Shift to e-cigarettes: America Tobacco announces $31.5 billion write-down in brand value

Tobacco giant British American Tobacco, which holds brands such as Camel and Lucky Strike in its portfolio, announced on Wednesday that it would write down the value of its brands by 25 billion pounds ($31.5 billion) due to a slowing economy and smokers turning to electronic cigarettes. A company spokesperson said the affected brands include Camel, Natural American Spirit, Newport, and Pall Mall.

SHARES TUMBLE

This announcement essentially reflects an overpayment for Reynolds American, which the group acquired in a $49 billion deal in 2017 to create the world's largest publicly traded tobacco business. While investors reacted negatively to this announcement regarding long-term expectations, British American Tobacco's shares in London fell to their lowest level in the last 10 years.

HIGH INFLATION AND E-CIGARETTE IMPACT

British American Tobacco's sales in the US have fallen as high inflation and other economic pressures have led smokers to turn to cheaper brands and electronic cigarettes, which the company describes as "illicit."

NEW OPPORTUNITIES FOR GROWTH

British American Tobacco CEO Tadeu Marroco said that by 2035, half of the company's sales will come from e-cigarettes and other non-combustible products such as Vuse and Glo. He added that about 10 percent of the world's 1 billion smokers use these products, which offers "vast" room for growth.

SMOKE-FREE MESSAGES

The US Food and Drug Administration is moving toward banning menthol cigarettes. In this context, the agency has proposed lowering nicotine levels in cigarettes to make them less addictive. This has led tobacco companies to move away from cigarettes toward other nicotine products, which is reflected in marketing slogans such as British American Tobacco's "Build a Smokeless World" and Philip Morris International's "Unsmoke Your World."

1 IN EVERY 5 DEATHS CAUSED BY SMOKING

According to the Centers for Disease Control and Prevention, there are more than 28 million adult smokers in the US, and smoking-related illnesses account for 1 in 5 deaths annually. According to a recent CDC survey, about 10 percent of high school students reported using e-cigarettes, while the rate of those who said they smoke cigarettes was less than 2 percent. The CDC stated that about 40 percent of e-cigarette users are under the age of 25, and most of them had never smoked cigarettes before using electronic cigarettes.

British American Tobacco said it expects its revenue to grow by a low single-digit rate this year, which would outperform sales in the global tobacco industry, which it estimates will shrink by 3 percent. However, the write-down exceeding $30 billion was the most notable issue.

News Source: 12punto