British American Tobacco has written off £25billion from the value of its US cigarette business due to people switching to smokeless alternatives and tough trading conditions.
Chief executive Tadeu Marroco said it is assessing both the “value and useful economic lives” of its US cigarette brands, which include Lucky Strike, Newport, Pall Mall and Camel.
BAT believes they will only have value for another 30 years and Marroco said it had become “very difficult to defend” the £80billion valuation the brands have on its balance sheet. He said: “The accounting is basically catching up with the reality of the US market.”
Aside from people being aware of the health risks, BAT’s US business has suffered as inflation has made smokers switch to cheaper brands and the rise of “illicit modern disposable” vapes.
Additionally, it said the performance of its flagship heated tobacco product Glo has been disappointing. Given the lagging performance of its US cigarettes business, BAT predicts its revenues will see low single digit growth this year.
It also expects revenue and profits growth to be weak in 2024. At the same time, BAT’s smokeless products or “new categories” unit will hit breakeven in 2023, two years ahead of schedule.
BAT’s wants half of its revenues to come from new categories by 2035 and as around 10% of the world’s one billion smokers use a smokeless product, it says the long-term opportunity is “vast” and will invest accordingly.
AJ Bell investment director Russ Mould said while BAT had taken a long-term view by accelerating investment into smokeless products, it is going to weigh on its shares.
He added: “It’s going to have a negative impact on near-term financial results and so the share price has fallen once again and is down 30% year-to-date.
“While it pays a generous dividend, investors are likely to be questioning their commitment given the poor share price performance and the fact the sector faces regulatory and political headwinds.”