According to a Reuters report on December 6th, British American Tobacco announced that it expects to incur a write-down loss of approximately £25 billion ($31.5 billion) due to the reassessment of the value of certain tobacco brands in the United States.
Following the release of the news, the stock price of British American Tobacco (BAT) experienced a decline of 10.2% in London, reaching its lowest level since September 2010. Tobacco stocks listed in the United States were also affected. The stock price of Altria Group Inc. (MO.N) fell by 3.4%, while Philip Morris International Inc. (PM.N) saw a decrease of 2.1%.
British American Tobacco has stated that the challenging environment in the United States, particularly the weak economy and the widespread popularity of illegal disposable e-cigarettes, has had a negative impact on its business and could potentially weigh down its growth in 2023 and 2024.
British American Tobacco (BAT) has reported non-cash impairment losses of £25 billion as a result of economic challenges affecting its US operations and a shift by some consumers to cheaper brands due to "fatigue".
British American Tobacco (BAT) stated in its updated financial report preview that "this accounting adjustment primarily involves some American combustible tobacco brands we acquired, as we now evaluate their book value and estimated useful life to be around 30 years.
The company added that it will begin amortizing the remaining value of its combustible tobacco brand in the United States starting in 2024.
British American Tobacco (BAT) is maintaining its full-year revenue forecast for 2023, expecting a solid organic growth of 3-5% at fixed exchange rates. However, due to mounting pressure in the US and plans to increase investment in new products such as e-cigarettes and nicotine pouches, the growth might be towards the lower end of this range.
The company also stated that these factors imply that projected revenue and adjusted operating profit growth for 2024 will be in the low single digits.
Erika Swore, Vice President of National Communications at the American Lung Association, stated in a press release, "No one should profit from death and disease.
Further Reading:
A write-down is an accounting term that refers to a company reducing the book value of an asset because it believes that the market value or future cash flows of the asset are lower than its previous book value. This adjustment typically occurs when a company no longer expects certain assets it holds to generate the anticipated economic benefits as previously estimated.
In financial statements, companies may write down the carrying value of their assets to their current estimated market value or future cash flow levels. This can include fixed assets, inventory, intangible assets, or other investments.
Budget cuts are typically caused by a variety of factors, including:
Market devaluation: The value of assets in the market decreases, requiring a readjustment of their book value. Technological obsolescence: For assets that rapidly become outdated due to the emergence of new technologies, companies may write down their value. Economic downturn: In times of economic recession, certain assets may be unable to generate the expected economic value and therefore require a write-down.
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