In a stark acknowledgment of changing consumer habits and industry dynamics, British American Tobacco (BAT), the manufacturer of iconic cigarette brands such as Lucky Strike and Pall Mall, has written off a staggering £25 billion ($31.5 billion) in value.

This move reflects a transformed outlook for its US-based brands, including Newport and Camel, whose worth has plummeted by over a third. Consequently, BAT’s share price witnessed a substantial decline of more than 8%.

The decline in BAT’s cigarette sales is attributed to the dwindling smoking rates in the United States, where consumers are increasingly turning to alternatives such as vaping.

Additionally, the demand for traditional cigarette brands has waned as consumers, grappling with higher prices, shift their priorities to different purchases or opt for more economical cigarette packs.

Recognizing the need to adapt to evolving consumer preferences, BAT has been striving to revitalize its growth through the introduction of vaping products.

The company envisions that by 2035, 50% of its revenue will be derived from “non-combustible” products. This strategic shift underscores BAT’s commitment to aligning itself with the changing landscape of tobacco consumption.

In a groundbreaking move, BAT conceded that its US cigarette brands now have a useful economic life of 30 years, as opposed to the previously assumed indefinite lifespan.

This write-down is a significant industry development, representing the first acknowledgment by a major tobacco firm of the substantial shifts impacting the sector.

In a trading update, BAT’s CEO, Tadeu Marroco, characterized this move as “accounting catching up with reality.”

He emphasized the challenges in defending the notion of infinite value for certain brands in the US market, asserting, “It’s very difficult to defend the existence of an infinite value for some of these brands in the US.”

Marroco expressed skepticism about the complete disappearance of combustible cigarettes in the US within 30 years but argued that the reevaluation reflects the heightened interest of US smokers in new product categories.

Importantly, he noted that this trend is not exclusive to the US but is a global phenomenon.

Following BAT’s announcement, shares in US-listed tobacco rivals experienced declines, with Altria seeing a decrease of over 3%, and Philip Morris witnessing a slide of more than 2%.

BAT had acquired a significant US cigarette business in 2017 through the purchase of Reynolds for $49 billion, resulting in the creation of the world’s largest publicly listed tobacco firm.

Before the adjustment, the brands affected by the write-down had a combined value of approximately £80 billion.

Despite the challenges in the US market, BAT remains optimistic about its overall performance, anticipating organic revenue to rise by at least 3% for the 2023 financial year.

This outlook is maintained even after BAT divested its business in Russia in September.

The company highlighted that outside the US, sales of traditional cigarettes continue to exhibit strong performance, underscoring the importance of diversification in navigating the complexities of the global tobacco landscape.

last Updated: 07 December 2023