British American Tobacco has taken a £25billion hit as smokers turn away from cigarettes.
The Lucky Strike and Dunhill maker will write down the value of some of its US brands as tobacco sales tumble.
The company said Camel, Natural American Spirit, Newport and Pall Mall – which were acquired in a £40billion takeover of cigarette giant Reynolds American in 2017 – are now worth far less than anticipated.
The write off sent shares down 8.4 per cent, wiping £4.7billion off its value.
The industry is increasingly shifting to alternatives such as vapes as more and more smokers quit.
Stubbed out: BAT, which makes Lucky Strike and Dunhill cigarettes, said it will write down the value of some of its US brands as tobacco sales tumble
BAT also highlighted the rise of illegal vapes and ongoing economic struggles for the decline in value of its brands.
Tadeu Marroco, who was promoted to BAT chief executive in May, said that although he did not believe the cigarette brands would disappear in the next three decades, it was no longer possible to justify their £67billion value on BAT’s books.
The company said it would log a so-called impairment charge of £25billion on their value and gradually write off the remaining £42billion from next year.
Marroco, who was BAT’s finance boss, said the update was ‘consistent with our vision to build a smokeless world’. It aims to make half its revenues from safer nicotine alternatives, such as vapes, by 2035.
He added it was ‘clear that now is the right time’ to invest further to speed up the shift to tobacco alternatives.
Vapes and heated tobacco made up just 10 per cent of BAT’s revenues last year.
The investment needed to hit its targets, as well as the downturn in the US, led BAT to cut its revenue and profit forecasts for next year.
But the group said it expects vaping and heated tobacco products, which include Vuse and Glo, to ‘broadly break even’ this year, which is two years ahead of schedule.
James Edwardes Jones, an analyst at RBC Capital Markets, said the overall outlook for BAT – which was founded in 1902 and employs about 50,000 staff – was ‘grim’ and ultimately underscored the ‘perils of the industry’.
Big tobacco has been on a mission to move away from tobacco in recent years as the number of regular smokers continues to slump. But this shift towards vapes is often a costly operation.
It needs heavy investment, and foreign players such China’s Elf Bar are flooding the vape market, providing fierce competition.
City analysts have previously slammed BAT’s performance as sluggish compared with its larger US competitor Philip Morris International (PMI), the maker of Malboro.
Products such as heated tobacco and e-vapes account for nearly 35 per cent of total annual revenues at PMI.
Rae Maile, a tobacco analyst at Panmure Gordon, said: ‘BAT was an outlier in having so much brand value capitalised on its balance sheet resulting from the acquisition of Reynolds American.
This is not an issue for other companies where brands have either been homegrown or were acquired much longer ago, at much lower valuations.’
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