British American Tobacco (BAT), one of the largest stocks on the JSE, on Wednesday lost a tenth of its value, its biggest fall in more than five years, after announcing to the market it will impair £25bn on its Reynolds American unit.
The big impairment coupled with lower growth estimates saw the stock plunge 10.08% to R532, its second steepest fall since 2008. The move wiped R146bn off the company’s market cap.
“Consistent with our vision to ‘build a smokeless world’, and in combination with the current macroeconomic headwinds impacting the US combustibles industry, in 2023 we will take an accounting noncash adjusting impairment charge of around £25bn,” the company’s CEO Tadeu Marroco said in a statement.
“This accounting adjustment mainly relates to some of our acquired US combustibles brands, as we now assess their carrying value and useful economic lives over an estimated period of 30 years. Accordingly, we will commence amortisation of the remaining value of our US combustibles brands from January 2024.”
The group said it expects its new categories to be profitable from 2024 onward.
Stock in Johann Rupert’s Reinet which holds 48.3-million shares in BAT, also weakened on Wednesday, down 2.42% to R436.51.
Rupert told Reinet’s shareholders in the group’s latest annual report the cigarette maker continued to be a fortress, giving it liquidity to pursue other opportunities.
“The investment in BAT provides Reinet with the capacity to fund new opportunities, either from dividend income, through borrowing or through the realisation of part of the investment, and ensures that there is liquidity available at the level of Reinet Fund, including during times of market distress, and to promote long-term performance,” Rupert wrote in the annual report, published in July.
Reinet received €122m in dividends from BAT in the year ended March. At the time, Reinet’s stock in BAT was worth €1.56bn.
Reinet was spun off from Remgro in the midst of the global financial crisis. At the time, BAT was its largest investment. However, the group has rebalanced its portfolio since 2009 and today, BAT — which used to account for about 80% of Reinet’s net asset value — accounts for just 27%.
In May, Bat surprised the market when it announced that its CEO, Jack Bowles, was stepping down with immediate effect and would be succeeded by then CFO Marroco.
BAT warned investors that it expects continued headwinds in 2024 to affect its US business, driven by macroeconomic pressures and the failure to clamp down on illicit disposable vapes.
“As a result, we now expect low-single digit revenue and adjusted profit from operations growth in 2024, on an organic basis at constant rates. Given planned investment phasing and an expected slow recovery in US macros, we also expect our performance in 2024 to be second half weighted,” Marroco said.
The CEO said he had made progress in re-organising the business.
“We are also taking action to strengthen our organisational capabilities. As part of the management board changes announced in June, we created the new corporate and regulatory affairs function to increase external engagement with regulators, policymakers and broader stakeholders.”
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