Maker of Camel and Newport cigarettes cuts the value of US brands by $31 billion

British American Tobacco, the cigarette giant whose portfolio includes Camel and Lucky Strike, said Wednesday it would write down the value of its brands by 25 billion pounds (or $31.5 billion) due to the slowing economy and a shift toward vaping among smokers.

Company told investors that it had reassessed the “useful economic life over an estimated period of 30 years” for some brands, especially in the United States. A company spokesperson said the affected brands include Camel, Natural American Spirit, Newport and Pall Mall.

Essentially, the announcement reflects an overpayment for Reynolds American, which the group acquired in 2017 in a $49 billion deal that created the world’s largest publicly traded tobacco company. The write-down, described as a ‘noncash impairment adjustment’, is primarily an accounting matter with no impact on day-to-day operations, but investors reacted negatively to the message about the long-term prospects: British American Tobacco shares in London fell to its lowest level in more than a decade.

British American Tobacco’s sales in the United States have fallen as high inflation and other economic pressures have pushed smokers to switch to cheaper brands and what the company describes as “illegal” vapes.

Tadeu Marroco, CEO of British American Tobacco, said that by 2035, half of the company’s sales would come from vapes, e-cigarettes and other “non-combustibles” from brands such as Vuse and Glo. About 10 percent of the world’s billion smokers currently use these products, which offers “huge” opportunity for growth, he added.

The U.S. Food and Drug Administration is moving toward a ban on menthol cigarettes and has proposed lowering the nicotine content in cigarettes to make them less addictive. This has led tobacco companies to switch from cigarettes to other nicotine products, reflected in marketing slogans such as British American Tobacco’s ‘Build a Smokeless World’ and Philip Morris International’s ‘Unsmoke Your World’.

On a call with investors, Mr. Marroco said the write-down reflects the shift “from an indefinite life to a finite life” in the economic value of its U.S. brands, which the country will begin to depreciate over the next 30 years. “During that period there is certainly no way to justify the presence of the brands,” he said.

According to the Centers for Disease Control and Prevention, there are more than 28 million adult smokers in the United States, and smoking-related diseases are responsible for one in five deaths each year. According to a recent CDC survey, about 10 percent of high school students reported using e-cigarettes, compared to less than 2 percent who said they smoke cigarettes, a record low. About 40 percent of people who use e-cigarettes are under the age of 25, and the majority of them have never smoked before vaping, according to the CDC.

British American Tobacco said it expected sales to grow by a low single-digit percentage this year, which would outpace sales in the global tobacco industry, which is estimated to shrink by 3 percent. But the write-down of more than $30 billion attracted the most attention.

“It’s non-cash and ‘exceptional,’” RBC Capital Markets analysts wrote, “but hey, that’s a big number that illustrates the dangers of this sector and sends few confidence-inspiring signals about the outlook for cigarettes.”