Credit Ratings: Philip Morris International

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Moody’s: November 2023

Moody’s affirms Philip Morris International’s A2 long-term issuer and senior unsecured debt ratings1. The outlook remains Stable.

Moody’s notes that

– PMI is making good strategic progress in smoke-free products (now more than 35% of revenues)

– Strong pricing power is more than offsetting the long-term systemic volume decline in combustibles

– Growth is particularly strong for ZYN nicotine pouches (providing a strong platform for IQOS ILUMA launch in the US)

– Top- & bottom-line growth momentum is to be maintained in 2024/25 (on FX-neutral basis).

Due the notable strength of the US$, PMI’s EBITDA will be lower and debt will be somewhat higher than the expectations set a year ago. Moody’s now expects the adjusted gross leverage to return to around 2.5x at the end of 2025 – a year later than previously expected. High dividend pay-out leaves limited scope for debt reduction (i.e. slower deleveraging) and means that PMI is weakly positioned in the A2 rating category.

In light of the relatively elevated leverage arising from the Swedish Match acquisition, an upgrade is unlikely in the foreseeable future:

– Debt/EBITDA below 1.5x, FFO/Net Debt above 30% (or RCF/Net Debt in the mid-teens) and EBITDA margins above 40% are the prerequisites for an upgrade

– Lack of improvements in credit metrics over the course of the next two years (Debt/EBITDA to around 2.5x and RCF/Net Debt to around 10%) could lead to a downgrade.

Fitch: September 2023

Fitch Ratings issued a Credit Analysis report for the Global Tobacco companies2: 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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