecast.

James Edwards-Jones, an analyst at RBC Capital Markets, welcomed the ambition in light of the US accusations and BAT’s “bleak” outlook.

“Oh my God, that’s a big number,” he said of the charge, adding that it embodies “the risks of the industry” and sends less confident signals about the outlook for cigarettes.

Full-year revenue growth is likely to be at the lower end of its 3-5% range, BAT said. It also forecast low-single-digit growth in revenue and adjusted earnings from operations in 2024.

($1 = 0.7938 pounds)

(This story has been corrected to show that British American Tobacco expects 50% of its revenue from non-combustibles by 2035, not 2025, at paragraph 14 and full stop)

(Reporting by Emma Romney) Editing by Sharon Singleton, Elaine Hardcastle, Matt Scuffham and Mark Porter

Our Standards: The Thomson Reuters Trust Principles.

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