KT&G, Full-Scale Leap as a Global Tobacco Company... Following PMI Agreement, Opens Export Route to the Middle East (Comprehensive)

Agreed to Export Worth 2.2 Trillion Won Over 7 Years
Full-Scale Export Expected from Mid-2nd Quarter
Global E-Cigarette Sales via PMI
Dual Strategy to Become a Global Company

[Asia Economy Reporter Choi Saeng-hye] KT&G has taken a significant step toward establishing itself as a global tobacco company by securing a re-export contract for cigarettes with a Middle Eastern tobacco importer, following its export agreement with Philip Morris International (PMI).

On the 28th, KT&G announced that on the 26th, it signed a re-export contract with Alokozay International, a Middle Eastern tobacco importer, for cigarette exports to the Middle East and CIS countries. The contract amount reaches 2.2576 trillion KRW (approximately 1.8 billion USD), with a contract period of 7 years and 4 months.

Over the past two years, KT&G has experienced sluggish exports to the Middle East due to regional instability and sharp currency fluctuations. Due to delays in the contract with Alokozay, exports to the Middle East, which accounted for 55.5% of total cigarette exports (by volume, excluding the US subsidiary) in 2017, shrank to about 35% in 2018 and 20% last year. Last year, KT&G's cigarette export amount to the Middle East was around 100 to 150 billion KRW.

A KT&G official explained, "The uncertainties in our key overseas markets, which had been stagnant, have been resolved through this contract. The significance lies in the newly established minimum annual purchase quantity clause, which enables securing a stable revenue source over a long period, and it also minimizes risks in our main markets."

Industry experts expect that KT&G will achieve exports worth at least 300 billion KRW annually to the Middle East through this contract. Sim Eun-joo, a researcher at Hana Financial Investment, said, "The 2.2 trillion KRW is a minimum guarantee figure, so the actual amount is likely to be higher." Cho Mi-jin, a researcher at NH Investment & Securities, forecasted, "Shipments to the Middle East will resume from March, and exports will be in full swing from mid-second quarter." The securities industry anticipates that KT&G's export cigarette sales growth rate in the second half of this year will reach about 40%.

On the 29th of last month, Baek Bok-in, President of KT&G (left), and Andre Calantzopoulos, CEO of PMI (right), are taking a commemorative photo after signing a global export-related agreement at the Four Seasons Hotel in Gwanghwamun, Seoul.

Earlier, on the 29th of last month, KT&G declared its global market entry for its heated tobacco product 'Lil' through an electronic cigarette export contract with PMI, the world's number one tobacco company. KT&G supplies the 'Lil' product to PMI, which sells it worldwide except in Korea. The initial contract period is three years, with plans to establish a long-term partnership if performance is favorable. The profit-sharing structure involves PMI generating profits from sales, while KT&G receives payment and royalties based on the supply price.

KT&G plans to achieve a higher leap in its global business through a dual strategy of supplying both heated and electronic cigarettes by securing this general cigarette supply contract for the Middle East and collaborating with PMI.

A KT&G official stated, "We aim to become one of the 'Global Big 4' companies by 2025 and are targeting overseas markets to complete a balanced domestic and international business portfolio. We plan to expand the number of countries we operate in from about 80 currently to over 100 this year through aggressive new market development."

This content was produced with the assistance of AI translation services.