Last Updated on December 7, 2023 by Robert C. Hoopes
British American Tobacco (BAT) has taken a major hit, writing off £25bn ($31.5bn) in value due to the declining outlook for its cigarette brands in the US. The company’s cigarette sales have suffered as smoking rates continue to decline and consumers turn to vaping and other alternatives.
This write-off, which cut the value of BAT’s brands by over a third, has had a significant impact on the company’s share price, causing it to fall more than 8%. However, this move is part of BAT’s strategy to focus on expanding its presence in the vaping market in an effort to revive growth. The company aims to generate 50% of its revenue from “non-combustible” products by 2035.
This write-down by BAT is seen as the first acknowledgement from a major tobacco firm of the changing landscape in the industry. The CEO of BAT, Tadeu Marroco, stated that the write-down was a reflection of accounting catching up with the reality of decreased brand value. He believes it is difficult to justify an infinite value for the brands in the US.
The announcement has also had an impact on US-listed tobacco rivals, with shares in companies such as Altria and Philip Morris falling. BAT’s acquisition of a major US cigarette business in 2017 through its deal to buy rival Reynolds for $49bn made it the largest publicly listed tobacco firm worldwide. However, this write-off shows the challenges that even the biggest players in the industry are facing.
Despite this setback, BAT remains optimistic about its future. Even though it has divested its business in Russia, the company expects organic revenue to increase by at least 3% for the 2023 financial year. This indicates that BAT is confident in its ability to adapt to the changing market and find new avenues for growth.
Overall, this write-off by BAT highlights the impact of changing consumer preferences on the tobacco industry. As smoking rates decline and alternatives such as vaping become more popular, major players like BAT are forced to reassess the value of their traditional cigarette brands. The company’s focus on expanding into the vaping market reflects its determination to stay relevant and find new sources of revenue in a rapidly evolving industry.