In a seismic shift reflecting the changing landscape of the tobacco industry, British American Tobacco (BAT) announced today a staggering write-down of approximately $31.5 billion, signaling a grim prognosis for the long-term viability of some of its U.S. cigarette brands. The revelation, made on Wednesday, sent shockwaves through the market, causing BAT shares to plummet by as much as 10.2% in London, marking their lowest point since September 2010. The repercussions extended to U.S.-listed tobacco giants, with Altria and Philip Morris shares taking hits of 3.4% and 2.1%, respectively.

This unprecedented move by BAT underscores the harsh realities faced by traditional tobacco companies as stringent regulations and heightened awareness of health risks continue to erode the foundations of their conventional business models. The company's acknowledgment that the era of traditional cigarettes is drawing to a close is emphasized by the substantial write-down, a first of its kind for a major global tobacco firm in a key market like the United States.

BAT attributes the colossal adjustment to economic challenges in the U.S., where inflation-weary consumers are opting for more affordable brands, coupled with the surge in illicit disposable vapes. Citing the broader trend of declining smoking rates, BAT plans to alter the accounting treatment of some U.S. brands, restricting their value to a finite 30-year lifespan. Consequently, a non-cash adjusting impairment charge of approximately £25 billion ($31.50 billion) is anticipated, impacting brands such as Newport, Camel, Pall Mall, and Natural American Spirit.

Tadeu Marroco, BAT's Chief Executive, described the move as "accounting catching up with reality," emphasizing that while he doesn't foresee cigarettes disappearing in 30 years, the indefinite valuation of these brands, amounting to roughly $80 billion on BAT's balance sheet, is no longer tenable.

Anti-tobacco advocates hailed the decline in U.S. cigarette sales but criticized the industry for continuing to invest billions in marketing these products. Erika Sward, National Assistant Vice President of Advocacy for the American Lung Association, asserted, "No one should profit from death and disease."

BAT also announced plans to commence amortizing the remaining value of its U.S. combustibles brands in 2024, positioning itself as the first major player in the cigarette industry to acknowledge the finite shelf life of its tobacco brands' value. Like its competitors, BAT has been heavily investing in smoking alternatives, particularly in the realm of vaping, as it navigates the evolving landscape of tobacco consumption.

In a strategic pivot reflecting the shifting dynamics of the tobacco industry, British American Tobacco (BAT) announced on Wednesday an ambitious target to derive 50% of its revenues from non-combustible products by 2035. This new vision accompanies the revelation that BAT anticipates its business in these "new categories" to break even in 2023, a year earlier than initially projected. The accelerated timeline underscores the company's determination to adapt swiftly to the evolving landscape, particularly in light of the substantial write-down in the value of its U.S. cigarette brands.

James Edwardes Jones, an analyst at RBC Capital Markets, acknowledged BAT's bold ambition, especially in the face of the challenging U.S. market and the overall "grim" outlook for the traditional tobacco sector. Reacting to the staggering $31.5 billion write-down, he remarked, "Goodness, that's a big number," emphasizing how it vividly illustrates the inherent risks and challenges facing the industry. This financial setback, according to Jones, sends a sobering signal about the future prospects of cigarettes.

BAT, in its revised outlook, indicated that full-year revenue growth is expected to align with the lower end of the 3-5% range. Looking ahead to 2024, the company foresees low single-digit growth in both revenue and adjusted profit from operations. These projections underscore BAT's cautious optimism as it navigates the complex terrain of transitioning from combustibles to alternative products.

As the industry undergoes a transformative phase, BAT's commitment to diversifying its revenue streams aligns with broader trends reflecting a growing consumer shift away from traditional tobacco products. The correction in the report clarifies that BAT aims to achieve the 50% revenue target from non-combustibles by 2035, not 2025, emphasizing the company's long-term vision and commitment to embracing change.

Reporting by Emma Rumney; Editing by Sharon Singleton, Elaine Hardcastle, Matt Scuffham, and Mark Porter.

In conclusion, British American Tobacco (BAT) finds itself at a pivotal juncture, responding decisively to the challenges posed by a rapidly transforming tobacco landscape. The announcement of a bold ambition to generate 50% of revenues from non-combustibles by 2035, coupled with an accelerated break-even projection for these "new categories" in 2023, underscores BAT's commitment to adapt to the evolving preferences of consumers and navigate away from the declining traditional cigarette market.

The substantial write-down of $31.5 billion in the value of U.S. cigarette brands serves as a stark reminder of the perils faced by the tobacco industry. Analysts, such as James Edwardes Jones, acknowledge the magnitude of this financial setback, recognizing it as an illustrative example of the industry's inherent risks and signaling a less confident outlook for traditional cigarettes.

BAT's revised projections for full-year revenue growth and the cautious optimism for 2024 highlight the company's pragmatic approach as it steers through a complex transition. The correction clarifying the target date for achieving 50% revenue from non-combustibles by 2035 reinforces BAT's long-term vision and strategic commitment to embracing change.

As BAT navigates these uncharted waters, the company's proactive stance towards diversification aligns with broader industry trends, reflecting a fundamental shift in consumer behavior away from conventional tobacco products. The corrective note serves to provide accurate context to the ambitious targets, emphasizing BAT's resilience and adaptability in the face of an industry in flux.