BAT Writes Down Value of Combustibles
BAT will write down the value of some of its traditional cigarette brands by £25 billion ($31.5 billion) to reflect the diminishing outlook for combustible tobacco products.
The company said the charge—one of the biggest corporate write-downs in recent years—mainly relates to U.S. brands it acquired, as it assesses their carrying value and economic usefulness in the years to come. The brands being written down include Newport, Pall Mall, Camel and Natural American Spirit.
The decline in U.S. cigarette sales has been driven not only by growing health awareness and mounting regulations but also by economic challenges, with consumers downtrading to cheaper brands or illicit products. These trends prompted BAT to adjust the way some of its U.S. brands are treated on its balance sheet, shifting their value to a finite lifetime of 30 years.
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 U.S. combustibles brands in 2024, making it the first of the major cigarette players to acknowledge that its tobacco brands’ value had an expiry date.
With only 10 percent of the world’s 1 billion smokers currently using ‘new category’ products, the long-term opportunity for growth as we deliver on our transformation is vast.
While preparing for a future with lower cigarette sales, BAT reported strong volume and revenue growth from its “new category” products, such as e-cigarettes. Vuse’s value market share, for example, increased 100 basis points to 36.8 percent in key markets.
On Dec. 6, BAT announced a new ambition to generate 50 percent of its revenues from noncombustibles by 2025. “With only 10 percent of the world’s 1 billion smokers currently using ‘new category’ products, the long-term opportunity for growth as we deliver on our transformation is vast,” said Marroco in a statement.
The company expects its business from such “new categories” to break even in 2023, a year ahead of its current projection.
BAT expects its full-year revenue growth to be at the lower end of its 3 percent to 5 percent range. It also expects low single-digit growth in revenue and adjusted profit from operations in 2024.
“We will continue to reward shareholders through our strong cash returns, including our progressive dividend, and, once the middle of our leverage range is reached, we will evaluate all opportunities to return excess cash to our shareholders,” Marroco said.
“I am confident that the choices we are making today will drive our long-term success and deliver sustainable value for all of our stakeholders.”