Tobacco unit posts best-ever quarterly earnings; operating margin at 32.6%

Company targets 75% dividend payout ratio by 2030 with 5 trillion won-plus return plan

KT&G held an IR session and Capital Markets Day on Thursday to present its third-quarter earnings and outline its shareholder return plan and business strategy. KT&G President Bang Kyung-man announces the shareholder return plan at the event. [KT&G]
KT&G held an IR session and Capital Markets Day on Thursday to present its third-quarter earnings and outline its shareholder return plan and business strategy. KT&G President Bang Kyung-man announces the shareholder return plan at the event. [KT&G]

KT&G posted all-time quarterly records for both sales and operating profit in the third quarter, powered by steady growth in its core tobacco business and a profitability-focused strategy. The company said it would channel the strong earnings into a shareholder return program of more than 5 trillion won ($3.73 billion) over the next four years.

Record quarterly earnings, stronger shareholder returns

At an IR event Thursday, KT&G said its consolidated third-quarter sales rose 4.3 percent year-on-year to 1.91 trillion won, while operating profit climbed 13.9 percent to 530.1 billion won — both all-time highs on a quarterly basis.

The tobacco segment led the way. Tobacco sales rose 6 percent year-on-year to 1.31 trillion won, and operating profit grew 14.4 percent to 425.5 billion won. The operating margin expanded 2.4 percentage points to 32.6 percent.

Particularly notable was the overseas cigarette business, which posted simultaneous growth in volume, sales and profit for 10 consecutive quarters, setting new all-time quarterly records for both units sold and revenue. The next-generation product (NGP) segment maintained its No. 1 domestic market share while increasing the proportion of higher-priced sticks, contributing to profitability-driven growth.

Subsidiary KGC's health functional food business also showed solid momentum. Sales rose 3.4 percent year-on-year to 372.2 billion won, and operating profit increased 12.2 percent to 80.1 billion won.

KT&G President Bang Kyung-man unveiled a new medium- to long-term shareholder return plan at the Capital Markets Day held Thursday for capital market participants. The plan centers on directing profits generated by sustained earnings growth in core businesses primarily toward shareholder returns.

Under the plan, KT&G will raise its annual dividend per share this year by 2,000 won to 8,000 won, a 33.3 percent increase. The company also plans to lift its dividend payout ratio from the current level of around 60 percent to more than 75 percent by 2030.

KT&G will also carry out 1.2 trillion won in share buyback and cancellation over four years starting next year. Including dividends, total shareholder returns will reach 5 trillion won. The company said it would also consider special returns if it determines that additional shareholder value enhancement is warranted.

Full-year sales seen at 7 trillion won; overseas push to accelerate

Bang projected full-year group sales of 7 trillion won and operating profit of 1.5 trillion won this year. KT&G will aggressively expand its overseas presence by strengthening competitiveness across its key businesses — overseas cigarettes, NGP and health functional food. The company set 2030 targets of raising the overseas share of cigarette sales above 70 percent, lifting NGP's share of tobacco sales above 30 percent, and pushing the overseas share of health functional food sales above 30 percent.

To achieve those goals, KT&G plans to drive sales in its overseas cigarette business through strategic price increases for core brands such as ESSE and a higher mix of premium products. The company also intends to actively pursue potential markets in some 30 countries where it has yet to establish a presence.

In addition, KT&G plans to cut cumulative costs by more than 550 billion won over the next four years by optimizing its global production network, including through the completion of a new factory in Indonesia last month.

To boost overseas sales of heated tobacco products within its NGP business, KT&G will pursue both global partnerships and independent direct operations in local markets. For LOOP, the brand of Swedish nicotine pouch maker ASF — acquired at the end of last year — the company aims to enter about 70 countries by 2030, including the United States, the world's largest nicotine pouch market.

KGC plans to increase its overseas revenue share by expanding into red ginseng ingredient sales alongside its existing Cheong Kwan Jang product line. The subsidiary is currently in discussions with global food and beverage and beauty companies on technology partnerships and joint product development.

"Through the advancement and global expansion of our three growth pillars — overseas cigarettes, NGP and health functional food — we will achieve profitability-driven growth, not merely higher sales," Bang said. "We will enhance shareholder value by delivering world-class shareholder returns, underpinned by sustained profit growth."


spa@heraldcorp.com