British American Tobacco (BAT) has revealed that it will be taking a significant £27.3 billion writedown on the value of its U.S. cigarette brands. This writedown comes after the company had previously estimated a £25 billion reduction in December.
According to data from Calcbench, this is the largest writedown by a U.S.-listed company since AOL’s $35.6 billion write-off in 2014. BAT’s decision to write down the value of its cigarette brands is spread over a period of 20 years for Newport and 30 years for Camel, Natural American Spirit, and Pall Mall. Additionally, the goodwill from the 2017 acquisition of Reynolds American will also be impaired.
BAT explained that prior to the COVID-19 pandemic, the cigarette market was declining at a rate of approximately 5% to 5.5% per year. The market remained relatively stable during the peak of the pandemic but experienced a significant collapse in industry volumes, dropping by 10.6% in 2022.
In response to these market dynamics, BAT is redirecting its focus towards smokeless products. The company aims to generate 50% of its revenue from this product category by 2035.
BAT reported an adjusted profit increase of 3.1%, reaching £12.46 billion, with a revenue growth of 1.6% to £27.28 billion in the past year. Its new categories portfolio turned profitable two years ahead of schedule, contributing £398 million in profits.
Despite recent challenges, BAT stock (BATS, +4.72% BTI, -1.18%) saw a 5% surge in early trading, recovering some of its 19% decline over the last 52 weeks.
While no commitment to a stock buyback has been made, the company stated that it will assess opportunities to return cash once its leverage reaches the desired range. Additionally, BAT is exploring potential disposals and “non-strategic market exits.” Analysts at JPMorgan interpreted this as a indication that BAT may sell at least a portion of its stake in ITC 500875, -3.92%, causing shares in the Indian conglomerate to fall.
