March 14, 2013 / 5:31 PM / in 5 years

Fitch Assigns Philip Morris International's Unsecured Bond Issue 'A'

(The following statement was released by the rating agency) LONDON, March 14 (Fitch) Fitch Ratings has assigned Philip Morris International's (PMI; 'A'/Stable/'F1') EUR1.25bn seven-year and EUR0.75bn 12-year notes issue a senior unsecured rating of 'A'. KEY RATING DRIVERS: International Leader The ratings reflect PMI's position as the leading company in the global tobacco industry (excluding the US and China), supported by the diversity of its portfolio of brands and the countries in which it operates. PMI enjoys large market shares and pricing leadership in many of the world's most profitable and growing tobacco markets, with superior diversification across continents. Geographical Diversity Protects Volumes PMI's presence in developing markets, where populations are growing and the incidence of smoking remains high, is key to its ability to protect volumes in an industry characterised by declining consumption in the developed world. Regulatory Pressures Continue The ratings also factor in increasing regulation of tobacco companies. This includes the gradual extension, sponsored by the World Health Organization, of smoking and advertising restrictions, as well as higher excise duty regimes, to the historically less regulated, developing markets of Eastern Europe, Asia and Latin America. Australia's legislation imposing plain packages from December 2012 could have adverse effects on pricing power and volumes if it is replicated on a wider scale across the world. Price Increases Boost Profit PMI has been able to consistently increase its prices in several markets and deliver positive organic revenue and profit momentum despite some years of contraction in volumes. Operating profit grew organically by close to 10% a year on average over 2008-2012. Financial Policies Aligned With Rating PMI's cash flow continues to demonstrate considerable stability at USD8bn-9bn (FCF before dividend payments and excluding working-capital movements) a year. The extent to which PMI allocates cash flow to shareholders or M&A is the main driver of leverage. During 2008-2012 dividends grew by over 10% a year and annual share buyback disbursements increased from USD5.0bn-USD5.5bn to USD6.5bn in 2012. Fitch expects these policies to continue, with share buyback spending fractionally reducing to USD6bn pa for 2013-2014. At the same time, the agency expects little M&A activity. Limited Rating Pressure Fitch projects lease and put option (in relation to the 20% owned by a minority shareholder in Mexican subsidiary Grupo Carso) adjusted debt to EBITDAR should remain over 2013-2014 at 2012's level of between 1.6x and 1.8x. This is acceptable for the current 'A' rating. RATING SENSITIVITIES: Positive: Although Fitch does not currently expect management to pursue financial policies that would be commensurate with an upgrade, future developments that could lead to positive rating actions include: - Maintaining gross adjusted leverage sustainably below 1.3x-1.4x - Maintaining the current level of profitability and FCF generation in the absence of shocks derived from far more stringent regulation Negative: Future developments that could lead to negative rating action include: - Spending on acquisitions or share buybacks, combined with an impaired rate of growth for revenue and profit that move gross adjusted leverage above 2.0x - A materially adverse judgment by a court after all appeals processes requiring PMI to pay a large amount of money as compensation following tobacco litigation Contact: Principal Analyst Ching Mei Chia Director +44 20 3530 1068 Supervisory Analyst Giulio Lombardi Senior Director +39 02 8790 872 14 Fitch Italia SpA 1, Vicolo Santa Maria alla Porta 20123 Milan Committee Chair Pablo Mazzini Senior Director +44 20 3530 1021 Media Relations: Mark Morley, London, Tel: +44 203 530 1526, Email: Additional information is available on For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria, 'Corporate Rating Methodology', dated 8 August 2012, are available at Applicable Criteria and Related Research Corporate Rating Methodology here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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