British American Tobacco swings to loss on US writedown

In its preliminary results for the year to the end of December 2023, the company said it swung to a reported loss from operations of £15.75bn from a profit of £10.52bn the year before, impacted by a £27.6bn non-cash impairment charge mainly related to the US business.

BAT said group revenues ticked up 1.6% to £27.28bn, with revenue from new categories up 15.6% at £3.35bn. This was driven by Vuse and Velo, it said, with revenue from non-combustibles now making up 16.5% of group revenue.

The company pointed out that new categories achieved profitability in 2023, two years ahead of the original target.

Chief executive Tadeu Marocco said: "2023 was another year of resilient financial performance and delivery in line with our guidance, underpinned by our global footprint and multi-category strategy, despite a challenging macro-environment.

"New categories delivered continued volume-led revenue growth and increased profitability, driven by Vuse and Velo. As a result, our new categories portfolio has turned profitable two years ahead of our original target.

"In combustibles, our commercial plans in the US are enabling early signs of portfolio recovery. AME and APMEA performed well, with a strong revenue and profit performance, led by our well-balanced portfolio."

At 0910 GMT, the shares were up 6.7% at 2,474.50p.

Russ Mould, investment director at AJ Bell, said: "Usually, a company announcing losses running into the tens of billions of pounds wouldn’t be cause for celebration among investors. However, British American Tobacco has done just that this morning and been rewarded with share price gains.

"The impairments which have tipped British American Tobacco into a mega loss are non-cash items, relating to a write-down of the value of its acquisition of the part of Reynolds American it did not already own in 2017. While the size of the write-down has grown slightly, it was previously flagged in December.

"There was also a nugget of good news in today’s results for the market to latch on to - the company has hit profitability with its ‘new categories’ products.

"These include its big vaping brands Vuse and Velo and these ‘new categories’ sales are seen as the company’s answer to declining levels of cigarette smoking in the West.

"Heated tobacco products are another area British American Tobacco is looking to expand in - although rival Philip Morris has stolen a march on the company in this market.

"As the push for new rules on vaping in the UK demonstrate though, the regulatory pressure on British American Tobacco is likely to remain unrelenting."

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "Investors have shrugged off the £15.7 billion loss reported by British American Tobacco, after writing down the value of its US business. Instead, the focus is on the progress made by its vaping brands. The firm will be exhaling a sigh of a relief that it has reached underlying profitability in its new categories division ahead of schedule, driven by the success of products Vuse and Vue.

"The group was early to recognise changes in consumer behaviour and understandably is increasingly pinning its hopes for the future on its portfolio of 'smokeless' products, so this progress has pleased the market. There are challenges ahead still with this area of business, given that vapes are coming under increasing regulatory scrutiny in some countries, and higher taxes may well be slapped on packages in the future."

BAT also said on Thursday that it has been "actively working for some time" on monetising its shareholding in India's ITC.

"Our shareholding in ITC has existed in one way or another since the early 1900s and is subject to numerous share capital changes and regulatory restrictions," it said.

"We have been actively working for some time on completing the regulatory process required to give us the flexibility to monetise some of our shareholding and will update you at the earliest opportunity."