The maker of Lucky Strike and Pall Mall cigarettes says its smoking business in the US is dying out.
British American Tobacco (BAT) wrote off £25bn ($31.5bn) in value due to the changed outlook for brands such as Newport and Camel. The move cut the brands' worth by more than a third, and sent the company's share price down more than 8%.
BAT cigarette sales have struggled as US smoking rates fall and buyers turn to vapes and other alternatives. Demand for its brands has also dropped as buyers squeezed by higher prices prioritise other purchases or opt for cheaper packs.
BAT has been trying to re-ignite growth with vaping products. It hopes to have 50% of its revenue from “non-combustible” products by 2035. It said it now considered that its US cigarette brands had a useful economic life of 30 years, rather than an indefinite one.
The write-down is the first such acknowledgment by a major tobacco firm of the sea change hitting the industry. In a trading update, chief executive Tadeu Marroco said the move was “accounting catching up with reality”.
“It's very difficult to defend the existence of an infinite value for some of these brands in the US,” he said.
“I'm not saying that combustible cigarettes will disappear in 30 years in the US – I really don't believe that – but you cannot justify the value of those brands,” he said.
“It's reflecting the increased interest of US smokers with new categories,” he said, adding, “This is happening elsewhere and not just in the US.” After the announcement, shares in US-listed tobacco rivals fell, with Altria down more than 3%, while Philip Morris shares slid more than 2%.
BAT acquired a major US cigarette business in 2017, when it announced a deal to buy rival Reynolds for $49bn, creating the world's largest publicly listed tobacco firm. The brands in question had a value worth roughly £80bn before the adjustment, Mr Marroco said.
Overall, the firm said it expected organic revenue to rise at least 3% for the 2023 financial year, despite divesting its business in Russia in September. It said that outside of the US, sales of traditional cigarettes continued to perform well.
— CutC by bbc.com
