BAT to take £25bn impairment charge on value of US cigarette brands

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British American Tobacco is to write down the value of some of its US cigarette brands by £25bn, in response to “macroeconomic headwinds” hurting combustible sales in its biggest market.

BAT, whose North Carolina-based subsidiary Reynolds American is the second-biggest US tobacco company by sales, on Wednesday booked a £25bn one-off impairment charge on the value of its acquired cigarette brands.

The Dunhill and Lucky Strike maker said competition from illicitly-sold disposable vapes and smokers switching to cheaper cigarette brands or quitting altogether had dragged on US combustible sales, contributing to the writedown.

The carrying value of its US cigarette portfolio will now be amortised over a 30-year period starting from January next year, the group added. Shares in the London-listed group dropped by 7.5 per cent in early morning trading in response to the announcement, slashing its market capitalisation to £51.2bn.

Tadeu Marroco, BAT’s chief executive, said the writedown was “consistent with our vision to ‘build a smokeless world’”, as the cigarette maker aims to derive half of its revenues from safer nicotine alternatives, such as vapes, by 2035.

London-listed BAT has been trying to cut its dependence on traditional cigarettes, but its transition to vapes and heated tobacco products has been sluggish compared with industry rival Philip Morris International.

“In combustibles, while the US macroeconomic environment remains challenging, I am encouraged that our commercial plans are starting to deliver early signs of portfolio recovery,” added Marroco.

Global tobacco industry sales volumes will be down about 3 per cent this year, the group added, while reaffirming guidance for its own revenues this year.

While BAT said its year-to-date volume share in the US was still down, the group said its commercial plans “continue to show early signs of share recovery” with a 0.5 per cent improvement in cigarette volume shares between January and October driven by sales of its Newport, Natural American Spirit and Lucky Strike brands.

Responding to the writedown in an analyst note, Rae Maile, an analyst at Panmure Gordon said: “It is headline grabbing, inevitably, but also worth bearing in mind is that 30 years is an awfully long time to be generating a considerable sum of cash.”