It’s Not All Smoke at All (It’s a Period of Transformation)

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The recent 9 per cent drop in British American Tobacco shares at the London Stock Exchange is indeed significant. The company announced a non – monetary devaluation of 25 billion pounds on its American brands, indicating challenges in the U.S., which is its largest market.

The link between tobacco use and various diseases is well-established, leading to a decrease in smoking rates in many countries, including the Usa.

There appears to be a shift from prestigious tobacco brands to more ordinary or budget – friendly options. This could be indicative of changing consumer behavior and perceptions towards tobacco products.

The emergence and increasing popularity of vaping and electronic cigarettes offer alternatives to traditional tobacco products. While it’s not the end of the tobacco era per se, it’s clear that the industry is evolving in response to changing market dynamics and consumer behaviors.

Edward Bernays

The era of widespread cigarette consumption, where smoking was a common sight at meetings, cinemas, and social gatherings, (Austrian advisor Edward Bernays identified the cigarette as a symbol of freedom) is indeed coming to an end.

However this doesn’t mean the end of the tobacco industry. Instead, it’s a period of transformation and adaptation. It will likely involve a combination of scientific research, public health considerations, and regulatory compliance.

Companies will need to invest in research and development to create safer products, work with Public Health organizations to ensure their products are used responsibly, and comply with regulations designed to protect consumers.

It’s a challenging time for the industry, but also an opportunity for innovation and growth. Philip Morris International has indeed made significant investments in Bologna, Italy. The company has established the Philip Morris Manufacturing & Technology Bologna center as a result of an investment of over 1 billion euros.

It represents the largest factory built from scratch in Italy in the last 20 years. It employs over 1,700 people and satisfies international demand from more than 82 countries where IQOS, a smoke-free product by Philip Morris, is currently marketed.

In addition, in the autumn of 2021, the new Center for Industrial Excellence was inaugurated in Crespellano, the largest in the world of Philip Morris International for industrialization, process innovation, engineering, and sustainability. This new center is part of a broader investment plan for Italy amounting to around 600 million euros over three years connected to smoke-free products.

Despite the mentioned challenges, British American Tobacco’s outlook has been revised to positive by Fitch Ratings. This is due to expectations of further deleveraging in 2023, improved profitability, and the company’s focus on strengthening its balance sheet.

The company’s credit profile is also supported by a broad next – generation products portfolio, which is expected to accelerate its growth towards profitability by 2024.

The brands subject to devaluation, including Camel, Pall Mall, and Newport, are part of Reynolds American, the American subsidiary of Bat, which is the second largest group in the U.S. for cigarette sales.

The devaluation has reduced the value of these brands by over a third to 42 billion pounds from 67 billion last year in the Bat portfolio. However, this is a strategy, reveals Tadeu Marroco, Ceo of the group that also includes Dunhill, Lucky Strike and Kent, “an accounting adjustment related to the amortization of the residual value of the U.S. brands starting from January 2024”. (Redazione)

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