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British American Tobacco Writes Down Value of Brands by  Billion
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British American Tobacco Writes Down Value of Brands by $31 Billion

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

The company told investors that it had reassessed the “useful economic lives over an estimated period of 30 years” for some brands, mainly in the United States. A company spokesman said the brands affected were Camel, Natural American Spirit, Newport and Pall Mall.

In essence, the announcement reflects an overpayment for Reynolds American, which the group acquired in 2017 in a $49 billion deal, creating the world’s largest publicly traded tobacco business. The write-down, described as “noncash adjusting impairment charge,” is primarily an accounting matter with no effect on its day-to-day operations, but investors reacted negatively to the message about its long-term prospects: British American Tobacco’s shares in London fell to their lowest level in more than 10 years.

British American Tobacco’s sales in the United States have slipped, as high inflation and other economic pressures have pushed smokers to trade down to cheaper brands and what the company describes as “illicit” vapes.

Tadeu Marroco, British American Tobacco’s chief executive, said that by 2035, half of the company’s sale would come from vapes, e-cigarettes and other “non-combustibles” from its stable of brands like Vuse and Glo. About 10 percent of the world’s one billion smokers use these products, offering “vast” scope for growth, he added.

The U.S. Food and Drug Administration is moving toward a ban on menthol cigarettes and has proposed a cut in nicotine levels in cigarettes to make them less addictive. That has led tobacco companies to shift away from cigarettes and toward other nicotine products, reflected in marketing slogans like 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 reflected the shift “from indefinite life to a finite life” for the economic value of its U.S. brands, which it will begin to amortize over the next 30 years. “In that period of time, for sure, there is no way to justify the presence of the brands,” he said.

There are more than 28 million adult smokers in the United States, according to the Centers for Disease Control and Prevention, and smoking-related diseases account for one in five deaths per year. About 10 percent of high school students reported using e-cigarettes, according to a recent C.D.C. survey, versus less than 2 percent who said they smoked cigarettes, a record low. About 40 percent of people who use e-cigarettes are under 25, and a majority of them never smoked before vaping, the C.D.C. said.

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

“It’s noncash and ‘exceptional,’” analysts at RBC Capital Markets wrote, “but goodness, that’s a big number exemplifying the perils of this industry and sending some less than confident signals about the outlook for cigarettes.”