December 2025: Fitch Affirms Imperial Brands’ “BBB” Credit Rating. Outlook Stable
Fitch Ratings affirmed Imperial Brands’s long-term issuer default rating (IDR) and senior unsecured instrument rating at “BBB”. The outlook on the IDR is Stable. The rating reflects Imperial’s concentration on the cash-generative, profitable yet mature combustible tobacco markets. Pricing supports revenue growth, even though sales volumes are structurally declining, and Imperial is making progress in market share in next generation products (NGPs), although from a low base. The rating also incorporates Imperial’s conservative financial structure, consistent with the lower end of its leverage target. Fitch views disciplined capital allocation and a prudent financial policy as key supports to the “BBB” rating, given the moderate growth profile of the core business.
Key Rating Drivers:
– Core Market Resilience: Fitch expects Imperial’s market share to remain broadly stable in core combustible categories, where its pricing power will offset structural sales volume declines. Imperial’s focus on stabilising shares in its five key combustible markets, combined with a targeted strategy to develop a diversified NGP portfolio and scale it to profitability, has enhanced its resilience in combustibles while enabling cost-efficient NGP revenue growth. This, alongside Imperial’s planned £320 million savings program, should support about a 100bp EBITDA margin increase by FY30 (year-end: September 2030).
– Continued Expansion in NGPs: Fitch expects sustained double-digit sales growth in the NGP segment, which will drive low single-digit revenue growth over FY26-FY29. The contribution of the combustible cigarette market will still represent above 90% of Imperial’s total revenue by FY28, but the NGP category should contribute around half of the group’s total growth over the period. In FY25, NGPs represented 4.4% of its total revenue.
– Strong Free Cash Flow: Operating margin improvement and moderate CAPEX (around £300-£350 million a year) should translate into strong free cash flow (FCF) margins at 5%-7% for FY26-FY29 with annual dividends normalising towards £1.2-£1.3 billion a year. Consequently, Imperial’s strong liquidity and enable a continuation of share buybacks after FY26.
– Capital Allocation Focus, Financial Policy: The Stable Outlook reflects Imperial’s adherence to its guidance of remaining at the lower end of its 2.0x-2.5x net debt/EBITDA target over FY26-FY30, which translates into Fitch-calculated EBITDA net leverage of 2.1x-2.2x. This suggests ample rating headroom across the rating horizon, assuming no material CAPEX increases or M&As, while incorporating a confirmed £1.45 billion share buyback in FY26 and future distributions that could gradually increase to £1.6 billion by FY29.
– Regulatory Risk Lower than Peers: Fitch views regulatory pressures around tobacco consumption as an event risk in the industry. However, Fitch sees lower regulatory risk for IMB than peers due to its smaller presence in NGPs, which are less regulated than traditional tobacco products, but are attracting increased scrutiny with greater scope for regulators to act and disrupt. Imperial’s strategic focus on combustibles in five established developed markets – where regulatory changes are consistent and gradual – reduces volatility risk stemming from regulatory shifts.
– Weak Consumers Benefit Value Brands: Fitch expects lower-income consumers to continue to face budget pressure in the US in 2026. IMB’s position, with its greater focus on the mid- to low-price segment than its larger peers, helps sustain its market share in the US, similarly to FY25. Imperial’s combustible volumes should decline more slowly than the overall US combustible market over the medium term.
Peer Analysis:
Imperial Brands is a geographically diversified tobacco company with a focus on developed markets and a strong presence in the medium- and low-priced segment compared with global peers. Its lower rating than Philip Morris International (A/Stable) and British American Tobacco (BBB+/Stable) reflects more limited geographical and NGP diversification. Imperial will continue to lag its peers in NGPs given its selective growth strategy while this weakness is mildly offset by a lower regulatory risk profile.
Imperial’s IDR is at the same level as Altria (BBB/Stable) – the industry leader in the US cigarette market with its Marlboro franchise. However, Altria’s BBB rating reflects a constrained business profile due to limited geographic diversification and reliance on the US market.
Key Rating-Case Assumptions:
– Constant-currency tobacco & NGP net revenue growth of 2%-2.5% a year for FY26-FY29
– EBITDA margin, based on net economic revenue (excluding duty, distribution and peripheral product sales), gradually increasing to above 44% in FY27 from 42.5% in FY25
– Gross CAPEX at c.1.7% of net revenue in FY26-FY29
– Total dividend distribution to reduce below £1.3 billion in FY26 from £1.5 billion in FY25 that included the one-off impact of quarterly dividend payment introduction. Dividends to gradually decrease towards £1.2 billion by FY29 as the effect of share buybacks is counterbalanced by a 5% annual increase in dividend per share
– Share buybacks of £1,450 million in FY26, gradually increasing to £1,600 million by FY29. No M&As.
– Estimated $400 million payment in 2026 for the settlement over the lawsuit linked to the four brands purchased from Reynolds American in 2015
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
A heightened business risk profile, due to loss of market share, reducing diversification, or a weakening of Imperial’s brand portfolio. Net EBITDA leverage above 2.5x, due to weakening operating performance or capital allocations not being aligned with Imperial’s communicated financial policy. Diminished profitability and/or increased investments constraining annual FCF margins to below 3% on a sustained basis. EBITDA interest cover below 8x.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
Tightening of Imperial’s financial policy leading to a financial structure in line with a higher rating. Trading environment in Imperial’s core markets not permanently challenged by increasingly hostile regulations. EBITDA margin above 48% (FY25: 42.5%, based on net economic revenue), as effective cost rationalisation offsets moderate pricing power. Net EBITDA leverage below. EBITDA interest cover above 10x.
Liquidity and Debt Structure:
At the end of FY25, Imperial Brands had £1.2 billion of unrestricted cash (as defined by Fitch) and undrawn committed revolving facilities of €2.8 billion available until March 2029. This leads to an overall adequate liquidity cushion to meet short-term debt of £1.1 billion due in FY26. Imperial also has access to £700 million of bilateral committed credit facilities maturing in September 2026. Most debt is composed of bonds issued by wholly-owned Imperial Brands Finance.
April 2025: Fitch affirms Imperial Brands’ credit rating at “BBB”. Outlook Stable
Fitch Ratings affirmed Imperial Brands’s long-term Issuer Default Rating (IDR) and senior unsecured instrument rating at “BBB”. The outlook on the IDR is Stable. Fitch also assigned an expected short-term rating of “F2(EXP)” to Imperial Brands Finance’s planned $3 billion US Commercial Paper Pprogramme (USCP).
The “BBB” rating reflects Imperial’s focus on cash-generative and profitable, but mature, combustible tobacco markets. These continue to have structurally declining volumes, but the company benefits from price increases and market share progress in the growing Next-Generation Products (NGP) category, albeit from a low base. It also reflects Imperials’s conservative financial structure, which is aligned with the lower end of the group’s leverage target. Imperial’s disciplined capital allocation and financial policy are crucial supporting factors for the “BBB” rating as its emphasis on mature markets results in only moderate growth expectations for the core business.
Key Rating Drivers:
– Strategy Implementation on Track: Imperials’s rating reflects a good record of strategy implementation for maintaining its share in its Top-5 priority markets, with aggregated weighted market share gains and regained net revenue growth in its NGP segment in FY22-FY24 (ends in September). Imperial’s focus on mature and highly regulated combustible tobacco markets with harsh competition and structural volume declines weighs on growth. However, this strategy also means reduced investment needs following a more targeted NGP approach, while the growing scale of NGPs and the efficiency programme aiming at £320 million savings in FY27-FY30 will support profitability over the medium term.
– Moderated but Steady Growth Assumed: Fitch expects sustained double-digit growth in Imperial’s NGP segment, which will drive low single-digit revenue growth over rating horizon to FY25-FY28. The contribution of the combustible cigarette market will still represent above 90% of Imperial’s total revenue by FY28, but the NGP category should contribute around half the group’s total growth over the period. At present, NGPs represent 4% of total revenue. The rating case assumes average sales CAGR of 2.2% on a constant-currency basis to FY28 and a mildly improving Fitch-defined EBITDA margin based on net economic revenue in FY25-FY27 to above 44%, from 42.4% in FY24, as strong pricing in combustibles to offset volume contraction and gradually reduce losses from NGPs. Free Cash Flow (FCF) generation will remain resilient at 4%-6% of sales, supporting liquidity and enabling the implementation of multi-year share buyback.
– Capital Allocation Focus, Financial Policy: The Stable Outlook reflects adherence to the guidance of remaining at the lower end of its 2.0x-2.5x net debt/EBITDA target over FY25-FY30. This translates into Fitch-calculated 2x net leverage in FY25, which will be unchanged to FY28. This leverage profile is well within the sensitivities based on operating assumptions and assumes the absence of meaningful acquisitions or significant CAPEX increases. It also considers the multi-year share buyback program, with a confirmed increase to £1.25 billion in 2025, which will continue in 2026-2030 with further increases.
– Regulatory Risk Lower than Peers: Regulatory pressures around tobacco consumption is an event risk in the industry, particularly in the US. However, the regulatory risk for Imperial is lower than peers due to its smaller presence in NGPs, which are less regulated than traditional tobacco products, but are attracting increased scrutiny with greater scope for regulators to act and disrupt. Imperial’s strategic focus on combustibles in five established developed markets with strong and stable regulation also reduces its exposure to regulatory risk compared with peers (Tobacco Insider note: this argumentation is flawed as increased regulation in NGPs could be positive for the tobacco majors as it inevitably leads to market consolidation and “monopolistic profits” in the vape and nicotine pouch category. The best counter-argument is the consolidated heated tobacco category which is strictly regulated when compared to the other two NGP categories).
– Weak Consumers Benefit Value Brands: Fitch expects low consumer confidence in the US to worsen in 2025. Imperial is well placed to continue to gain market share in the US given its greater focus on the mid- to low-price segment than its larger peers, and Imperial’s combustible volumes will decline more slowly than the US market in the medium term. Imperial’s market share continued to decline in the UK in 2024, although it improved in the US, Spain, Australia and Germany.
Peer Analysis:
Imperial is a geographically diversified tobacco company with a focus on developed markets and a strong presence in the medium- and low-priced segment compared with global peers. Its lower rating than Philip Morris International (A/Stable) and British American Tobacco (BBB+/Stable) reflects more limited geographic diversification. Imperial lags its peers in NGPs given its selective growth strategy in this area. This weakness is mildly offset by Imperial’s lower regulatory risk profile.
IMB’s IDR is at the same level as Altria (BBB/Stable). Altria is the industry leader in the US cigarette market with its Marlboro franchise. However, its “BBB” rating reflects a constrained business profile due to Altria’s limited geographic diversification, and reliance on the US market and associated regulatory risk.
Key Assumptions:
– Net revenue growth: 1.4% in 2025 and on average at 2.5% a year for FY26-FY28 at constant FX
– EBITDA margin: Gradually increasing from 42.4% in FY24 to above 44% in FY27 (excluding duty, distribution and peripheral product sales)
– CAPEX: at around 3.2% of net revenue in FY25-FY28
– Dividend Distribution: £1.5 billion in 2025, expected to reduce gradually to £1.3 billion in FY28 due to the effect of share count reduction counterbalanced by 3%-5% annual increase in dividend per share
– Share buybacks: £1.25 billion in FY25, gradually increasing to £1.5 billion in FY26-FY28
Rating Sensitivities:
– Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: A heightened business risk profile, due to loss of market share, reducing diversification, or a weakening of Imperial’s brand portfolio, Net EBITDA leverage above 2.5x, due to weakening operating performance or capital allocations not being aligned with Imperial’s communicated financial policies, Diminished profitability and/or increased investments constraining annual FCF margins to below 3% on a sustained basis, EBITDA interest cover below 8x
– Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: Tightening of Imperial’s financial policy leading to a financial structure in line with a higher rating, Trading environment in Imperial’s core markets not permanently challenged by an increasingly hostile regulatory environment, EBITDA margin above 48% (FY23: 43%), as effective cost rationalisation offsets weak pricing power, Net EBITDA leverage below 2x, EBITDA interest cover above 10x
Liquidity & Debt Structure
At FY24, Imperial had £861 million of unrestricted cash and undrawn committed revolving facilities of €3.1 billion available until September 2027, €184 million until March 2026 and €184 million until September 2025. This leads to an overall adequate liquidity cushion to meet short-term debt of £1.2 billion due in FY25. Imperial also has access to £700 million of bilateral committed credit facilities maturing in September 2025. Most debt is composed of bonds issued by wholly owned Imperial Brands Finance.
April 2024: Fitch affirms Imperial Brands’ credit rating at “BBB”. Outlook Stable
Fitch affirms Imperial Brands’ credit rating (long-term issuer and senior unsecured debt) at “BBB” and keeps the outlook at Stable1. The “BBB” rating reflects Imperial’s focus on cash-generative (profitable) but structurally-declining combustible tobacco markets, supplemented by a selective Next Generation Product (NGP) offering, as well as a conservative financial structure (leverage target). Disciplined capital allocation and financial policy remain key to maintaining the “BBB” rating as the mature market focus results in moderate business growth assumptions.
Rationale for the Rating
– Strategy implementation on track: Focus on achieving a stable overall share in core (mature & highly regulated) markets that can be characterized by stiff competition and structural volume declines (weighing on growth and profitability). Targeted NGP approach resulting in less investment needs. Presence in selective emerging markets offering growth and margin expansion potential while balancing against the developed markets’ demand predictability.
– Moderated but steady growth assumed: Cigarette revenue as the key growth driver. Limited contribution from NGPs (3% of Imperial’s net revenue in FY23). Average sales CAGR of 1.4% to FY26. Slightly improving (Fitch-defined) EBITDA margin to 44% in FY24-FY27 (vs. 43% in FY23) as a result of strong pricing and smaller NGP losses. Free cash flow (FCF) generation to remain resilient at 5%-6% of sales, supporting liquidity and enabling multi-year share buybacks.
– Capital allocation focus & financial policy: Adherence to the lower end of 2.0x-2.5x net debt / EBITDA target (Fitch-calculated 2x net leverage in FY24). No large-scale acquisitions or significant capex increases. Multi-year share buyback program (£1.1Bn in FY24).
– Regulatory risk lower than peers: Lower exposure to NGPs, which are less regulated and attracting increased scrutiny with greater scope for regulators to act and disrupt. Focus on five established developed markets with strong and stable regulation.
– Benefit from down-trading: Well-placed to gain market share in the US given its larger focus on the mid-to-low price segments.
Comparison
Imperial’s rating is lower than PMI (A/Negative) and BAT (BBB+/Stable) due to its limited geographical diversification and muted progress in NGPs – partially offset by the lower regulatory risk profile. Imperial’s rating is at the same level as Altria (BBB/Stable).
Key Assumptions
– Constant-currency net revenue growth: 1.4% p.a. to FY27
– EBITDA margin: around 44% in FY24-FY27
– Capex: 2.5% of revenue in FY24-FY27
– Annual dividend per share: growing at mid-single digits to FY26
– Share buybacks: £1.1Bn in FY24, increasing by 10% per year in FY25-FY27
Catalysts for future rating action
– Positive: Tighter financial policy; More favorable trading environment in core markets; EBITDA margin above 48% (effective cost rationalization); Net EBITDA leverage below 2x; EBITDA interest cover above 10x
– Negative: Heightened business risk profile (shares losses, reducing diversification or a weakening brand portfolio); Net EBITDA leverage above 2.5x; Annual FCF margins to below 3% on a sustained basis; EBITDA interest cover below 8x
Moody’s: December 2023
Moody’s affirms Imperial Brands’ Baa3 (long-term issuer and senior unsecured debt) ratings while changing its outlook from stable to positive2. Moody’s notes that the outlook upgrade is based on Imperial’s steady earnings growth, strong free cash flow (supported by the high margins in combustible tobacco business) and reduction of (company-defined) net leverage towards the lower end of the 2.0x-2.5x target range.
Rationale for positive outlook: At the end of Imperial’s FY23 (Sept 20, 2023), company-defined net leverage of 1.9x translates to Moody’s-adjusted gross leverage of 2.7x. Multi-year deleveraging trend coupled with the leverage below the 3.0x threshold warrants the positive outlook.
In terms of risk factors, Moody’s underlines elevated social & regulatory risks (associated with the tobacco industry) as well as the limited progress (vis-à-vis peers) made in transformation to more sustainable, potentially reduced-risk tobacco products (i.e. only 3.3% of total tobacco net revenue and loss making).
Each of the following factors should be be achieved for an upgrade:
– Sustained organic revenue and earnings growth, with price increases more than offsetting declining volumes in combustibles and expectations of sustained positive momentum from NGP
– Debt/EBITDA remaining sustainably comfortably below 3x
– Tobacco operating margins maintained above 40%
– RCF/net debt of at least 15%
– Prospects of preserving strong liquidity.
One or a combination of the following factors could lead to a downgrade:
– Weakening in business profile either from an acceleration of the pace of declines of combustible volumes, diminished pricing power, significantly weaker operating margins if not more than offset by NGP growth
– RCF/net debt below 10%
– Debt/EBITDA sustained above 3.5x
– Negative free cash flow over an extended period
– Weaker liquidity.
Fitch: September 2023
Fitch Ratings issued a Credit Analysis report for the Global Tobacco companies3: PMI (A/Stable), BAT (BBB/Positive), Altria (BBB/Stable) and Imperial Brands (BBB/Stable). The ratings remain underpinned by strong operational cash flow generation across the industry.
Fitch states that US/UK tobacco companies show solid performance supported by continued good pricing power, along with resilient demand with only moderate volume pressure from weakening consumer purchasing power in some markets. In the medium term. Fitch believes most global tobacco companies to maintain their ability to implement price increases and develop product mixes that compensate for continuous volume declines in the core combustible segment.
Fitch expects smoke-free products – an increasingly material share of revenue for many – to gradually support sector revenue and profit. However, Fitch views the business risk profiles for rated tobacco companies as increasingly differentiated by the development of smoke-free products and notes that the smoke-free products require careful strategic execution to reflect differing and developing consumer tastes and preferences, as well as growing regulatory pressure on non-combustible products in many markets.
Fitch notes that credit rating headroom has improved for PMI with deleveraging on track after its significant Swedish Match acquisition in 2022 and BAT’s deleveraging supports the Positive outlook on the rating.
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