(MENAFN) Shares of British American Tobacco (BAT) experienced a significant decline following the announcement of a USD31.5 billion impairment charge, primarily attributed to the challenges faced by its U.S. cigarette brands, including Camel and American Spirit. The impairment reflects the declining number of smokers in the U.S., prompting BAT to reevaluate its strategy and transition towards "smoke-free" products. The company aims to derive half of its revenue from non-combustible alternatives by 2035, with traditional combustible products currently accounting for approximately 83 percent of its sales, according to FactSet data.
In 2017, BAT acquired Reynolds American Inc., based in Winston-Salem, North Carolina, for approximately USD49 billion in cash and stock. However, the evolving landscape of tobacco consumption in the U.S. has presented challenges, with a recent Centers for Disease Control and Prevention survey indicating a historic low in U.S. cigarette smoking, with 1 in 9 adults reporting as current smokers. This marks a substantial decline from the mid-1960s when 42 percent of U.S. adults smoked. The shift is attributed to factors such as cigarette taxes, price hikes, smoking bans, and changing social attitudes towards smoking in public.
As cigarette smoking continues to decline, BAT is redirecting its focus towards alternative products. The company plans to invest in its "new products" business, which includes vaporizers and other non-combustible alternatives. The decline in BAT's shares, which fell by 8.6 percent to USD28.82, also impacted other tobacco companies, with Altria experiencing a 2.75 percent drop and Philip Morris losing 1.5 percent. The challenges faced by traditional tobacco companies underscore the industry's need to adapt to changing consumer preferences and health considerations, pushing companies to explore innovative and less harmful alternatives to traditional cigarettes.
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