British American Tobacco (BAT) will write down the value of its US brands by a massive £25 billion as it said the transition to vapes and the macroeconomic environment in its top market both hit cigarette sales.
BAT said it was now assessing the “useful economic life” of US brands like Newport, Natural American Spirit and Don Draper favourite Lucky Strike over 30 years, leading to the eleven-figure impairment charge. Those brands have struggled this year, with market share declining by four percentage points. BAT blamed some of the decline on the rise of “illicit disposable vapes”.
The tobacco giant also expects revenue for this year to come in at the bottom end of guidance and pushed back its target date to return to mid-single-digit profit growth until 2026.
Jefferies analyst Owen Bennett said there was “little to be positive about from this update”. There was some good news in the “new categories” division, which includes vapes. These are now set to break even this year, two years ahead of previous expectations.
BAT shares lost as much as 8.1% to 2268p. They’re down more than 30% for the year.
Richard Hunter, Head of Markets at interactive investor, said: “The multi-year challenge which the tobacco industry is facing remains in sharp focus, although British American Tobacco is ahead of schedule in its switch towards New Category Products.
“BAT has decided to reduce the intangible value of some of its acquired US combustible brands by some £25 billion, following a review of their likely value over the next 30 years. While this non-cash adjustment does not affect trading performance, it is nonetheless a stark reminder of the switch which needs to be made to different products as consumer tastes change and as regulation becomes a higher hurdle to jump.”