Stranded assets
As the world moves towards cleaner, healthier alternatives, many businesses are grappling with the concept of stranded assets - assets which have lost their value or usefulness. In a landmark move, British American Tobacco (BAT) recently wrote off £25bn ($31.5bn) in value due to the changed outlook for its cigarette brands, as smoking rates continue to decline and alternatives such as vapes become increasingly popular.
This move reflects the changing attitudes towards not only tobacco, but to traditional, harmful products in general. Companies that fail to adapt and recognize the need for change may find themselves left with stranded assets, a situation that can significantly impact their bottom lines and long-term viability.
British American Tobacco (BAT) wrote off £25bn ($31.5bn) in value due to the changed outlook for brands such as Newport and Camel cutting the brands' worth by more than a third, which unsurprisingly, has sent the company's share price down more than 8%. As an offer which can only exist by causing harm through addiction it has, for some now been an extraordinary concept to grapple with, especially with organisations like ASH providing immutable data:
Worldwide, one in five cancer deaths (22%) is caused by tobacco. Over the years the tobacco epidemic has grown in Low and Middle Income Countries (LMICs), although they are still at an earlier stage of the epidemic than high income countries. LMICs currently account for about 57% of all cases and 65% of cancer deaths worldwide, with lung cancer now being the leading cause of cancer morbidity and mortality among men in these nations. However, it is estimated that, as the tobacco epidemic matures, the future burden of tobacco-related cancers on less economically developed countries is expected to lead to a 70% increase in tobacco-related cancer cases.
BAT is attempting to tackle the issue of lost revenue by shifting its focus to vaping with a goal of having 50% of its revenue from "non-combustible" products by 2035. The company also acknowledged that the useful economic life of its US cigarette brands is now 30 years, rather than indefinite. Yep, that’ll tend to happen when your product kills people.
Equally therefore, as Dr Tedros Ghebreyesus, Director-General World Health Organization says “It makes no sense to fight tobacco on one hand and to finance it on the other.” a case the Excellent Dr bronwyn King, Founder of Tobacco Free Portfolios has very successfully been making for years now and who we’ve had keynote conversations with at RAO events in APAC & Europe.
This acknowledgment is significant, as it marks the first time a major tobacco company has recognized the changes impacting the industry. This write-down has also impacted US-listed tobacco rivals, with shares of Altria and Philip Morris sliding in the wake of this news.
Overall, this move by BAT highlights the importance of acknowledging the changing attitudes towards harmful products and the potential for stranded assets. Companies must adapt or risk sinking under the weight of declining sales and obsolete assets. The future belongs to companies that embrace change and innovation, and this write-down serves as a reminder to all industries that the world is becoming more aware of the potential harm presented by products that are harmful to themselves and the environment.
