British American Tobacco makes $47.8b write down on US cigarette brands
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The news: British American Tobacco (BAT) has said it will bear an impairment charge of £25 billion ($47.8 billion) as it is forced to write down the value of its US cigarette brands.
The numbers: BAT recorded Wednesday’s worst performance on the LSE following the results publication with its shares closing at £22.795, down 8.36% on the day, and wiping out £5.1 billion of equity value.
The context: In 2017, BAT expanded into the US with the £40 billion takeover of Reynolds American, which brought the Newport, Camel and Pall Mall brands into the BAT fold. However, since the purchase the cigarette company has struggled to compete with reduced demand for traditional tobacco products alongside pressure from smokeless and vaping products that have surged over the past few years.
BAT has made efforts to pivot toward its commitment to become a “predominantly smokeless business”, aiming to make 50% of its revenue from non-combustibles by 2035. BAT also expects its ‘New Categories’ led by the vape and oral nicotine products, Vuse and Velo, to break even in 2023 and be profitable from 2024.
What they said: On the impairment charges, Tadeu Marroco, CEO of BAT said: “This accounting adjustment mainly relates to some of our acquired US combustibles brands, as we now assess their carrying value and useful economic lives over an estimated period of 30 years. Accordingly, we will commence amortisation of the remaining value of our US combustibles brands from January 2024.”
The source: British American Tobacco
