London — British American Tobacco (BAT) will take a hit of around $31.5 billion as it writes down the value of Camel, Pall Mall and other US cigarette brands, the company said Wednesday, acknowledging that its traditional market has no long-term future.
The move by the maker of Lucky Strike and Dunhill cigarettes comes as ever-stricter regulation and growing awareness of health risks squeeze tobacco companies’ traditional business, driving declines in cigarette volumes in some markets.
BAT (BTI) also pointed to economic challenges in the United States — where some inflation-weary consumers are downgrading to cheaper brands — and the rise of illicit disposable vapes putting pressure on its US cigarette division.
The company said these factors, combined with the broader move away from smoking, meant it would adjust the way some of its US brands are treated on its balance sheet, shifting their value to a finite lifetime of 30 years.
This will result in an impairment charge of around £25 billion ($31.5 billion), 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 does not believe cigarettes will 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 amortizing the remaining value of its US combustibles brands in 2024, making it the first of the major cigarette players to acknowledge that its tobacco brands’ value has an expiry date.
BAT’s shares fell more than 8% in early trade, wiping about £4 billion ($5 billion) off the company’s value.
Imperial Brands shares were down more than 2%.
Like rivals, BAT has been investing heavily in smoking alternatives like vapes.
On Wednesday, it announced a new ambition to generate 50% of its revenues from non-combustibles by 2025.
James Edwardes Jones, analyst at RBC Capital Markets, welcomed the goal given the US charge and a “grim” outlook for BAT.
“Goodness, that’s a big number,” he said of the charge, adding that it exemplified the “perils of the industry” and sent signals about the outlook for cigarettes.
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