"KT&G's 2Q Operating Profit Down 26% Despite Dedicated Growth, Slowed by Rising Costs (Comprehensive)"

Sales of 1.336 Trillion KRW, Operating Profit of 242.9 Billion KRW... Down 6% and 26% Respectively
First Ever Interim Dividend Implemented... 300 Billion KRW Scale Share Buyback and Cancellation

KT&G's sales volume of heated tobacco product (NGP) sticks, a core future growth engine in the second quarter of this year, continued to grow significantly both domestically and internationally, expanding its market influence. However, overall performance showed some weakness due to cost increases caused by global inflation and short-term declines in real estate performance.

KT&G announced on the 3rd through a public disclosure that its consolidated operating profit for the second quarter of this year was tentatively estimated at 242.881 billion KRW, down 25.9% compared to the same period last year. Sales during the same period decreased by 5.7% to 1.3359 trillion KRW, and net profit fell 41.3% to 199.03 billion KRW.

Looking at each business segment, the core tobacco business (cigarettes and NGP) showed some slowdown. KT&G’s tobacco business sales in the second quarter were 888.1 billion KRW, down 5.7% from 941.5 billion KRW in the same period last year. Domestic cigarette sales volume declined amid an expanding overall demand decrease, resulting in sales of 426.6 billion KRW, down 2.0%. One-time issues such as temporary sales suspension and voluntary recall of some products also had an impact.

Overseas cigarette sales also slightly decreased by 1.3% to 265.5 billion KRW. Sales declined due to a base effect caused by a sharp tax increase following the entry into the highest tax bracket, triggered by increased sales volume of the Indonesian subsidiary. Export cigarette sales increased 6.0% to 152.9 billion KRW through price hike policies in key regions such as the Middle East and Latin America.

The sales volume of sticks in the NGP business, a heated tobacco product, reached 3.63 billion units, showing a strong growth of 43.5% compared to the same period last year. In particular, overseas NGP stick sales volume grew 72.7% year-on-year to 2.21 billion units, driven by increased local demand. However, due to a high base effect from the proactive expansion of device export volumes caused by global supply chain issues last year, global sales declined, resulting in total NGP sales shrinking 17.7% year-on-year to 190 billion KRW.

Sales in the health functional food (health supplement) business segment recorded 260.8 billion KRW, down 2.2% from 266.6 billion KRW in the same period last year. Domestic sales decreased from 215.7 billion KRW to 193.9 billion KRW, shrinking overall sales. However, overseas health supplement sales led overall growth with a high growth rate in the core Chinese market, achieving 66.9 billion KRW, up 31.4% year-on-year. The global sales ratio also expanded from 19.1% in the same period last year to 25.7%.

Meanwhile, KT&G announced that in accordance with the medium- to long-term shareholder return policy announced in 2021, it plans to acquire treasury shares worth approximately 300 billion KRW (3.47 million shares) within the next three months and immediately cancel all shares upon completion of the purchase. This treasury stock cancellation decision was made for the first time in 14 years since 2009 and corresponds to 2.5% of KT&G’s issued shares.

Additionally, KT&G decided to pay an interim dividend for the first time since its founding. The interim dividend is set at 1,200 KRW per share and is scheduled to be paid by the 23rd of this month. The total dividend per share for the 2023 fiscal year is expected to increase by at least 200 KRW from 5,000 KRW last year.

A KT&G official stated, “In the second half of the year, we will focus on enhancing corporate value by strengthening competitiveness in the group’s three core growth businesses: NGP, overseas cigarettes, and health supplements.” He added, “We plan to announce a new shareholder return policy, including the treasury stock cancellation policy, in the fourth quarter of this year to continuously enhance shareholder value from a medium- to long-term perspective.”

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