Fitch Affirmed the Ratings of Philip Morris International

Source from:  Tobacco World 06/26/2012

Fitch Ratings has affirmed (PMI) Philip Morris International Inc in the long-term issuer default rating (IDR) and senior unsecured rating at'A'and Short-term IDR at"F1". The outlook on the long-term IDR is stable. Approval and a stable outlook reflects continuing competitive PMI, strength and ability to consistently increase profits, despite the decline in cigarette consumption in the world market of tobacco products (except for China and the U.S.). Other factors contributing to the PMI, 'A' IDR is its EBITDA margin of 46% of healthy work, which has risen steadily over time, and significant pre-dividend free cash flow (FCF) generation (USD9.0bn in 2011). Fitch notes that the operations of PMI, are exposed to stagnant / decline in cigarette consumption and the continuation of regulation and taxation, despite the pressure-balanced exposure to mature and emerging markets. Fitch expects that, with the exception of China and the U.S., the global consumption duty-paid cigarettes is reduced on average by 0.7% per year over the period 2006-2011, with the reduction to be more severe in 2009 and 2010, when the global economy is weaker. These concerns, however, also demonstrated the ability relaxed PMI, to raise prices and income growth of 6% -8% a year from higher prices and improved product mix in the same period. The Agency considers these areas as sustainable in the medium term, and takes comfort from the consolidated nature of the industry, as well as record producer price growth, which is usually accompanied by a gradual increase of any excise tax imposed by governments. Regulatory changes will also continue to put pressure on tobacco consumption. However, while Fitch believes that the impact of smoking bans, ban storefront and graphic health warnings on the consumption of well-run industry, she warns that the law simply packing - to come into force in December 2012 in Australia - can be more difficult, if widely adopted around the world. Operations PMI in Australia is small in the context of the consolidated profit and the industry is currently mounting a legal problem in a simple package of legislation. The extent and timing with which such a law could be a serious challenge to the global PMI is therefore not clear at this point, and the agency does not take into account the risk in their rankings. The annual FCF PMI before the dividend payment (not including working capital movements in order to smooth out the volatility is determined by accumulating stocks ahead of the increase in excise duty) showed high stability, the average USD7bn year in 2008-2010 and then increased significantly in 2011. The financial profile of PMI remains strong and stable, despite significant benefits to shareholders through dividends and share repurchases. The latter will be increased to USD6bn a year (with a USD5.0 to USD5.5bn) for 2012-2014. However, Fitch takes comfort from the historical stability of PMI, which is the gross rent, pensions, and the option adjusted / operating EBITDARP basis remains between 1,3-1.5 x between 2009 and 2011, and the agency projects will grow only slightly above this level during 2012 -2014 years. The update will depend on the maintenance of the adjusted gross leverage sustained below 1.3x-1.4x, as well as maintaining the current level of profitability and FCF generation in the absence of shocks on the basis of more stringent regulation. Fitch does not expect but is now managing to carry out monetary policy, which would be commensurate with the update. Expenditures for the purchase or redemption of shares, combined with the growth rate of revenues and profits, which move the adjusted gross leverage above 2.0, would be negative for the ratings. Material adverse judgment after all appeals processes that require PMI to pay a large sum of money as compensation after the court of tobacco will also be considered a negative rating factor. Enditem