British American Tobacco Moves Away From Cigarettes and Writes Down $31.5 Billion

British American Tobacco (BAT) will feel the pinch of around $31.5 billion as it records its losses from a range of its struggling U.S. cigarette brands, including Camel, Pall Mall, and more. Yesterday, the London-based company acknowledged that its traditional market has no long-term future, according to CNN.

Because of the deep decline in the number of smoking consumers, shares of BAT dropped by over 8% on Wednesday, which represents about $5 billion lost in value for the company. Per the Associated Press, this share drop occurred after the owner of Camel and American Spirit cigarettes “took an impairment charge of about $31.5 billion.”

James Edwardes Jones, analyst at RBC Capital Markets, said, “Goodness, that’s a big number,” referring to the charge, adding that it demonstrated the “perils of the industry” and sent a message about the outlook for cigarettes.

BAT said the company is going through a transition of shifting its business model from traditional, combustible products to “smoke-free” ones. CEO Tadeu Marroco described the move as “accounting catching up with reality.”

British American Tobacco’s key focus is to get 50% of its revenue from non-combustibles by 2025. At the moment, combustibles make up about 83% of its sales, according to the data firm FactSet. In 2017, BAT bought Winston-Salem, North Carolina-based Reynolds American Inc. for around $49 billion in cash and stock.

Earlier this year, the Centers for Disease Control and Prevention published a survey, which showed that U.S. cigarette smoking is at a record low, with 1 in 9 adults saying they were smokers. Over the years, the rate has been gradually declining for different reasons, ranging from cigarette taxes and tobacco product price hikes to indoor smoking bans.

It’s not new information that cigarette smoking is a risk factor for lung cancer, strokes, and heart disease, and for a long time, it has been considered the leading cause of death that can otherwise be avoided.

Meanwhile, the CDC survey showed that electronic cigarette use increased to around 1 in 17 adults. These are the customers British American Tobacco is targeting. The company aims to invest in its “new products” business, which includes vapes.